Home purchase: how to effectively trade off location & price? (Boston area)

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Topic Author
jstatton
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Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

How does one most efficiently trade off location and price when buying real estate? Obviously some locations are better than others. For the Boston area examples of great locations would be: back bay of boston, cambridge, brookline, belmont, etc. These are great locations but the prices are extremely high proportionate with their location advantage. These locations are out of my price range so I will have to sacrifice location in exchange for reduced price per square foot. How to make this trade off in an intelligent manner?

How far should I stretch that trade off? I am concerned that the further out I move the lower the appreciation rate I will see. I don't want to take this tradeoff *too* far... I want to stay in an in-demand location.

The appreciation rates differ significantly. Further out from Boston the lower the appreciation rate. Here is some example data from Zillow

(According to the Zillow home value index from 12/2008 -> 12/2018)

Belchertown, MA (western mass - WAY out)
12% increase - lost out to inflation

Medway, MA (30 miles out)
27% increase - break even with inflation

Natick, MA (15 miles out)
53% increase - solidly beat inflation

Newton, MA (10 miles out)
64% increase - solidly beat inflation

Brookline, MA (3 miles out)
76% increase - significantly beat

Boston, MA (0 miles out
82% increase - significantly beat

A clear trend showing appreciation declines as you go outward from the core of Boston. By the time you get out to western mass you are essentially at background levels of appreciation rates which according to the studies are basically keeping up with inflation (i.e. not good). The lose to inflation for Belchertown is probably due to the artificially high starting point of 2008.

495 (Medway) barely kept up with inflation - about even. Would have been a slight beat if not for the downturn (see above).

Once you get in closer to the 128 belt (Natick) appreciation starts to pick up. 53% gain in 10 years is pretty good... That beats inflation easily.

The closer in towns (Newton, Brookline, Boston) the appreciation is simply off the charts. Significant real gains there. Will it last? No idea. It is clear that there is very high demand to live in these areas.

Based on this data, I'm inclined to throw out 495 from contention and focus on towns in the Natick area or closer. The appreciation rate is so much lower in the 495 towns. The question is do i pay up and try to get into a town closer in than Natick. Such as a Newton. But unfortunately my budget only affords a starter home in that town which would be 800k-1M. Do i go for the starter home in Newton or the nicer home in Natick? 800 could get you a forever home in Natick which potentially could be fewer transaction costs down the road. Or will the higher appreciation rate in Newton offset any transaction costs down the road?

What is the best strategy to use when trading off location for lower price per square foot?
Last edited by jstatton on Sun Dec 23, 2018 9:50 am, edited 1 time in total.
marielake
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by marielake »

Define your priorities. Sounds like appreciation rates are #1 for you. You are looking in the western suburbs. Have you looked on the North Shore?

When I was house hunting in the area, commuter access was key as was a "nice" community. Realtor drew a map showing all the commuter lines and homes in my low price range. The nicest house that met my criteria was on a busy street, but walkable to train. Realtor told me I could have good location or a nice house. I chose the nice house on a busy street. It was in Reading. Lived there 2 years. House sold quickly and with good appreciation. Depending on your criteria, you might want to expand your radius beyond western suburbs.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

marielake wrote: Thu Dec 20, 2018 5:48 pm Define your priorities. Sounds like appreciation rates are #1 for you. You are looking in the western suburbs. Have you looked on the North Shore?

When I was house hunting in the area, commuter access was key as was a "nice" community. Realtor drew a map showing all the commuter lines and homes in my low price range. The nicest house that met my criteria was on a busy street, but walkable to train. Realtor told me I could have good location or a nice house. I chose the nice house on a busy street. It was in Reading. Lived there 2 years. House sold quickly and with good appreciation. Depending on your criteria, you might want to expand your radius beyond western suburbs.
Looks like Reading performed similar to Natick.

51% gain in last 10 years. Similar distance to Boston. I like this town too, i will consider it.

All things being equal, i'd prefer a western location. I think a western location is more optimal with the radial highways around boston and the fact to the east of boston is ocean. From a western location you can more easily get to areas north or south. From the north shore its a bitch to get to the south shore.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by adamthesmythe »

jstatton wrote: Thu Dec 20, 2018 5:18 pm What is the best strategy to use when trading off location for lower price per square foot?
As noted, you seem focused on appreciation. But how about commute time? All the things that fall under the category of "neighborhood?" Schools? Taxes?

I think you have to look at what you get in different neighborhoods, and then make tradeoffs in a complex, partly intuitive, non-mathematical way.

And to be honest...don't think about price per square foot, think about quality and livability per dollar.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by ResearchMed »

adamthesmythe wrote: Thu Dec 20, 2018 6:29 pm
jstatton wrote: Thu Dec 20, 2018 5:18 pm What is the best strategy to use when trading off location for lower price per square foot?
As noted, you seem focused on appreciation. But how about commute time? All the things that fall under the category of "neighborhood?" Schools? Taxes?

I think you have to look at what you get in different neighborhoods, and then make tradeoffs in a complex, partly intuitive, non-mathematical way.

And to be honest...don't think about price per square foot, think about quality and livability per dollar.
Right.

"Appreciation" will in the end depend upon more than just the factors you are mentioning. It will also depend in great part on the state of the real estate market in the region (and the overall economy).

Why not focus on your "living experience", since that is what a home is really about, actually.

To a great extent for many of us, that becomes a trade-off between "house size/quality/etc." and "location", where location includes both the general local measures (including things like safety, school quality etc.) and your specific commuting time/convenience.
These are things you'll be dealing with constantly while you live there.

There might be a lot of "potential appreciation" in getting a really run down property and spending lots of time (and money) to fix it up, but... is that what you want for a "home"?

RM
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by Jack FFR1846 »

Are you from the area? Belchertown?

Taking 08 to 18 includes the big downturn of 08 which hit the region pretty hard. But not all areas. I know in my town (Hopkinton, 26 miles, 385 yards west of Copley Square), the appreciation was not all that high. Why? We were not hit all that bad. Not the rash of foreclosures seen in other areas. Lots of families upgrading within the town and refusing to sell their 60's ranch for a song. Instead, they enjoyed the bargain McMansion they could finally afford and waited (for years) until prices came up to where they'd break even on the ranch. Without the big drop, there wasn't the big correction.

If you're looking for similar appreciation, are you planning to wait until the housing market goes into an 08 type recession again, time the bottom and buy a foreclosure, then wait 10 years?
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

Jack FFR1846 wrote: Thu Dec 20, 2018 6:56 pm Are you from the area? Belchertown?

Taking 08 to 18 includes the big downturn of 08 which hit the region pretty hard. But not all areas. I know in my town (Hopkinton, 26 miles, 385 yards west of Copley Square), the appreciation was not all that high. Why? We were not hit all that bad. Not the rash of foreclosures seen in other areas. Lots of families upgrading within the town and refusing to sell their 60's ranch for a song. Instead, they enjoyed the bargain McMansion they could finally afford and waited (for years) until prices came up to where they'd break even on the ranch. Without the big drop, there wasn't the big correction.

If you're looking for similar appreciation, are you planning to wait until the housing market goes into an 08 type recession again, time the bottom and buy a foreclosure, then wait 10 years?
I'm not following your logic.

Yes, the 08 -> 18 time frame included the crash. The bottom of the crash was not in 2008... not even close. It was in 2011/2012.

