bostonbubble.com

[john p]

It is clear that the market is stalling; it's like a motorboat that ran out of gas and is being drifted by the wind. Why isn't it sinking more? It's like the market is weak susceptible to a cold, but is still getting up in the morning and getting into work. I think what is missing is the germ. In the 1990's we had serious job losses. People had to sell. Even if someone who bought 10-15 years ago thought they had to sell now, their mortgage might be less than anything they'd downsize to and if they refinanced with rates lower than what you'd get now, they'd be even worse shape to sell now. With unemployment and cash reserves, people can usually weather a typical storm of a 6 month job loss....

Why would someone have to sell other than the folks in the ARMS? Where are those locations? Why wouldn't someone ride out this low tide?

I think what might come into play are four major things:

property taxes:

Older folks might just say to hell with paying these property taxes; I'm out of here.

Opportunity costs:

Developers might take a loss on a real estate investment to take advantage of another more lucrative investment.

People waiting to retire might be enticed by the buying power they have if they move now to Florida seeing that Florida's real estate situation is much worse than ours.

Macro Economics catch up:

We do catch the cold and the day of reckoning comes. All those crazy charts with the spikes in the last four years come down to reality. Some folks decide to be in a better, less risky situation when that day comes.

Meso Economics catch up:

If some towns or neighborhoods are immune to current market conditions in surrounding areas you'll get hot and cold spots. As things tend to drift towards equilibrium, you'll find that people will step back and start to scratch their heads when one town might charge $1 Million for a house where 3 or 4 miles away, that same structure and lot might cost $500k.

I'm curious what people think?

[Mike]

I think you think too much John.

[john p]

You're right. Does anybody know how to create an elipse by slicing a cylinder on an angle?

http://www.wolaver.org/teaching/TAseminar.htm

See Hilbert's diagram about a 1/3 of the way down. What is the formula or the proof to lay it out geometrically? Everything I find about this guy is written in Spanish...

These guys without computers were total mad dogs.

Real estate comes down to the ratio of buyers and sellers and the disposition of them. Meso and macro will come into play.

The meso as I describe will be like this:

http://www.sci.sdsu.edu/SERG/restorationproj/mojave%20desert/deathvalley/fig5.jpg

The cracking is due to some wetter areas than others and the drying out creates diaphram tension (adjacent towns having dissimilar trends, up and down). The tension rips the fabric like these cracks.

The bubble (amount of buyers attending open houses in Norwell) might be larger than those buyers going to Pembroke in prior years. The towns with the lower buyer to seller ratios see more price drops due to the negotiation power of the buyers. Other buyers that are competing with themselves in other towns might wake up to notice that there are other ponds that nobody else is fishing in.

The other thing is that even if the power is in the hands of the buyers, if buyers never show up to take advantage, the statistics won't ever be recorded because the sales never happened....

[john p]

potential:

http://dictionary.reference.com/browse/potential

kinetic:

http://dictionary.reference.com/browse/kinetic


Think about the fact that sales are down. That means that the number of transactions has dropped. Now, if people aren't buying, inventory grows right? Well pent up demand also grows too, but there aren't stat's on that. I'm just saying keep that in mind.

[john p]

http://www.amazon.com/Mathematics-Physicists-Dover-Books/dp/0486691934

This book is amazing. I don't fully understand most of it yet, but it gives you the building blocks for understanding the order of how things happen in nature.

I guess when you study numbers in a static mindset you're just an observer. When you can see dynamics in numbers you can project and predict action.

Everything goes back to that Periodic Table.

In Business School they talked about Marketing. From what I gathered it was about creating an electric field to create excitement and induce the behavior of buying. It was about putting someone in a state of mind to buy. Shiller talks about irrational exhuberance right... That sure sounds like the perfect electric field needed to create that type of activity necessary to create a bubble.

People are sober now, the beer goggles are off.

I also think it is a good thing to think. Conventional wisdom is gold, but I think it is also good to benchmark against everything you can. It's kind of like getting a warning for a tsumani that could come out of nowhere. Conventional wisdom does in fact have a warning for that even: some guy found out that there is usually a spike in missing pets before an event like that. If you can get a sense of the tell signs you'll better understand those risks.

What is very disheartening for this generation is that those that played by the rules have fallen behind and those that rolled the dice seemed to catch a big wave. If this generation does need to deal with risk (the age of turbulence according to Greenspan) I really recommend understanding the art and dynamics of exhuberance and the potential of a slow market.

