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Components of Price Correction

 
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Jun 07, 2007 3:13 pm GMT    Post subject: Components of Price Correction Reply with quote

1. Defining the Peak: Keep in mind that the peak is really the (ASKING PRICES in 2005/2006). Asking, not sales prices. Some people didn't know that the bubble ended in 2005 and added on 7-10 percent to 2005 prices in 2006. I believe to understand the correction you need to add this surcharge to the drop.

2. The drop: The amount the median price drops.

3. Inflation/ Time: If prices don't drop or go up in a two or three year period, it is really a price drop because of the surrounding inflation. Admin's inflation adjusted chart demonstrates this.

3A. Interest Effect: Always run the numbers to the corresponding interest rate; you'll find that it moderates the effect in some instances and magnifies it in others. Run the numbers and look at what the MONTHLY PAYMENT is. The FED used to tie the interest rate to inflation but it seem that by not being on the Gold Standard, we've got bigger fish to fry in calming the World's irrationality let alone our own.

4. Economics: The value of the currency affects the value of the asset. If the dollar drops and the house price remains the same, it takes more dollars to get the asset (which could mask a price increase). The price of gas is an example of a global product, as the US dollar decreased in value the more expensive gas was. This would affect costal or resort areas, which might have an international appeal.

5. "Median/Mean Effect": This can be adjusted by changes in demographics or a redistribution of wealth i.e. to the higher end. This masks some of the effect of the correction. The baby-boom affects the median by making the supply chain uneven. Whether the baby-boom is upsizing or downsizing will affect the median.

6. "What you get for the Money Effect": I'm told that Shiller's Model best captures this. You'll find that the median house price stays relatively constant because the inflation rate is moderate. If buying power erodes it is not picked up with traditional diagnostics. The median will remain the same, but instead of seeing a house, you see a condo.

7. Acceleration: Whether it is a plunge or a price freeze depends on alternative investment vehicles. If the magnetism of housing diminishes, it will be a slow adjustment. If stocks become a better alternative investors might divest their real estate holdings. Opportunity costs in alternative investments will determine the acceleration of the correction as will the financial ability to weather the storm. The sub prime market can not weather the storm; they are the shanties in the path of the hurricane. If more of the bears built their house of brick, the wolf (or whoever) can't huff and puff and blow the house down. Getting a sense of the financial stablity of people will unveil what type of structural rating we can give the fabric.

8. Portfolios: Certain areas of the country have a portfolio of employment. We may have a macro demand for nurses to take care of the aging segment (growing) overall, but we may have too many of one type of service. Being a pioneering center, we will have the "next big thing", but we often have too many of the "last big thing". If you get on any of those salary and cost of living websites, you'll see that different industries offer different things in different areas. In some instances it makes tremendous sense to relocate, but in other areas not so much. It is really a case by case basis.

Boston does have regions and neighborhoods that are areas for the lawyers, the academics, the high techies, etc. The Merrimack Valley was always a location for engineering brains since the days of the canals and textile mills in Lowell. Those same towns have given us the Raytheon’s and all the others. What the hell do these people give their kids chemistry sets and make them fix their cars or something?

If government can give these people the edge and do things like creating new formations of governments like we did for S-Corps, Limited Liability Companies, etc. you can open the floodgates for expansion. Think about when they created Mutual Funds, that was quite an explosion. The areas that can unleash their potential will come out as winners. A good regulatory environment can attract growth. Some of the regulatory environments that allowed for pollution and were a safe haven for laziness will have to deal with cleaning up the mess. We went through that in Boston and had to build on Deer Island. Other parts of the country haven't learned that lesson and are attracting the wrong people. I am not worried about losing business to sleazebags, they can have their business just as long as they don't profit so much that they can send one of their own to Washington.

Gee, my blogs always deteriorate like a good night of drinking.
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john p



Joined: 10 Mar 2006
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PostPosted: Thu Jun 07, 2007 3:44 pm GMT    Post subject: Reply with quote

Who built the houses, the little piggies? If a wolf went to a bear's house, the bear would come out and kick it's ass. The bears had the porrige; that's right.
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Dorchester grandma
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PostPosted: Thu Jun 07, 2007 5:47 pm GMT    Post subject: Boston's neighborhoods Reply with quote

Quote:
Boston does have regions and neighborhoods that are areas for the lawyers, the academics, the high techies, etc. The Merrimack Valley was always a location for engineering brains since the days of the canals and textile mills in Lowell. Those same towns have given us the Raytheon’s and all the others. What the hell do these people give their kids chemistry sets and make them fix their cars or something?


This is true however Boston used to have areas for its working class. Dorchester, Roxbury, and outskirt cities like Revere, Chelsea were areas where blue collar and service workers could find a decent place to live. Although these areas may be cheaper than yuppie communities like Arlington and Newton, they are still very expensive for working class people to live in without paying 3/4 of their income for rent or astronomical mortgage payments.

Many people are priced out EVERYWHERE even if they work 2 jobs. And how could this city function without nurses aides, retail store clerks, and daycare workers? Who would serve up those Burger King meals?
(I work with mentally retarded folks. It is hard work but much needed. Somebody has to do it. And by the way Mitt Romney vetoed our little 2% pay raise every year. Fortunately the Dem legislature overrode his veto - every year. Thank God he is gone!)
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Jun 07, 2007 6:18 pm GMT    Post subject: Reply with quote

I think on the entry level affordability segment, these folks are being hit on both sides.