Hopkinton has gone up 28% according to the Zillow index from 2008->2018

Are you saying that Hopkinton hasn't appreciated as much because the other towns mentioned were hit hard and therefore we at artificially low valuations at the 2008 endpoint of the range? That does not make sense because the towns that I mentioned that appreciated more (Newton for example) were hit even less hard than Hopkinton in the last crash. In fact as a general guide, the closer your proximity was to Boston the less hard you got hit. In general any town along 495 or closer didn't get hit hard...

Can you clarify your reasoning.

If anything, it is impressive that newton returned 60%+ from 2008->2018.. Prices were elevated and years away from bottom in 2008...
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

adamthesmythe wrote: Thu Dec 20, 2018 6:29 pm
jstatton wrote: Thu Dec 20, 2018 5:18 pm What is the best strategy to use when trading off location for lower price per square foot?
As noted, you seem focused on appreciation. But how about commute time? All the things that fall under the category of "neighborhood?" Schools? Taxes?

I think you have to look at what you get in different neighborhoods, and then make tradeoffs in a complex, partly intuitive, non-mathematical way.

And to be honest...don't think about price per square foot, think about quality and livability per dollar.
Commute time proportionate with the appreciation numbers i showed in the post. The further you go out, the longer the commute, the lower the appreciation.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by bluebolt »

Have you considered closer in, "up & coming" towns? Arlington, Watertown, West Roxbury, etc.

Those were places a lot of people wouldn't have considered 15-20 years ago, but homes are better values vs. surrounding towns. To be fair, the value has changed pretty dramatically (for the worse) in the past 15-20 years as people have moved there because they were priced out of the nearby markets.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by aristotelian »

Appreciation only matters if you sell. If this is short term purchase, that would be a concern. If this is a forever home, I would go for highest quality of life.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by RickBoglehead »

I would be concerned in using Zillow valuations for anything.

Quality of life includes commute. If one works in Boston, being located on the train or subway line matters.

Quality of home - size, amenities, neighborhood, schools, ... should be criteria you focus on.

Looking at a home as an investment, like a stock, is no longer valid IMO.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by runner540 »

jstatton wrote: Thu Dec 20, 2018 5:18 pm How does one most efficiently trade off location and price when buying real estate? Obviously some locations are better than others. For the Boston area examples of great locations would be: back bay of boston, cambridge, brookline, belmont, etc. These are great locations but the prices are extremely high proportionate with their location advantage. These locations are out of my price range so I will have to sacrifice location in exchange for reduced price per square foot. How to make this trade off in an intelligent manner?

How far should I stretch that trade off? I am concerned that the further out I move the lower the appreciation rate I will see. I don't want to take this tradeoff *too* far... I want to stay in an in-demand location.

The appreciation rates differ significantly. Further out from Boston the lower the appreciation rate. Here is some example data from Zillow

(According to the Zillow home value index from 12/2008 -> 12/2018)

Belchertown, MA (western mass - WAY out)
12% increase - lost out to inflation

Medway, MA (30 miles out)
27% increase - break even with inflation

Natick, MA (15 miles out)
53% increase - solidly beat inflation

Newton, MA (10 miles out)
64% increase - solidly beat inflation

Brookline, MA (3 miles out)
76% increase - significantly beat

Boston, MA (0 miles out
82% increase - significantly beat

A clear trend showing appreciation declines as you go outward from the core of Boston. By the time you get out to western mass you are essentially at background levels of appreciation rates which according to the studies are basically keeping up with inflation (i.e. not good). The lose to inflation is probably due to the artificially high starting point of 2008.

495 (Medway) barely kept up with inflation - about even. Would have been a slight beat if not for the downturn.

Once you get in closer to the 128 belt (Natick) appreciation starts to pick up. 53% gain in 10 years is pretty good... That beats inflation easily.

The closer in towns (Newton, Brookline, Boston) the appreciation is simply off the charts. Significant real gains there. Will it last? No idea. It is clear that there is very high demand to live in these areas.

Based on this data, I'm inclined to throw out 495 from contention and focus on towns in the Natick area or closer. The appreciation rate is so much lower in the 495 towns. The question is do i pay up and try to get into a town closer in than Natick. Such as a Newton. But unfortunately my budget only affords a starter home in that town which would be 800k-1M. Do i go for the starter home in Newton or the nicer home in Natick? 800 could get you a forever home in Natick which potentially could be fewer transaction costs down the road. Or will the higher appreciation rate in Newton offset any transaction costs down the road?

What is the best strategy to use when trading off location for lower price per square foot?
To me this is a weird way to analyze it. Usually the tradeoffs are space and quality versus commute time, for a specific dollar amount. I would be looking at what is my budget and what does that get me? $xxx = 2 BR condo with 15 min commute, 3 BR dated house with 30 min commute, or 4 BR new build with 45 min commute.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

aristotelian wrote: Sun Dec 23, 2018 7:27 am Appreciation only matters if you sell. If this is short term purchase, that would be a concern. If this is a forever home, I would go for highest quality of life.
I intend to sell in ~ 20 years.

Appreciation matters, especially over a 20 year time period.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

bluebolt wrote: Sun Dec 23, 2018 4:48 am Have you considered closer in, "up & coming" towns? Arlington, Watertown, West Roxbury, etc.

Those were places a lot of people wouldn't have considered 15-20 years ago, but homes are better values vs. surrounding towns. To be fair, the value has changed pretty dramatically (for the worse) in the past 15-20 years as people have moved there because they were priced out of the nearby markets.
Arlington is great but believe it or not, arlington is nearly on par with Newton, Wellesley, Lexington, etc. in terms of price per square foot. it is around 500 a square foot with intense bidding wars.

800k basically gets you a starter home in arlington.

Watertown I would not consider since the schools are a 5/10. School improvement is something that would take decades. Might be 20 years or more before its a 7/10.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

RickBoglehead wrote: Sun Dec 23, 2018 8:19 am I would be concerned in using Zillow valuations for anything.

Quality of life includes commute. If one works in Boston, being located on the train or subway line matters.

Quality of home - size, amenities, neighborhood, schools, ... should be criteria you focus on.

Looking at a home as an investment, like a stock, is no longer valid IMO.
Why is looking at a home as an investment no longer valid?

Why should i ignore the reality that Boston area home prices have outpaced inflation for 30+ years?
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by ResearchMed »

jstatton wrote: Sun Dec 23, 2018 9:09 am
RickBoglehead wrote: Sun Dec 23, 2018 8:19 am I would be concerned in using Zillow valuations for anything.

Quality of life includes commute. If one works in Boston, being located on the train or subway line matters.

Quality of home - size, amenities, neighborhood, schools, ... should be criteria you focus on.

Looking at a home as an investment, like a stock, is no longer valid IMO.
Why is looking at a home as an investment no longer valid?

Why should i ignore the reality that Boston area home prices have outpaced inflation for 30+ years?
Because that's no guarantee that "Boston" area home prices will continue to do that. Maybe they are so far ahead ("outpaced inflation for 30+ years") that they'll stagnate.

And why ever are you including Belchertown?
Are you REALLY considering that as an option?
Your list/description/reasons are ... odd for a family home...

You will be spending a HUGE amount of time in you "home" - as will ALL the other members of your family (and ditto school time, if children). And you personally might end up with a huge amount of commuting time (perhaps spouse, too). And children (if any)... school quality can matter...

NO one knows which cities/regions/city neighborhoods will do better in the future. No one. The past may be very misleading.

Having your family flourish in the near future, for most people, is far more important than home appreciation in 30 years, especially as it is NOT a given. (And you can always move in 10 years if you wish, etc., of course.)

