The school district bubble (Boston, Cambridge: sales, real estate, crime)

[DL0299]

First, excuse my written English for mistakes (not my 1st language).

Just want to put my 2 cents in considering the lack of alternative views I red thus far on this forum about the choice of school district, its influence on real estate pricing and the decisions family are facing. This is for those willing to give some serious thoughts about this issue, not the heretics who believe that a renovated barn in Belmont will keep selling for 1M for the next 20 years. I live in Belmont and when it comes to real estate, people here live on their own planet.

There is a “school district bubble” growing out of control, and it’s markedly apparent in the I-95 belt (Newton, Belmont, Lexington, Winchester, Needham, Wellesley, etc….). Let’s run the number, because an opinion without facts is just an opinion. And trust me, everyone has one.

Say you have 500-550$K for a house and are debating whether or not to stretch your budget to 650K$ or more to put your kids into the Belmont or Lexington school district Vs Waltham or Watertown, for example. With the status of the market, the lowest inventory in history and the interest rate that increases your buying power (Vs a strong job market driven buying power), it is reasonable to say that you will spend 200K$ more in these towns. Add to that 4K$/year in extra tax (give or take, but this figure is conservative given the ever increasing rate hikes in cash hungry elitist towns with their posse of unionized employees), and say you stay put for 20 years. That’s 280000$ premium for a so called top school district. If you were to factor in loss of revenue on this initial investment over 20 years, god knows how much money that amount to, but let’s round it up to 300K$, to be on the cautious side.

So you will fork over 300K$ to have your kids attend Belmont High. What is this money gives you? A slightly better chance at sending your kids to Harvard, where 98% of applicants are refused? Really? It cracks me up when I read people concerned about the resale of a house in a lesser school zone being a negative. You are already 300K$ in the hole, so who is lecturing who about bad financial decisions? It’s still a bad investment not matter how filthy rich you are.

Here is a flash for those not familiar with the new economy. Nobody gives a “bleep” about your college degree anymore. A bachelor is worthless and you need a higher degree like a PhD to have a shot. Smart folks will get the cheapest BSc they can get and seek a high profile graduate group for career advancement. But there will always be a couple of clueless Asians (tiger mom?) willing to deprive themselves of live and sink 200+K$ for a degree worth no more or less than the average state dispensed education. Also, increasingly you hear hiring manager at larger firm shying away from Ivy leaguers. There has been too many documented precedent of what is often referred to as “shiny failures”, those with top credential background that end up being mediocre performers. Ivy leaguers tends to come across as highly entitled people who do not believe they need to work hard to advance on the corporate ladder. This is widespread across fields. Granted, there will always be degrees like law and MBa where the ability to flash your credentials and present yourself well at a fancy biz lunch will always be more important than job performance. But the vast majority of employer now expects results, not just filling up their offices with oil heads like in the 90’s and 2000’s, an era that contributed the most to the school district bubble phenomenon. If they don’t, the business will simply fail and more productive competitors will eat them up.

As for the future of home prices, isn’t there enough information out there already about the insanity of all this? A recent survey by Redfin on the I-95 belt showed that roughly 50% of homeowners are considering selling in the coming years. What more evidence of a giant shadow inventory do you need? They say that they need to get a better price before putting their property on the market and we should not be surprised: most are baby boomers who would not even be able to afford their own house at today’s prices and want to extract yet some more money out of the next generation for themselves, as usual. And if the Dems come to their senses (they soon won’t have any choices) and interest rate go up, just a little, who will have enough money to finance this mountain of debt?

In short, if you are struggling to put a bid above 600K$, do yourself a favor and target less expensive house markets. It’s simply not worth it, and the only ones capable of spending ever more are folks whose kids will never have an incentive anyway to work hard, because they will wait for their trust fund after an early life of masked failures. Is that an environment for your kids you are willing to sacrifice your financial future for?
Think about it seriously. And don’t spend too much time on the web. Most of the time, folks want justification for their convictions, not having a debate. Never be afraid of doing what feels right for you and your family. That’s what counts.
Cheers and good luck.

