The Berkshires Aren't Boston
The Berkshires are not Boston. Thank goodness for that! When Governor Baker recently banned all non-essential travel on January 27th in response to the dire warnings from the national weather service of the winter storm "Juno" (when did they start giving names to snow events?), he did so for the entire state of Massachusetts. What he didn't know concerning The Berkshires is that Boston and most of the eastern half of the state are a different world apart from The Berkshires. We love it that way too.
Here is what Boston is famous for among other things: traffic congestion, The Big Dig, Logan International Airport, crowds, an antiquated public transit system and lots of colleges. The one thing we can ALL be proud of about Boston is really located in Foxborough, our Patriots football team!
Here's what The Berkshires are famous for: gorgeous scenery, music, dance, art, theater, boating, skiing, hiking, golf, tennis, biking, ease of access and ease of getting around (whether walking or driving, great farm to table fresh local foods, four colleges, and essentially a friendly, safe, healthy and clean environment. The exception to the rule of low traffic is getting out of Tanglewood after a James Taylor or Yo Yo MA concert. We also get around just fine regardless of the amount of snow or rain and we are spared the extremes from storms that can rip through the coastal areas of our state. No sink holes here since we sit on solid rock, not sand like Florida.
I am constantly amazed and puzzled by all the people who would choose a congested, noisy pressured city life over a country and small town life such as we enjoy here in the Berkshires. Williamstown MA, home of Williams College, has just one traffic light and many Berkshire county towns have no traffic lights at all.
High air quality, low pollution, great schools, solid family life, social and cultural life are all tops here in The Berkshires. While a big city offers higher paying jobs it also requires a higher cost of living overall. Some folks choose to live in suburbs outside of Boston and spend an hour or more a day commuting by car or public transit. My commute is 8 minutes on average and usually I don't even have to stop at the one sensor activated light.
Everything one needs is right here in Williamstown from a great hardware store to an independent movie theater, to college events, to a wide variety of gourmet restaurants. We have a Dunkin' Donuts Shoppe and a Subway Sandwich franchise for fast food lovers.
Want to enjoy the benefits of living in The Berkshires but fearful of city withdrawal? No problem, hop on a bus, train or in your car and in a matter of 3 hours be in downtown Boston or NYC. Spend four hours traveling to get to Montreal, Canada. I know once you've moved here, if you do make the trek to the city, you will be all too eager to get home again and unwind.
What intrigues me is that city dwellers will purchase a country home here in the Berkshires just as soon as they can afford one but we full time residents get to enjoy our "second home" as our first home all the time.
Life is Good in The Berkshires, really good but please don't tell too many people about it because guess what, we really like it just the way it is.
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How will your Berkshire property value fare in 2015 and beyond?
Berkshire property valuation is a daily task of Berkshire real estate agents. The Berkshire home seller first wants to know "how much is my property worth"? And that brings me to one of the most common laws of physics.
Newton's law of motion states that a body in motion tends to remain in motion unless acted upon by another force e.g. gravity, friction, etc.
This same rule applies to the value of Berkshire real estate. Rising values, a state most sellers had come to more or less "accept" as a given in real estate through 2007, sometimes rising faster and sometimes slower, gave way suddenly to massive systemic reversal.
My own real estate career began in 1975 and from that time until the early 2000s we could pretty much count on an average rate of appreciation here in the Berkshires over the years of around 5 percent. What accounted for this reliable pace? Inflation, the general rise in prices of goods and services in the nation's economy.
Following the horrific events of 9/11 the economy took a nosedive and the FED stepped in with historically low interest rates which naturally are favorable to borrowing money which is what feeds in large measure the real estate markets as the vast majority of buyers take out mortgages. The very low rates as well as very low down payment loans and lenient lending standards helped build momentum for a recovering economy and the dramatic rise in real estate prices that peaked in '07 in what was a classic bubble.
This happy scenario was inevitably followed by the downside of foreclosures and tumbling prices to where we are today, at roughly 35 percent off the peak in this region.