RM
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

ResearchMed wrote: Sun Dec 23, 2018 9:25 am
jstatton wrote: Sun Dec 23, 2018 9:09 am
RickBoglehead wrote: Sun Dec 23, 2018 8:19 am I would be concerned in using Zillow valuations for anything.

Quality of life includes commute. If one works in Boston, being located on the train or subway line matters.

Quality of home - size, amenities, neighborhood, schools, ... should be criteria you focus on.

Looking at a home as an investment, like a stock, is no longer valid IMO.
Why is looking at a home as an investment no longer valid?

Why should i ignore the reality that Boston area home prices have outpaced inflation for 30+ years?
Because that's no guarantee that "Boston" area home prices will continue to do that. Maybe they are so far ahead ("outpaced inflation for 30+ years") that they'll stagnate.

And why ever are you including Belchertown?
Are you REALLY considering that as an option?
Your list/description/reasons are ... odd for a family home...

You will be spending a HUGE amount of time in you "home" - as will ALL the other members of your family (and ditto school time, if children). And you personally might end up with a huge amount of commuting time (perhaps spouse, too). And children (if any)... school quality can matter...

NO one knows which cities/regions/city neighborhoods will do better in the future. No one. The past may be very misleading.

Having your family flourish in the near future, for most people, is far more important than home appreciation in 30 years, especially as it is NOT a given. (And you can always move in 10 years if you wish, etc., of course.)

RM
Belchertown was included to emphasize that appreciation rates drop quickly to background levels once you get far enough out from Boston. Where do they reach background levels? Probably a few towns west of 495. Belchertown is an extreme example.

You are right, there is no guarantee Boston area home prices will continue. There is also no guarantee the S&P500 will continue going up in the next 20 years.. It might be lower in 20.

The more interesting question is which location has the highest probability to increase in value in the next 20 years?

Do you honestly think that all areas (all coordinates within the continental USA) have equal probabilities to appreciate going forward? Do you think Belchertown, MA has the same odds to appreciate as Newton, MA?
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by ResearchMed »

jstatton wrote: Sun Dec 23, 2018 9:47 am
ResearchMed wrote: Sun Dec 23, 2018 9:25 am
jstatton wrote: Sun Dec 23, 2018 9:09 am
RickBoglehead wrote: Sun Dec 23, 2018 8:19 am I would be concerned in using Zillow valuations for anything.

Quality of life includes commute. If one works in Boston, being located on the train or subway line matters.

Quality of home - size, amenities, neighborhood, schools, ... should be criteria you focus on.

Looking at a home as an investment, like a stock, is no longer valid IMO.
Why is looking at a home as an investment no longer valid?

Why should i ignore the reality that Boston area home prices have outpaced inflation for 30+ years?
Because that's no guarantee that "Boston" area home prices will continue to do that. Maybe they are so far ahead ("outpaced inflation for 30+ years") that they'll stagnate.

And why ever are you including Belchertown?
Are you REALLY considering that as an option?
Your list/description/reasons are ... odd for a family home...

You will be spending a HUGE amount of time in you "home" - as will ALL the other members of your family (and ditto school time, if children). And you personally might end up with a huge amount of commuting time (perhaps spouse, too). And children (if any)... school quality can matter...

NO one knows which cities/regions/city neighborhoods will do better in the future. No one. The past may be very misleading.

Having your family flourish in the near future, for most people, is far more important than home appreciation in 30 years, especially as it is NOT a given. (And you can always move in 10 years if you wish, etc., of course.)

RM
Belchertown was included to emphasize that appreciation rates drop quickly to background levels once you get far enough out from Boston. Where do they reach background levels? Probably a few towns west of 495. Belchertown is an extreme example.

You are right, there is no guarantee Boston area home prices will continue. There is also no guarantee the S&P500 will continue going up in the next 20 years.. It might be lower in 20.

The more interesting question is which location has the highest probability to increase in value in the next 20 years?

Do you honestly think that all areas (all coordinates within the continental USA) have equal probabilities to appreciate going forward? Do you think Belchertown, MA has the same odds to appreciate as Newton, MA?
Nope, of course.
But are those two towns really comparable for your purpose (current housing or near future housing)?
Silicon Valley area has *really* taken off. But that's also irrelevant for your purposes.

But I also don't think that "Boston" will necessarily appreciate better than, say, Wellesley or even Watertown (which might be like Arlington was 20-30 years ago - just hypothesizing about that).
My point is, "who knows?"
In the meantime, it IS possible to figure which city/neighborhood is likely to have the best living environment for you/your family's benefit in the near/medium future. Not guaranteed, but a much better guess AND with VERY important impact, than far future house appreciation.

Same thing for Seattle, etc. It's nothing specific about Boston, except the exact names/locations of the cities/neighborhoods.

RM
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by Call_Me_Op »

You know what they say about past performance....

I think you are using the wrong metrics. Determine what you want to be close to (work, family?) and find an affordable and decent location in close proximity.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

ResearchMed wrote: Sun Dec 23, 2018 9:56 am
jstatton wrote: Sun Dec 23, 2018 9:47 am
ResearchMed wrote: Sun Dec 23, 2018 9:25 am
jstatton wrote: Sun Dec 23, 2018 9:09 am
RickBoglehead wrote: Sun Dec 23, 2018 8:19 am I would be concerned in using Zillow valuations for anything.

Quality of life includes commute. If one works in Boston, being located on the train or subway line matters.

Quality of home - size, amenities, neighborhood, schools, ... should be criteria you focus on.

Looking at a home as an investment, like a stock, is no longer valid IMO.
Why is looking at a home as an investment no longer valid?

Why should i ignore the reality that Boston area home prices have outpaced inflation for 30+ years?
Because that's no guarantee that "Boston" area home prices will continue to do that. Maybe they are so far ahead ("outpaced inflation for 30+ years") that they'll stagnate.

And why ever are you including Belchertown?
Are you REALLY considering that as an option?
Your list/description/reasons are ... odd for a family home...

You will be spending a HUGE amount of time in you "home" - as will ALL the other members of your family (and ditto school time, if children). And you personally might end up with a huge amount of commuting time (perhaps spouse, too). And children (if any)... school quality can matter...

NO one knows which cities/regions/city neighborhoods will do better in the future. No one. The past may be very misleading.

Having your family flourish in the near future, for most people, is far more important than home appreciation in 30 years, especially as it is NOT a given. (And you can always move in 10 years if you wish, etc., of course.)

RM
Belchertown was included to emphasize that appreciation rates drop quickly to background levels once you get far enough out from Boston. Where do they reach background levels? Probably a few towns west of 495. Belchertown is an extreme example.

You are right, there is no guarantee Boston area home prices will continue. There is also no guarantee the S&P500 will continue going up in the next 20 years.. It might be lower in 20.

The more interesting question is which location has the highest probability to increase in value in the next 20 years?

Do you honestly think that all areas (all coordinates within the continental USA) have equal probabilities to appreciate going forward? Do you think Belchertown, MA has the same odds to appreciate as Newton, MA?
Nope, of course.
But are those two towns really comparable for your purpose (current housing or near future housing)?
Silicon Valley area has *really* taken off. But that's also irrelevant for your purposes.

But I also don't think that "Boston" will necessarily appreciate better than, say, Wellesley or even Watertown (which might be like Arlington was 20-30 years ago - just hypothesizing about that).
My point is, "who knows?"
In the meantime, it IS possible to figure which city/neighborhood is likely to have the best living environment for you/your family's benefit in the near/medium future. Not guaranteed, but a much better guess AND with VERY important impact, than far future house appreciation.