[konfetka]

DL0299 it is nice to hear that someone shares my views on the subject. But why are you giving away our secret to the world? Our less expensive houses and tax bills are only less expensive because other people are willing to pay more for the school bubble.

What do you think about the school rankings though? They will always exist, and will always create a perception that some schools are much better then others. The perception of #1 vs. #45 will make some people spend more, even when in reality the differences can be very insignificant. Even though all schools have the same curriculum, and Mass is second to only Singapore, people still worry about them.

Since we are giving it all away, then I would also add 'class rank' for college admissions, which would be higher for the same student at an average school, vs. the top school, because of competition.

[Boston_Burbs]

With those prices you are better off moving outside of 495 and trying to get your kid into Andover, Groton, Middlesex, St. Marks, etc.

[3cents]

I have seriously considered the issue of buying a $450K vs a $650K house, and I'm still on the fence. I was looking at the prices of SFHs in the more "expensive" towns, and I noted that most of them have doubled in prices since 15-20 years ago. Taking that as a yardstick, assuming I want to sell in 10 years time, and assuming I could save $100K in down-payment if I buy a $450K house today vs buying a $650K house today: I would have to take that $100K and generate a yearly 8-10% return on investment, in order to match the potential selling price of a $650K house today in an "expensive" town. This is very tempting: just buy in a well regarded town and forget about it, vs. buying in a less well regarded town and trying to "make up the difference" by doing your own investment. Of course, I'm assuming that well regarded towns like Lexington, Winchester, Arlington, Newton, Concord, etc. would continue their current tremendous price increases.

Besides the financial considerations, there's also the neighborhood crime rate, the children your kids will befriend, etc. Recently, I was driving through a "family oriented" town which is frequently raved about in this forum, SFHs average $450K, and the elementary schools rank about 100th out of all 890 elementary schools in MA. I was driving slowly at night (because I am not familiar with that particular road); I rounded a bend and suddenly saw a group of teenage boys crossing the road. I saw them and slowed down, to wait for them to cross. They saw me and most hurried across, but one of them stopped to shout at me. I was very irritated because they shouldn't be crossing there in the first place.

And then there's commute and the community to consider as well. I'm Asian, so I hope I won't be the lone 1-2% Asians in town. But unfortunately, most of the towns with moderate Asian presence, and within a 30 minutes driving commute to north Cambridge, are expensive.

Finally, there's the current economic situation. Rates are very low, so interestingly, this "allows" people like us to try for those "well-regarded" towns. I have considered buying first in a $450K neighborhood, and then moving again in some years time when I have a school age kid. But I fear "not catching the train"; that rates and housing prices will keep rising beyond my reach.

I know that there are tons of people like me, whose budget is around the $600K range. So, houses at the price are not really worth it, because of the fierce competition. If you go above the $800K range, you should be able to get more value for your money.

This post is not to complain about the expensive housing prices in MA. Rather, I'm sharing my thoughts or reasons for still being on the fence. Perhaps others will have more insights.

[DL0299]

"But I fear "not catching the train"; that rates and housing prices will keep rising beyond my reach."

This is bubble psychology 101. A pre-requisite for bubble to keep inflating. The truth is that most people I know that live in Lexington, for example, bought their house long time ago. Noboby took on a 700K mortgage to buy these properties. They just can't! And those who buy today at these levels most likely pay the bulk of it cash, or get an early inheritance from their wealthy parents. Look up on Zillow the number of home sales in top town over the past 2 years that were done for 1$ for millions dollars homes. These are inter-family title transfer done because THESE MANSIONS WILL SIMPLY NOT SELL.

Do not underestimate also the price tag to heat and cool a big house. That, with municipal taxe, will cost you 1200$ a month. Unless you wear 2 sweaters in the winter, like some people candidly admits to me every once in a while. Geee.

