I was a stock trader for 5 years, it was great business training and very exciting (and nerve racking). The real estate market is very much like the stock market. When the stats say the stock is overpriced more people sell and fewer buy until the price truly reflects the underlying revenue streams, assets etc. We called this “agreement”. The agreement for GE can be $15 today and $16 tomorrow.
The real estate market deals in a different commodity and is much slower to respond to the supply/demand equation like the one that governs the stock market. The agreement is getting more difficult to reach, a long slow road. That is evidenced by the stubbornness on both sides. Eventually (and this may take years in RE) the buyers and sellers will get closer to agreement of fair market value which will increase transactions. For now we have sellers who insist they not loose the appreciation they though they had in the bag and buyers who are terrified of paying too much.
The following is just part of a list of attractions the Boston area would have to loose for prices to drift much lower than they have up to this point:
BU, BC, Northeastern, Harvard, MIT, BU Medical Center, Harvard Medical School, Beth Israel hospital, Boston Childrens Hospital, Mass General, Brigham and Womens, Tufts Medical School etc. etc. I could go on but I’m sure you get the point. We have the best schools and hospitals in the world and as long as that is the case there will be a steady supply of buyers,which of course will support property prices.
My feeling is that property prices in the Boston Area (not in Kansas) will firm up and move higher in the spring of 2010. Please don’t take this as a market prediction, the stock market cured me of that hubris. I’m counting on a recovery in the economy by the 2nd quarter of 2010. This is being signaled by the recent traction in the stock market which usually means that growth in the economy is only 6 months away.
Boston Real Estate is a market…you just don’t know.
Your comments will be appreciated!
Further Reading:
What is the Stock Market Telling Us About the Real Estate Market?
Forget The Boston Real Estate Market, Buy The Boston Home You Can Live With
5 Clues That Your Boston Real Estate Buyers Agent is a Sellers Agent in a Brilliant Disguise.
Dont Just Investigate Your Boston Condo, Investigate The Management Company Too
A Former Stock Trader Talks About Boston Real Estate
{ 2 comments… read them below or add one }
Thank you for sharing this thoughtful and insightful article. I agree with you the real estate market is the same as the stock market but with different commodity to deal with. And yes, the supply/demand equation is also applicable in this market as well but the process of reaching agreement is slower. Do you think it’s getting longer to reach agreement in the real estate market, or are technologies such as the Internet making information on market prices more available, which would speed up that process? I’ve been keeping an eye on the market and watching prices go up and down on sites by searching for properties. I agree that there are some positive indicators, such as a decrease in unemployment claims, a strong black Friday indicating a better-than-last-year retail season, and an increase in the price of copper, which to me signals additional construction in new homes. However, it isn’t certain, because for example, if the health care bill passes I expect to see an increase in taxes after that, which will decrease disposable income.
Susan Baker Luxury Residential Group
Hi Susan and thanks for the comment. Markets are so inscrutable, you can look at positive indicators but it doesn’t mean we start to recover. Look at Japan. They crashed in 1989 and in spite of lowering their interest rates to the max, never did see a recovery.
A recovering economy and a return to growth in the GDP would be great for the RE business but I’m not counting on it. This possibility of no or little recovery is sobering and would probably mean an eroding of property prices each year for a number of years to come.
That said however, I sure would like to see everything bounce back in the spring.
Thanks again.
{ 2 trackbacks }