Same thing for Seattle, etc. It's nothing specific about Boston, except the exact names/locations of the cities/neighborhoods.

RM
I agree with you. Watertown is a good investment. Unfortunately i do not want to consider it because i am anticipating needing the schools and i will likely need them well before the town gentrifies enough into a good school district.

I also agree that Boston might not appreciate faster in the next 20years compared to 128 towns like Wellesley. I could envision a scenario where due to overcrowding, small land area, and tight office markets in Boston and Cambridge (office rents are currently at Manhattan levels fyi) development could start spreading out. The radial highway of 128 only 10 miles out of Boston might encourage a "step function" of sorts encouraging development to go back out to 128 and skip the intermediary sprawl. This would obviously benefit 128 towns.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by afan »

You do have to be careful in applying the past appreciation rates to your plans.
This is an unusual situation over an an unusual period.
THe proximity to Boston is a good proxy for how the housing responded during the crash, but it may not have been the driver of these results, at least not in the way you are thinking of it.
The effects of the crash were not felt uniformly across income levels. People in high income fields- doctors, big firm lawyers, finance and consulting (of which there is a lot in Boston), on average did fine. They did not lose their jobs or see their incomes go down.
These people tend to work in Boston itself and need to commute in. These close in areas are expensive for that reason.
So, over a period that was far worse for lower income than upper income regions, the close in suburbs did well. But this was a special set of circumstances. There is no assurance that the results would be the same over, say, a run of bad inflation.

Because the housing is so expensive in these close in areas, buying there forces you to put a large share of your assets on one piece of real estate. That may or may not be a good idea.

The type of economy in Boston also did much better than the nation as a whole in the crash. That will not always be the case. You could invest a huge amount of money in an expensive house near Boston and see a big loss in a recession with different demographic effects.

Do you work in Boston? The payoff to living close in comes from shortening your commute. If you work outside the city then you may not get this advantage.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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jstatton
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

afan wrote: Sun Dec 23, 2018 10:15 am You do have to be careful in applying the past appreciation rates to your plans.
This is an unusual situation over an an unusual period.
THe proximity to Boston is a good proxy for how the housing responded during the crash, but it may not have been the driver of these results, at least not in the way you are thinking of it.
The effects of the crash were not felt uniformly across income levels. People in high income fields- doctors, big firm lawyers, finance and consulting (of which there is a lot in Boston), on average did fine. They did not lose their jobs or see their incomes go down.
These people tend to work in Boston itself and need to commute in. These close in areas are expensive for that reason.
So, over a period that was far worse for lower income than upper income regions, the close in suburbs did well. But this was a special set of circumstances. There is no assurance that the results would be the same over, say, a run of bad inflation.

Because the housing is so expensive in these close in areas, buying there forces you to put a large share of your assets on one piece of real estate. That may or may not be a good idea.

The type of economy in Boston also did much better than the nation as a whole in the crash. That will not always be the case. You could invest a huge amount of money in an expensive house near Boston and see a big loss in a recession with different demographic effects.

Do you work in Boston? The payoff to living close in comes from shortening your commute. If you work outside the city then you may not get this advantage.
The boom in Boston area real estate is due to the huge influx of new scientific and high tech companies into the Boston area. I don't think its related much to Law, medicine, finance etc. I know there are a lot of jobs like that in Boston but did they increase so dramatically as to trigger price increases? I doubt it.

There is a HUGE MASSIVE influx of new "biotech" companies throughout the region centered around Kendall Square but also spreading along 128 and even the pike. There are also tons of smaller high tech software firms sprouting up. The trend for the last 10 years has been toward urban offices. There has been a massive shift where high tech jobs are located. Just 10-15 years ago, the majority were along 128, with maybe 25% in Boston/Cambridge and another 25% along 495 or other areas.

Now 60+% of tech jobs are in Boston/Cambridge. The "big 4" large tech companies have all set up shop there, too. Amazon, Microsoft, Google, Facebook.

That's where your appreciation is coming from... The situation is made worse by the fact east of Boston is an ocean (can't build there) and the Boston area is one of the oldest in the country. Everything inside of 128 is at full build out with land extremely scarce. Even outside of 128 most towns are also at full build out... It's hard to find land even inside of 495
Last edited by jstatton on Sun Dec 23, 2018 10:29 am, edited 1 time in total.
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ResearchMed
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by ResearchMed »

jstatton wrote: Sun Dec 23, 2018 10:11 am
ResearchMed wrote: Sun Dec 23, 2018 9:56 am
jstatton wrote: Sun Dec 23, 2018 9:47 am
ResearchMed wrote: Sun Dec 23, 2018 9:25 am
jstatton wrote: Sun Dec 23, 2018 9:09 am

Why is looking at a home as an investment no longer valid?

Why should i ignore the reality that Boston area home prices have outpaced inflation for 30+ years?
Because that's no guarantee that "Boston" area home prices will continue to do that. Maybe they are so far ahead ("outpaced inflation for 30+ years") that they'll stagnate.

And why ever are you including Belchertown?
Are you REALLY considering that as an option?
Your list/description/reasons are ... odd for a family home...

You will be spending a HUGE amount of time in you "home" - as will ALL the other members of your family (and ditto school time, if children). And you personally might end up with a huge amount of commuting time (perhaps spouse, too). And children (if any)... school quality can matter...

NO one knows which cities/regions/city neighborhoods will do better in the future. No one. The past may be very misleading.

Having your family flourish in the near future, for most people, is far more important than home appreciation in 30 years, especially as it is NOT a given. (And you can always move in 10 years if you wish, etc., of course.)

RM
Belchertown was included to emphasize that appreciation rates drop quickly to background levels once you get far enough out from Boston. Where do they reach background levels? Probably a few towns west of 495. Belchertown is an extreme example.

You are right, there is no guarantee Boston area home prices will continue. There is also no guarantee the S&P500 will continue going up in the next 20 years.. It might be lower in 20.

The more interesting question is which location has the highest probability to increase in value in the next 20 years?

Do you honestly think that all areas (all coordinates within the continental USA) have equal probabilities to appreciate going forward? Do you think Belchertown, MA has the same odds to appreciate as Newton, MA?
Nope, of course.
But are those two towns really comparable for your purpose (current housing or near future housing)?
Silicon Valley area has *really* taken off. But that's also irrelevant for your purposes.

But I also don't think that "Boston" will necessarily appreciate better than, say, Wellesley or even Watertown (which might be like Arlington was 20-30 years ago - just hypothesizing about that).
My point is, "who knows?"
In the meantime, it IS possible to figure which city/neighborhood is likely to have the best living environment for you/your family's benefit in the near/medium future. Not guaranteed, but a much better guess AND with VERY important impact, than far future house appreciation.

Same thing for Seattle, etc. It's nothing specific about Boston, except the exact names/locations of the cities/neighborhoods.

RM
I agree with you. Watertown is a good investment. Unfortunately i do not want to consider it because i am anticipating needing the schools and i will likely need them well before the town gentrifies enough into a good school district.

I also agree that Boston might not appreciate faster in the next 20years compared to 128 towns like Wellesley. I could envision a scenario where due to overcrowding, small land area, and tight office markets in Boston and Cambridge (office rents are currently at Manhattan levels fyi) development could start spreading out. The radial highway of 128 only 10 miles out of Boston might encourage a "step function" of sorts encouraging development to go back out to 128 and skip the intermediary sprawl. This would obviously benefit 128 towns.
Here you go:

"I agree with you. Watertown is a good investment. Unfortunately i do not want to consider it because i am anticipating needing the schools and i will likely need them well before the town gentrifies enough into a good school district."

