bostonbubble.com

[Former Arlingtonian]

Markets are very difficult to understand until you start diving into the data and some times individual data points allow you to understand how market participants are behaving.

There is a ton of high end real estate for rent because it takes a very long time to sell $1-$3Million properties.
http://bostonluxuryrealestate.com.birdview.net/homesearch.htm?scope=ALL&id=58190908&action=detail

I came across an beautiful property for rent 6 Oak Park Circle, Lexington-MA - for $10,000 per month or you cna buy the home for $$2,239,900. What makes this home particularly interesting is because it is owned by the current Dean of Harvard Business School (and shouldn't he be pretty smart about money and investing). The Dean dropped the price by $100K according to Zillow incase any readers are looking for a good deal on a beautiful home in Lexington (the bonus is you get one of the best school systems in the nation).

The current mortgage is $1.15 Million and the annual property taxes are $30,000. When the Dean of Harvard Business School bought his home for $1 Million and he had a $750,000 mortgage. Like many today the Dean's outstanding mortgage has grown over time while his property value has increased. When the Dean first borrowed the $750,000 Mortgage rates were in the 7.7% range and today we are nearly 50% lower at 4.2 %. With Costs of borrowing 50% cheaper the Dean hopes to sell is home for 100% more than his purchase price (same expectation of the 1997 buyer who bought a ranch in Arlington for $236,000 and current for sale for $459,000 (expectations have been set by prices determined by low interest rates).

The Dean has worked hard, is well paid, has Harvard University provided housing, but his mortgage debt has expanded over time. Yes, the Dean is a wealthy guy and can afford to service the lots of debt. But, consider how easy access to debt inflates asset prices through out the economy and no one seem interested in paying down debt when the Federal Reserve has continually pushed interest rates ever lower. The interest rates become so low that not even the Dean of Harvard Business School is interested in paying off his mortgage and having a mortgage is considered to be wise.

Bottomline: Low interest rates are a huge source of funds in an economy that wouldn't be growing without individuals and governments steadily increasing their debt and assets such as homes go up while interest rates fall.