Obviously, private sector white collar people are filling in the housing stock that used to be for the working class.

Also, illegal immigrants are filling the demand for the working class services. It's a dirty little secret of Massachusetts, the "progressive state". Even Mitt's had them cutting his lawn. It was rich people's statement to the working class: "If you're not willing to live for unfair pay and awful conditions, we can find people that will." Now the white collar people are facing the same question that they posed to others. I have no problem with immigrants; it is just that if some people aren't paying taxes and fees, they can hurt those that do. This was the class warfare that nobody wants to admit, when the rich got squeezed, instead of rallying and circling the wagons with their fellow citizens, they opened the door for illegal’s, tried not to give civil servants a cost of living adjustment, and made up the difference by cutting costs by hurting the working class that serves them. It is the people that don't forget where they came from that are bothered by this. It adds insult to injury when these rich right wingers pretend to be red white and blue and Christian. Tom Delay, Mr. Sweatshop, a model Christian. Do you know why he comes from Texas? It is because they are dumb enough to believe that he has American and Christian values at heart. You’ll see, in 20 years they will turn their state into an ash tray and all the rich will move out and exploit another state or country that is willing.

The other thing I think is that on the lower end of income scales, people pay less if any taxes. The incentive of the tax shelter for buying doesn't apply if you don't pay much in taxes to begin with. The trouble for Boston is that even though 35k in Kentucky is a lot more than 35k in Boston, the contribution of tax brackets is constant across the country. Even the "Jumbo" loan amount of $417k, it buys a ton of house in other areas, but much less in Boston. Many need to take a "piggy-back" loan to get over that amount even though they fundamentally qualify for a larger amount.
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Hank



Joined: 27 Apr 2007
Posts: 37

PostPosted: Mon Jun 11, 2007 2:37 pm GMT    Post subject: Re: Boston's neighborhoods Reply with quote

Dorchester grandma wrote:

This is true however Boston used to have areas for its working class. Dorchester, Roxbury, and outskirt cities like Revere, Chelsea were areas where blue collar and service workers could find a decent place to live. Although these areas may be cheaper than yuppie communities like Arlington and Newton, they are still very expensive for working class people to live in without paying 3/4 of their income for rent or astronomical mortgage payments.


Actually, when I moved to Boston 10 years ago, I lived in Newton (2 places- 5 years each). The first was in Newton Corner, the second was on Commonwealth Ave in Newton Center. At both places the rent was well valued for the market, especially the Newton Center house (and it was a house, $1425 per month, 4 bedrooms, bath and a half, nice living room, kitchen, basement with washer and dryer, utilities not included.). Deals exist, you just have to dig for them.

The big dirty secret about Newton however, is that it is really about half working class. Outside of Newton Center, and Newton Highlands, and the areas near Brookline (on the hill going up Center Street), the rest is very blue collar.
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Dorchester grandma
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PostPosted: Mon Jun 11, 2007 5:36 pm GMT    Post subject: Newton Reply with quote

Parts of Newton used to be somewhat working class. Newtonville was a combination of professionals and working class. And then there was Newton Corner.

Years ago when my 29 year old son was a baby, I lived in a large apartment at Newton Corner. The turnpike noise and carbon monoxide emissions were awful and are probably worse today.

I remember being awakened every day by the trucks going by my window at about 5AM. Although I can hear Dorchester Ave. traffic one street over now, it does not come close to the constant noise (and toxic exhaust fumes ) from the turnpike. I would imagine that Newton Corner might cost a little less than other parts of Newton.
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PostPosted: Thu Jun 14, 2007 4:16 pm GMT    Post subject: Reply with quote

Yes, there are many parts of Newton that are still working class today -- like Nonantum, where I live. A majority of these people are living in the home their parents handed down to them. Less than 10% of this village had a 6-digit household income in 2006. Now they are reaping the benefits of the great school district and close proximity to Boston while paying zero mortgage and living off their $40k/yr blue collar job.
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AgentGrn



Joined: 28 Sep 2006
Posts: 82

PostPosted: Thu Jun 14, 2007 7:51 pm GMT    Post subject: Reply with quote

That's all well and good, but where are THEIR kids going to settle? That assumes, of course, that the hand-me-down homeowners don't just cash out and move to another cheaper part of the country.
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john p



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PostPosted: Thu Jun 14, 2007 8:22 pm GMT    Post subject: Reply with quote

Hey Mush! Very Happy
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john p



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PostPosted: Thu Jun 14, 2007 9:40 pm GMT    Post subject: Reply with quote

http://borderlinenewtonwaltham.blogspot.com/2005_09_01_archive.html
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PostPosted: Thu Jun 14, 2007 11:53 pm GMT    Post subject: Reply with quote

I was at the recycling center the other day and after the guy found out I just moved to Nonantum, he kept saying "The Lake! The Lake! Best neighborhood in Newton. Real good neighborhood. the lake! But don't go lookin for the lake. It ain't around no more, but it's the lake!" I saw a bumper sticker today that said "The Lake. Nonantum, Mass" w/an Italian-looking shield next to it. So what's up w/all this pride about "the lake"?
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PostPosted: Thu Jun 14, 2007 11:54 pm GMT    Post subject: Reply with quote

Oh yeah, and I find it amusing that the street sign poles, fire hydrants, and even the center divider on Adams St. going thru the village center are all painted green, white, and red! I think it's great that there's such a close community here, even if I'm not really part of it.
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