And you wrote above:

"Watertown I would not consider since the schools are a 5/10. School improvement is something that would take decades. Might be 20 years or more before its a 7/10."

So which is it? Housing appreciation in 20-30 years?
OR "a good place for a family in the near/medium term future"?

The chance of your getting both are slim.
The chance of knowing in advance which neighborhood that would be is... far more slim.

But here you DO mention quality of life for your family.
That was totally missing in most of your comments, which is what many of us were trying to mention.

RM
This signature is a placebo. You are in the control group.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by marielake »

"All things being equal, i'd prefer a western location. I think a western location is more optimal with the radial highways around boston and the fact to the east of boston is ocean. From a western location you can more easily get to areas north or south. From the north shore its a bitch to get to the south shore."

You don't say what your commute time is so don't know how important that is to you. For me it was critical and after close to 30 years commuting, it was the main reason I decided to retire.

I started out commuting Framingham to Boston, then Watertown to Boston, Reading to Boston and finally Wakefield to Boston--I kept getting closer to the city and shorter commute. After moving to Reading, I still had dentist in Natick; getting there during evening commute on Mass Pike was brutal. Traffic is highly dependent on time of day. If timed right, I could be on the south shore in 20 minutes, Maine or NH border in 30 minutes.

Just saying....in the long run, there might be some factors more important than appreciation.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

ResearchMed wrote: Sun Dec 23, 2018 10:28 am
jstatton wrote: Sun Dec 23, 2018 10:11 am
ResearchMed wrote: Sun Dec 23, 2018 9:56 am
jstatton wrote: Sun Dec 23, 2018 9:47 am
ResearchMed wrote: Sun Dec 23, 2018 9:25 am

Because that's no guarantee that "Boston" area home prices will continue to do that. Maybe they are so far ahead ("outpaced inflation for 30+ years") that they'll stagnate.

And why ever are you including Belchertown?
Are you REALLY considering that as an option?
Your list/description/reasons are ... odd for a family home...

You will be spending a HUGE amount of time in you "home" - as will ALL the other members of your family (and ditto school time, if children). And you personally might end up with a huge amount of commuting time (perhaps spouse, too). And children (if any)... school quality can matter...

NO one knows which cities/regions/city neighborhoods will do better in the future. No one. The past may be very misleading.

Having your family flourish in the near future, for most people, is far more important than home appreciation in 30 years, especially as it is NOT a given. (And you can always move in 10 years if you wish, etc., of course.)

RM
Belchertown was included to emphasize that appreciation rates drop quickly to background levels once you get far enough out from Boston. Where do they reach background levels? Probably a few towns west of 495. Belchertown is an extreme example.

You are right, there is no guarantee Boston area home prices will continue. There is also no guarantee the S&P500 will continue going up in the next 20 years.. It might be lower in 20.

The more interesting question is which location has the highest probability to increase in value in the next 20 years?

Do you honestly think that all areas (all coordinates within the continental USA) have equal probabilities to appreciate going forward? Do you think Belchertown, MA has the same odds to appreciate as Newton, MA?
Nope, of course.
But are those two towns really comparable for your purpose (current housing or near future housing)?
Silicon Valley area has *really* taken off. But that's also irrelevant for your purposes.

But I also don't think that "Boston" will necessarily appreciate better than, say, Wellesley or even Watertown (which might be like Arlington was 20-30 years ago - just hypothesizing about that).
My point is, "who knows?"
In the meantime, it IS possible to figure which city/neighborhood is likely to have the best living environment for you/your family's benefit in the near/medium future. Not guaranteed, but a much better guess AND with VERY important impact, than far future house appreciation.

Same thing for Seattle, etc. It's nothing specific about Boston, except the exact names/locations of the cities/neighborhoods.

RM
I agree with you. Watertown is a good investment. Unfortunately i do not want to consider it because i am anticipating needing the schools and i will likely need them well before the town gentrifies enough into a good school district.

I also agree that Boston might not appreciate faster in the next 20years compared to 128 towns like Wellesley. I could envision a scenario where due to overcrowding, small land area, and tight office markets in Boston and Cambridge (office rents are currently at Manhattan levels fyi) development could start spreading out. The radial highway of 128 only 10 miles out of Boston might encourage a "step function" of sorts encouraging development to go back out to 128 and skip the intermediary sprawl. This would obviously benefit 128 towns.
Here you go:

"I agree with you. Watertown is a good investment. Unfortunately i do not want to consider it because i am anticipating needing the schools and i will likely need them well before the town gentrifies enough into a good school district."

And you wrote above:

"Watertown I would not consider since the schools are a 5/10. School improvement is something that would take decades. Might be 20 years or more before its a 7/10."

So which is it? Housing appreciation in 20-30 years?
OR "a good place for a family in the near/medium term future"?

The chance of your getting both are slim.
The chance of knowing in advance which neighborhood that would be is... far more slim.

But here you DO mention quality of life for your family.
That was totally missing in most of your comments, which is what many of us were trying to mention.

RM
Actually, I think i can get both. I think i can get a good quality of life for the family AND get appreciation.

In my original post I mentioned 2 towns that I am considering: Newton and Natick. Both offer good quality of life AND appreciation.

In one (Natick) you get a nicer house. In the other (Newton) you a smaller house.

Both towns have long histories of appreciation. The zillow data only goes back to 2008. The trulia market overview page goes back to 2000 for median sale price. Looks like Natick really took off in the previous real estate cycle (1995->2006).

Newton went from 372k median sale price in 2000 to 1M today according to Trulia = 2.68 mulitple
Natick went from 215k to 600k = 2.8x multiple

In conclusion, the data shows that Natick doesn't appear to be so far out that you lose out on appreciation. The data shows that appreciation is indeed happening there.
Last edited by jstatton on Sun Dec 23, 2018 10:40 am, edited 1 time in total.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by RickBoglehead »

We moved into a townhouse in a suburb of Boston in 1985. Rented, didn't purchase. My Uncle said "you should buy that, prices here go up fast". I told him to buy it and be our landlord if it was such a great buy. 2 years later we bought a house. Our townhouse had gone down by 20+%.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

RickBoglehead wrote: Sun Dec 23, 2018 10:39 am We moved into a townhouse in a suburb of Boston in 1985. Rented, didn't purchase. My Uncle said "you should buy that, prices here go up fast". I told him to buy it and be our landlord if it was such a great buy. 2 years later we bought a house. Our townhouse had gone down by 20+%.
Where was that townhouse and how much did you pay?

If you held on to that townhouse you likely would be sitting on a handsome sum. Have to be a long term investor with real estate.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by RickBoglehead »

jstatton wrote: Sun Dec 23, 2018 10:43 am
RickBoglehead wrote: Sun Dec 23, 2018 10:39 am We moved into a townhouse in a suburb of Boston in 1985. Rented, didn't purchase. My Uncle said "you should buy that, prices here go up fast". I told him to buy it and be our landlord if it was such a great buy. 2 years later we bought a house. Our townhouse had gone down by 20+%.
Where was that townhouse and how much did you pay?

If you held on to that townhouse you likely would be sitting on a handsome sum. Have to be a long term investor with real estate.
Guess you missed "rented, didn't purchase". :) How did long term investors due when they wanted to sell from 2008 on?