What I am tryign to say is: Right now, the bulk of real estate in these towns was purchased for far less than actual listing price. So it's all virtual wealth. There are not enough rich folks around boston, no matter how good things are now, to support that many homes at these levels. Period. The few houses available go for bubble prices and when the winds will turn, there will be a rush for the exit for those looking to sell at these records high. The only ones who will miss any windows are the sellers trapped in the sweet talk of real estate agents. And there wont be any crisis, we will still keep on living our lives, just a lot of fake wealth will be erased from the fake board. Happened 5 years ago everywhere else, will catch up here as well.

Finally, the biotech industry that has for the most part financed all this franzy is slowing down. Federal funds are drying up, large pharma relocation to Cambridge are all done, and thats that. There are only so many IPOs to go around and divert money into real estate.

Anyway, hope this helps. I am bearish on home prices around Boston in the long term. I may be wrong, but I wont be broke if I am betting on that option Vs pissing away my hard earned cash to some baby boomers who bought their house in 1980 for 195K$ and is insulted if you make an offer below 1M. Give me a break...

[initid]

DL0299, face the reality: do you need a house now? if the answer is yes, then do yourself a favor by putting all your time and energy into researching the local housing markets, choosing a good real estate agent to work with, and ultimately finding yourself a house that is a local optimization solution to you. You are gonna need a little bit of luck I know that, but ranting doesn't help you getting a house, not a least bit, trust me.

I know you are frustrated, but so are everybody on the buying side of the market. Just for the sake of the argument, I wanted to say the following:

It's absolutely unnecessary for your to call out Asian as the only ethnic group that you mentioned in your original post, it only shows your frustration, ignorance and biased view of the world.

In Asian culture, people do value education a great deal, and I don't think it's by accident that Asian decedents do very well in schools and thrive later in their lives. Picking a good school district is the least Asian parents can do for their children.

Good towns have a lot more to offer than just the schools, sometimes it might be just the perception or tradition that a good town is good. But in any case, a recognized good town is going to be a good town for the years to come. So naturally, houses in good towns do keep their values.

I personally also don't like the fact that some boomers, after living in their house for 40 years without any updates, one day woke up an decided to sell their house, they made some phone calls and declared hey my house is worth 700K!

But there is the open market, market decides the price, not the boomers, not you, not me. It's the market. You cannot change the market, you are a very small portion of the market but you cannot change it.

And by the way, a bachelor's degree from Harvard is different from some state school. Having a graduate degree will help to hide it but doesn't cancel it altogether. The talent market is just another market full of people's perception, and the bad part of it is: you cannot change it.

[mmyk72]

initid -I agree! OP, You just need to make your own decision about whether it is 'worth it' to buy into those towns with super top schools. It is a personal decision that you have to make. I side with your belief that all of this school 'bubble' is over-hyped, and kids will probably turn out just fine if they did not end up in a cream of the crop school (especially if their parents care about the kids' academics and put in effort outside of the school to nurture the kid). However, the market works on supply & demand and it doesn't look like demand is falling anytime soon. So if you think you can take that money and spend it better, go for it. I don't think a rant here will change the market for 1 nanosecond.

[Brave Stranger]

Some sound points by the OP, but if he thinks the greater Boston housing market is going to fade away over time, well, that's just not happening.

[DL0299]

The market, the market the market!!!

There is no free market in real estate anymore... Ignorance you said? There is the fed pushing their short term agenda and the FHA swallowing 90% of the loans in the US. What free market? You think that in a "fed-less" free market, a banker would give away 700K$ to Joe Smock with a renovated barn as a collateral?

It's like you said: ignorance and biased view of the world. Your's, that is.

Here is a link to a Dave Stockman analysis of the house bubble 2.0. His views on no first time homebuyer and no move-up buyers are right on.

Start there. But my mama always said this to me: "You can't argue with faith".

So long my friend!

This Is Housing Bubble 2.0: David Stockman | Daily Ticker - Yahoo! Finance

[walthamguy]

I am a FTHB looking all over the place to get a decent house in decent school district.
I kinda wonder about the prices once the interest rates start climbing too...
Any insights around that would be helpful..