We read in the media of the real estate recovery and to be sure, parts of the country have definitely experienced some notable reversals of fortune such as San Francisco, Seattle, Portland, Manhattan, Miami, and even Boston in the Northeast.
In the Berkshires we have some forces at play that act as headwinds to a stronger recovery and which have been slowing the momentum of prices. Not only has inflation been muted as in energy for example but we still face the headwinds of falling population and declining employment, more acute in central and northern Berkshire County but the southern sector has by no means been immune.
Besides the economic and demographic headwinds which have added inventory (supply) and reduced demand there is one other really crucial element to value that is often overlooked by many sellers namely depreciation.
When demand was high, anything could and did sell simply because there were more buyers than homes. Today the opposite is true; inventory far exceeds the demand for housing so unless a property stands above the competition its chances of selling are far less favorable.
How does a property excel? Obviously location is vital however even that can be hindered if the seller has lived in the home any length of time without maintaining and updating the property. Dated properties are much less attractive to young buyers.
Buyers today have so many choices and will naturally choose an updated home when all else is equal. Updates desired include kitchens, baths, updated heating systems, energy saving appliances and construction, homes in "move in now" condition.
Tired, outdated, and out of style homes have significantly lower market appeal and as such will inevitably remain longer on the market without some counterbalancing steps being taken. These would include either correcting the defects or lowering the price to be more competitive.
Unlike antique cars for example which derive their increasing value with time and scarcity, the older a home becomes the more it depreciates in value. With renovations and updating some of the impact of natural depreciation can be offset but of course that also involves an investment of more time and expense to the seller.
Sellers of anything but new homes need to heed the advice of their real estate agents who are qualified to price a "used home". These sellers may have loved and enjoyed the home for years and have difficulty separating themselves emotionally when it comes to pricing. Buyers don't have the emotional attachment. Just like pricing cars on a used car lot, it is essential that the home be priced relative to other homes that have recently sold and which offered similar age, qualities and features.
For 2015 and the foreseeable future it does not appear likely that inflation will return, that demand will outpace supply or that employment will return to the area in significant numbers. As such any home that is 4,7,15, 30+ years old cannot by the law of economics increase in value without offsetting repairs and substantial updating.
If you want to fly, there is no sense in ignoring the law of gravity and if you want to buy or sell real estate, best to keep the law of real estate market value equally in mind.
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Be A Contrarian
Following "conventional thinking" definitely has its merits. Knowing others have gone before you is comforting and therefore they can't ALL be wrong. Right? Not necessarily. In fact once the crowd hops onto a trend in the stock market, that is frequently a sign of a top in that market and thus those who jumped late on the band wagon will be the biggest losers.
Do you remember 2005, 2006 or even 2007? Real estate was everyone's darling and buyers were piling on top of each other, putting in competing bids and selling prices were often over listing prices particularly in the really hot markets.
Those who jumped into real estate in those years have found the rug and the floor pulled out from under them and if they had to sell, significant losses have often been the result. Values fell 30 percent from the very peak and anyone with less than that in equity (over an mortgage they may have taken to purchase) has had their equity wiped out. Not a happy condition. We have all read the stories of the sub-prime lending that was rampant and home buyers who bought with such mortgages lost their equity and the lenders also took a loss. However the buyers typically had virtually no dollar investment to begin with.
So, now the majority of buyers are holding back. What is the Contrarian approach in this market? That should be clear. Taking a Contrarian approach now could prove to be the very best opportunity to purchase a home we may see for years to come.
With steady economic indicators showing improvement in the employment numbers and hints of inflation in some parts of the economy (food yes, fuel no) it is pretty widely accepted that the Fed will begin raising rates this year and of course that means the cost of financing a home will rise.
Real estate prices have already started to rise in some markets and thus this rise in prices could trickle up to the Berkshires in due course. If you are contemplating purchasing I would think seriously about acting sooner than later so I could not only benefit by current soft housing prices but also pick up a long term mortgage at what may prove in 6-8 months to be historically low rates.
Being a Contrarian can definitely be a bit scary but often the most beneficial course of action.
Best Wishes for a Prosperous 2015
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