Bought our first house in a Boston suburb in 1987 at a time when prices were climbing every week. Sold in 1994 for a 5% loss, partly due to having a 3 bedroom with ample 4 bedroom inventory.

Bought our second house in 1996 in a Philly suburb, sold in 2007 for a large gain.

Bought our third house in 2007 in Michigan. Maybe a 10 - 15% gain in 11 years.

The housing crash in 2007/2008 taught some of us that real estate is not an investment, meaning you don't buy a house to live in expecting to make money. You buy a house to live in for shelter, you buy a house to live in because it's equal or cheaper than renting, but you don't expect a big profit when you sell.

When we bought our homes, the #1 consideration was schools. It was also the #2 and #3 consideration, in other words, it trumped all others. Then it was quality of neighborhood, home and amenities of home, etc. Never was it "how much might this home appreciate)". To each their own.

Of course if one buys real estate to rent for rental income, that is an investment, based on the rental stream of income. It just might not be as good as other investments.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

RickBoglehead wrote: Sun Dec 23, 2018 11:06 am
jstatton wrote: Sun Dec 23, 2018 10:43 am
RickBoglehead wrote: Sun Dec 23, 2018 10:39 am We moved into a townhouse in a suburb of Boston in 1985. Rented, didn't purchase. My Uncle said "you should buy that, prices here go up fast". I told him to buy it and be our landlord if it was such a great buy. 2 years later we bought a house. Our townhouse had gone down by 20+%.
Where was that townhouse and how much did you pay?

If you held on to that townhouse you likely would be sitting on a handsome sum. Have to be a long term investor with real estate.
Guess you missed "rented, didn't purchase". :) How did long term investors due when they wanted to sell from 2008 on?

Bought our first house in a Boston suburb in 1987 at a time when prices were climbing every week. Sold in 1994 for a 5% loss, partly due to having a 3 bedroom with ample 4 bedroom inventory.

Bought our second house in 1996 in a Philly suburb, sold in 2007 for a large gain.

Bought our third house in 2007 in Michigan. Maybe a 10 - 15% gain in 11 years.

The housing crash in 2007/2008 taught some of us that real estate is not an investment, meaning you don't buy a house to live in expecting to make money. You buy a house to live in for shelter, you buy a house to live in because it's equal or cheaper than renting, but you don't expect a big profit when you sell.

When we bought our homes, the #1 consideration was schools. It was also the #2 and #3 consideration, in other words, it trumped all others. Then it was quality of neighborhood, home and amenities of home, etc. Never was it "how much might this home appreciate)". To each their own.

Of course if one buys real estate to rent for rental income, that is an investment, based on the rental stream of income. It just might not be as good as other investments.
You got a bit unlucky with the timing of that 1987 purchase - that was the peak and the Boston area got hit pretty hard in the early 90s recession. In fact the early 90s recession was a bit unprecedented around here. Boston area was the center of the minicomputer industry and we totally missed the boat on the PC revolution. Many large employers went bust or downsized: Wang, Digital, Data general, Prime, Stratus, etc... It was a bit of a worst case scenario.

What town did you buy in and how much did you pay in 1987? You likely would have done very well if you held on to that house for the long term. People who bought (and held) in the 80s are sitting on huge gains around here. You sold in 1994 which was the bottom... Huge gains came after that. Things went straight up like a rocket ship from 1994 -> 2006... The dip from 2006->2012 was only a flattening if you lived in a closer in desirable town. Even many 495 towns with good schools (e.g. acton, hopkinton, etc) basically flat lined and didn't decline much.

1994-> 2018 was massive gains for the boston area.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by quantAndHold »

Past performance is no guarantee of future results.

Probability is very high that the locations that have had the most appreciation in the past 20 years will not have the best price appreciation in the next 20 years, and the best appreciation in the coming 20 years will be in a location that’s not even on your list.

It may also be the case that you won’t be living in the Boston area 20 years from now.

We bought a place 20 years ago in a zip code that has had some of the highest appreciation in the country over that period. I’d like to say that we did a thorough analysis of the potential price appreciation, and carefully chose this location. But in truth, we bought a place we could afford and fit how we wanted to live, which happened to be in a slum that gentrified over the course of 20 years. If we had done the analysis you’re doing now, we would have ended up in a place we didn’t like as well, and it would have turned out less well financially.

Also, when we bought, our realtor told us that this was the next hot neighborhood, and explained why. We didn’t put much stock in what he said at the time, because we were just looking for a nice place to live. But he was right. And in your case, talking to a couple of realtors might yield more useful results than running a bunch of spreadsheets and asking strangers on the internet.

Personally, I would optimize for quality of life. I would find a place i liked, in a town I liked, that I could comfortably afford, with an easy commute to the places I’m likely to be working now and in the future. If it’s desirable to you, it will likely be desirable to someone else in 20 years.
Yes, I’m really that pedantic.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by RickBoglehead »

jstatton wrote: Sun Dec 23, 2018 11:11 am You got a bit unlucky with the timing of that 1987 purchase - that was the peak and the Boston area got hit pretty hard in the early 90s recession. In fact the early 90s recession was a bit unprecedented around here. Boston area was the center of the minicomputer industry and we totally missed the boat on the PC revolution. Many large employers went bust or downsized: Wang, Digital, Data general, Prime, Stratus, etc... It was a bit of a worst case scenario.

What town did you buy in and how much did you pay in 1987? You likely would have done very well if you held on to that house for the long term. People who bought (and held) in the 80s are sitting on huge gains around here. You sold in 1994 which was the bottom... Huge gains came after that. Things went straight up like a rocket ship from 1994 -> 2006... The dip from 2006->2012 was only a flattening if you lived in a closer in desirable town. Even many 495 towns with good schools (e.g. acton, hopkinton, etc) basically flat lined and didn't decline much.

1994-> 2018 was massive gains for the boston area.
When you move for a new job, timing is determined by that opportunity, not by whether you can maximize house sale value or not. Since I never wanted to be a landlord, keeping a house moving out of state was never a consideration.

The loss in 1994 was due specifically to a development of 4 bedroom homes built across the street, brand new, vs. our 3 bedroom home being 7 years old. Their price was what I paid, so of course anyone buying my home is going to pay less, and did. I moved on.

You have zero guarantee in any investing, but expecting the Boston area to have massive gains in the future because they had massive gains in the past is, in my opinion, not a great plan. But again, you do what you are comfortable doing, I do what I am comfortable doing.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by Ragnoth »

jstatton wrote: Thu Dec 20, 2018 5:18 pm How does one most efficiently trade off location and price when buying real estate? Obviously some locations are better than others. For the Boston area examples of great locations would be: back bay of boston, cambridge, brookline, belmont, etc. These are great locations but the prices are extremely high proportionate with their location advantage. These locations are out of my price range so I will have to sacrifice location in exchange for reduced price per square foot. How to make this trade off in an intelligent manner?

How far should I stretch that trade off? I am concerned that the further out I move the lower the appreciation rate I will see. I don't want to take this tradeoff *too* far... I want to stay in an in-demand location.

The appreciation rates differ significantly. Further out from Boston the lower the appreciation rate. Here is some example data from Zillow

(According to the Zillow home value index from 12/2008 -> 12/2018)

Belchertown, MA (western mass - WAY out)
12% increase - lost out to inflation

Medway, MA (30 miles out)
27% increase - break even with inflation

Natick, MA (15 miles out)
53% increase - solidly beat inflation

Newton, MA (10 miles out)
64% increase - solidly beat inflation

Brookline, MA (3 miles out)
76% increase - significantly beat

Boston, MA (0 miles out
82% increase - significantly beat

A clear trend showing appreciation declines as you go outward from the core of Boston. By the time you get out to western mass you are essentially at background levels of appreciation rates which according to the studies are basically keeping up with inflation (i.e. not good). The lose to inflation for Belchertown is probably due to the artificially high starting point of 2008.

495 (Medway) barely kept up with inflation - about even. Would have been a slight beat if not for the downturn (see above).

Once you get in closer to the 128 belt (Natick) appreciation starts to pick up. 53% gain in 10 years is pretty good... That beats inflation easily.

The closer in towns (Newton, Brookline, Boston) the appreciation is simply off the charts. Significant real gains there. Will it last? No idea. It is clear that there is very high demand to live in these areas.

Based on this data, I'm inclined to throw out 495 from contention and focus on towns in the Natick area or closer. The appreciation rate is so much lower in the 495 towns. The question is do i pay up and try to get into a town closer in than Natick. Such as a Newton. But unfortunately my budget only affords a starter home in that town which would be 800k-1M. Do i go for the starter home in Newton or the nicer home in Natick? 800 could get you a forever home in Natick which potentially could be fewer transaction costs down the road. Or will the higher appreciation rate in Newton offset any transaction costs down the road?

What is the best strategy to use when trading off location for lower price per square foot?
This is really about figuring out what you want to make in terms of trade offs with size, location, amenities, etc.

If I still lived in the area, I would take something like Newton Center over Natick—paying up (or accepting a smaller house) in exchange for good schools, a faster commute into the city, and easy access to the T. Depending on where you work and how much you value a short commute, that may not be as meaningful for you.

Part of the issue when you get further out west is that you become more cutoff from the city itself. There are really nice communities out in Concord/Lexington/Lincoln with good schools picturesque houses, but you start to feel like you’re in a whole different State.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

quantAndHold wrote: Sun Dec 23, 2018 11:21 am Personally, I would optimize for quality of life. I would find a place i liked, in a town I liked, that I could comfortably afford, with an easy commute to the places I’m likely to be working now and in the future. If it’s desirable to you, it will likely be desirable to someone else in 20 years.
The interesting thing is, in the boston market commute time is proportionate to historical appreciation rate due to the geography. Due to the lack of buildable land east of boston (its an ocean) the desirability is skewed west. If you pull up the trulia heat map you'll see a triangle of red spreading west of boston and spreading into about half way to 495.

The two biggest job centers in the Boston area are: Boston/Cambridge and 128 west (from Burlington/Woburn, down to Needham)

Housing prices around here are essentially proportionate to the distances to those areas. The towns that are commutable to both are the best and highest appreciating.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

RickBoglehead wrote: Sun Dec 23, 2018 11:23 am
jstatton wrote: Sun Dec 23, 2018 11:11 am You got a bit unlucky with the timing of that 1987 purchase - that was the peak and the Boston area got hit pretty hard in the early 90s recession. In fact the early 90s recession was a bit unprecedented around here. Boston area was the center of the minicomputer industry and we totally missed the boat on the PC revolution. Many large employers went bust or downsized: Wang, Digital, Data general, Prime, Stratus, etc... It was a bit of a worst case scenario.

What town did you buy in and how much did you pay in 1987? You likely would have done very well if you held on to that house for the long term. People who bought (and held) in the 80s are sitting on huge gains around here. You sold in 1994 which was the bottom... Huge gains came after that. Things went straight up like a rocket ship from 1994 -> 2006... The dip from 2006->2012 was only a flattening if you lived in a closer in desirable town. Even many 495 towns with good schools (e.g. acton, hopkinton, etc) basically flat lined and didn't decline much.

1994-> 2018 was massive gains for the boston area.
When you move for a new job, timing is determined by that opportunity, not by whether you can maximize house sale value or not. Since I never wanted to be a landlord, keeping a house moving out of state was never a consideration.

The loss in 1994 was due specifically to a development of 4 bedroom homes built across the street, brand new, vs. our 3 bedroom home being 7 years old. Their price was what I paid, so of course anyone buying my home is going to pay less, and did. I moved on.

You have zero guarantee in any investing, but expecting the Boston area to have massive gains in the future because they had massive gains in the past is, in my opinion, not a great plan. But again, you do what you are comfortable doing, I do what I am comfortable doing.
There is your problem - you likely moved too far out for that time period. (the cutoff for "too far out" has expanded significantly since 1987 around here as more and more towns have reached full build out)

I think it is better to be in a town that is fully built out. That means new construction must be teardown single family or teardown multifamily.

Teardown single family will necessarily be much higher priced. If you buy in a town like this you'll never have to compete with a surge of new construction when you sell since any teardowns will necessarily be top 10-5% in price OR will be a townhouse/condo. In these towns, your house will be ideal for buyers since the teardowns are simply "untouchable" in price and more of the competing houses will be condos or townhouses and a single family will stand out among them.
Last edited by jstatton on Sun Dec 23, 2018 11:42 am, edited 1 time in total.
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RickBoglehead
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by RickBoglehead »

jstatton wrote: Sun Dec 23, 2018 11:37 am There is your problem - you likely moved too far out for that time period. (the cutoff for "too far out" has expanded significantly since 1987 around here as more and more towns have reached full build out)

I think it is better to be in a town that is fully built out. That means new construction must be teardown single family or teardown multifamily.

Teardown single family will necessarily be much higher priced. If you buy in a town like this you'll never have to compete with a surge of new construction when you sell since any teardowns will necessarily be top 10-5% in price OR will be a townhouse/condo.
Again, you're evaluating my decision making based on your criteria.

I had a 7 minute drive to commuter rail, and a nice train ride into South Station.

I have zero interest in an old drafty house that needs renovation (yes, I watch This Old House) as compared to buying a new house in 1987, a 10 month old house in 1996, and a 2 year old house in 2007.

Good luck!
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Dottie57
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by Dottie57 »

I stayed with Friends who worked in Boston city center. Their priority was access to the train intoBston. It was a 45 minute ride in , but it was pleasant and provided time to read. This might be a thought for OP.
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jstatton
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

Ragnoth wrote: Sun Dec 23, 2018 11:25 am
jstatton wrote: Thu Dec 20, 2018 5:18 pm How does one most efficiently trade off location and price when buying real estate? Obviously some locations are better than others. For the Boston area examples of great locations would be: back bay of boston, cambridge, brookline, belmont, etc. These are great locations but the prices are extremely high proportionate with their location advantage. These locations are out of my price range so I will have to sacrifice location in exchange for reduced price per square foot. How to make this trade off in an intelligent manner?

How far should I stretch that trade off? I am concerned that the further out I move the lower the appreciation rate I will see. I don't want to take this tradeoff *too* far... I want to stay in an in-demand location.

The appreciation rates differ significantly. Further out from Boston the lower the appreciation rate. Here is some example data from Zillow

(According to the Zillow home value index from 12/2008 -> 12/2018)

Belchertown, MA (western mass - WAY out)
12% increase - lost out to inflation

Medway, MA (30 miles out)
27% increase - break even with inflation

Natick, MA (15 miles out)
53% increase - solidly beat inflation

Newton, MA (10 miles out)
64% increase - solidly beat inflation

Brookline, MA (3 miles out)
76% increase - significantly beat

Boston, MA (0 miles out
82% increase - significantly beat

A clear trend showing appreciation declines as you go outward from the core of Boston. By the time you get out to western mass you are essentially at background levels of appreciation rates which according to the studies are basically keeping up with inflation (i.e. not good). The lose to inflation for Belchertown is probably due to the artificially high starting point of 2008.

495 (Medway) barely kept up with inflation - about even. Would have been a slight beat if not for the downturn (see above).

Once you get in closer to the 128 belt (Natick) appreciation starts to pick up. 53% gain in 10 years is pretty good... That beats inflation easily.

The closer in towns (Newton, Brookline, Boston) the appreciation is simply off the charts. Significant real gains there. Will it last? No idea. It is clear that there is very high demand to live in these areas.

Based on this data, I'm inclined to throw out 495 from contention and focus on towns in the Natick area or closer. The appreciation rate is so much lower in the 495 towns. The question is do i pay up and try to get into a town closer in than Natick. Such as a Newton. But unfortunately my budget only affords a starter home in that town which would be 800k-1M. Do i go for the starter home in Newton or the nicer home in Natick? 800 could get you a forever home in Natick which potentially could be fewer transaction costs down the road. Or will the higher appreciation rate in Newton offset any transaction costs down the road?

What is the best strategy to use when trading off location for lower price per square foot?
This is really about figuring out what you want to make in terms of trade offs with size, location, amenities, etc.

If I still lived in the area, I would take something like Newton Center over Natick—paying up (or accepting a smaller house) in exchange for good schools, a faster commute into the city, and easy access to the T. Depending on where you work and how much you value a short commute, that may not be as meaningful for you.

Part of the issue when you get further out west is that you become more cutoff from the city itself. There are really nice communities out in Concord/Lexington/Lincoln with good schools picturesque houses, but you start to feel like you’re in a whole different State.
Newton center is definitely a better area with a better commute to the city. Natick *IS* commutable to boston though and has commuter rail access. 40min or so from Natick center to south station. Newton definitely wins here though.

What concerns me is the 128 commute difference. Certain areas in natick are very good commutes to 128 and enable some back road options through weston or dover (if traveling south). The commute edge that Newton has over Natick is vastly reduced when it comes to 128 commutes. Depending on where you are in newton and natick, it could be near even.

My concern is that Boston is such a small city in terms of land area. If development starts spreading back out toward 128 then Natick might turn out to be the better buy longer term given the price is so much lower right now vs. newton.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by Dottie57 »

Access to train to Boston business district might be a good to look for.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by TomatoTomahto »

We recently purchased near Boston (near Dover and Natick). We live in our house blissfully, loving every minute of it. I think your mistake is thinking of your personal residence as an investment; it's not. If it appreciates in price by the time your sell or your heirs inherit it, great. If not, unlucky.
I get the FI part but not the RE part of FIRE.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

TomatoTomahto wrote: Sun Dec 23, 2018 12:03 pm We recently purchased near Boston (near Dover and Natick). We live in our house blissfully, loving every minute of it. I think your mistake is thinking of your personal residence as an investment; it's not. If it appreciates in price by the time your sell or your heirs inherit it, great. If not, unlucky.
What town did you buy in?
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by mrmass »

The commuter rail is different from the "T" the commuter rail cost a lot more and seems to be impacted by delays more often. Arlington is good if you could get to Alewife Station. Also Somerville Malden and Medford have good access to the T

The walkability of Natick is sub optimal
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by TomatoTomahto »

.....
Last edited by TomatoTomahto on Mon Dec 24, 2018 12:32 pm, edited 1 time in total.
I get the FI part but not the RE part of FIRE.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jstatton »

mrmass wrote: Sun Dec 23, 2018 12:29 pm The commuter rail is different from the "T" the commuter rail cost a lot more and seems to be impacted by delays more often. Arlington is good if you could get to Alewife Station. Also Somerville Malden and Medford have good access to the T

The walkability of Natick is sub optimal
Of the towns you mentioned only Arlington has good schools. Arlington is also ~$500 per square foot - very expensive.

The rest of the towns have bad schools. all 4 or 5. Somerville is also more expensive than arlington, 800 barely gets you 2br condo there...
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by FS51 »

We just went through this... I relocated for work, can live anywhere in the greater Boston area and my wife was looking for a new position. Where she landed ended up being one of the deciding factors due to commute (along with schools, swuare footage, etc.). She landed in Waltham. We'd have loved to end up in Newton, we certainly looked, but we decided Natick was the better trade off...couldn't afford newton while being happy with the house. Back roads for her every day so her commute is a breeze. Keep in mind, there are also many different parts of each of these locations (ie. Newton center vs Newton falls, West Natick vs south Natick, etc.)
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by sergeant »

I have an aunt that lives in Burlington. She likes it. I don't look at my home purchase as an investment but more as a lifestyle choice that hopefully keeps up with inflation.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by Ben Mathew »

You're probably right that houses closer to the city center can generally expect a higher price appreciation. But the flip side to this is that people are aware of this trend and so these houses are priced for growth. I'm in the Seattle area and I see a fairly clear pattern of price-to-rent ratios increasing as you get closer to the city center. It's just like with growth stocks. The market expects their earnings to grow in the future, and that's reflected in the P/E ratios. There are no bargains to be had.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by bornloopy »

I don’t intend to derail this thread and hope this question is on topic. But does anyone here take into account climate change effects on house appreciation/costs in the Boston area? Within 20 years from now, there is a high probability that many areas of Boston will experience recurrent chronic heavy flooding and property damage. Wouldn’t your insurance costs increase and perhaps fewer people would want to stay in Boston, with slowing housing demand/appreciation over time? How does one factor this in?
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by Hug401k »

I haven't read all the posts here, but I would recommend that you do a cross comparison of school rankings. You are underestimating the value of schools in the growth of a town and its appreciation. You need to find a town with a school system that is rapidly getting ranked higher, but the real estate hasn't quite caught up. (an earlier poster mentioned Hopkinton. This is a good example of a nice town getting a lot of attention for its schools the last 5 years or so and the growth is hitting it now.) In addition, do not underestimate the VERY regional nature of real estate. Natick is suffering with some insane traffic in many areas. Always test the traffic during rush hour. But the town is nice, especially if you can walk to a train to get to Boston. Newton probably doesn't have a single home for under $400k and there are a lot of tiny homes in bad locations in Newton, but a zillion people have been raised there so it's clearly can be done if you are ok with a small space. People will pay a lot in this area for a good public school and a easy commute.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by jharkin »

What are your main factors in this choice? Do you work downtown and looking for a good commute?

Cambridge and Belmont are nice areas sure, but I wouldn’t want to live there... too crowded and urban for me.

I find it odd you pick Medway as a 495 option... Hopkinton, Ashland, Holliston, etc are all on 495 as well and appreciated more... plus nicer towns to live in IMHO. Ashland has a commuter rail station. some of these towns can get you a 4 bedroom house under 600k. Even under 500 if your not picky...

Similarly Natick has a lot of nice towns around it... some pricier $$$$ than Cambridge...Sudbury, Sherborn, Dover, Weston, Wellesley, etc. Wellesley is about the farthest town that has direct T access if that’s important.

.....
FWIW I suspect I live less than 10 minutes form TomatoTomahto and we love it here, but my wife works down the street and I work in the next town. We picked lower stress suburb jobs as a lifestyle choice.
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Re: Home purchase: how to effectively trade off location & price? (Boston area)

Post by GoldStar »

Appreciation rates in the next 10 years could be very different than the last ten. There are many factors I would rate more heavily (school system, lifestyle choice, commute distance, amenities, etc.)
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