[john p]

Here is a proof that is not rigorous but appeals to the intuition:

Every dog that wears a bandanna knows how to catch a frisbie.

http://www.eurekaphotos.com/details.php?image=ADG04FSB1-PPT1244&terms=All&type=category&page=2

[spork]

I noticed this blog a few months back and have been reading it periodically, so if some points are redunant based on previously covered ground, I appologize.

I don't think you are going to see the market sink here in MA. MA is not positioned like CA and FL etc with the higher number of subprime loans and overbuilding?(overbuilding is my speculation). The economy is okay here.

That being said, I do think you are going to start to see the mkt "correction" really materialize and pick up very significant momentum this winter in MA.

obviously many issues are at play, here are my main points

Reasons:

increased national and local coverage of thehousing slump-last weeks national coverage (speculation that mkt will be down thourgh '09), this weeks local sept data- don't underestimate water-cooler talk

not until recently has the MAR and warren report data discrepancy really been publicized-MAR does not include the bottom portion of the bell curve skewing the data. no foclosures and FSBOs which tend to be

with all that being said, realtor mkt spin just doesn't work as well as it use to

data like the S&P/Case-Shiller home price index for the boston metro lags beind almost 2 months...this has been up slightly over the summer-I would say it has been roughly flat. But in this down mkt, that is what you would expect...flat during the traditional "hot" selling/buying months, and down in the "cold" months. conversely, in an up mkt, it has shown to be relativley flat in the winter and really climbs spring through fall. this number will begin to decline again... more bad news for the mkt- i guess we will see how august was in a week

and the final reason as suggested by john p in part,"meso economics" ...desirable locations are still stable...but not for long. The wave in skyrocketing housing prices that splashed over worcester a town or 2 west is receding east...and no town is immune or "insulated" for long. these will decline eventually... By desirable i mean nice town, less commute 2 work for most in many cases...each adjacent town will put downward pressure on the next moving eastward over this winter. people who work inside the 495 belt will not have to settle as much....

note WBJ today: worcester county sept sales down 46% compared to 06! Now why isn't that big news...or at least highlighted int he warren group press release.
(also population change 2000/2005 worcester metro +5% boston metro +1% resectively if i remember correctly....now why is that??? mmm....could it be people settling west due to home prices?)

main reason why it won't sink/plummet: thread topic
most sellers do not have to sell
inventories not significantly rising

my best guess: bottom out march '09 around low 150s on the S&P/CS index be flat for a year or two-high in summer -maybe visit mid/low 150's again a subsequent winter or two b4 it trends up

duration (inflation, time value of money) accounting for half of the correction

just started typing away, not sure if this was very cohesive, any thoughts?

[john p]

Think about it if you're a mortgage company in a suffering industry right now. A huge amount of loans are slated to reset in early 2008 right? If the market tanks and tons and tons of people foreclose, do you think that that is a good thing for the mortgage industry? Barney Frank is trying to push through legislation to put them on the hook for stuff they never were. Don't you think that the banking and mortgage folks want to plug a hole into this before it blows open? I mean think of it this way, companies don't hire people to lay them off. It is expensive for the mortgage industry to go through what might happen.

As far as buzz is concerned, Septembers numbers have a lot to do with the interest spike in the past few months. Interest has come down a lot in the past month. Like this guy is saying, if you take this bad buzz into the slow season, it could be a cold winter. Mortgage and banking companies might be afraid of being too upside down if the market really corrects.

Second about buzz, buzz cost money. Casinos pay for research, and I'd guess most of those studies that are being cited were paid for indirectly by the casino industry or those that favor casinos. Fair and honest research is not paid for for anti-casino folks; people need to rely on common sense. The market bubble was fueled by a buzz paid for by the realtors and the mortgage industry. You had a lot of people being paid to pump up the bubble and now keep it inflated.

I mean you can study the numbers, but trying to be in tune with people's perceptions is also important because if the market doesn't make sense it doesn't matter, it is the reality you live in. I am mentally trying to get around any thing that might contribute to those spikes other than the interest rate drop. For instance, the way inflation is determined may have changed and in turn changed the nature of the readings... I know this doesn't close the gap much, but I want to know these details.

[BigRock]

The ratio is simple.

The percent of people that have to buy : 0%
The percent of people that have to sell : infinitely larger

Noone HAS to buy a house, the entire society could rent.

But as for people who have to sell, if there is a job loss, medical problems, etc then yes they HAVE to sell i they can't pay their mortgage or taxes.

[BK- Former Owner]

Everyone is missing the popint of what drove this Real Estate - IT WAS A CREDIT BUBBLE! We are still in midst of the Credit Bubble being deflated and its sure to be a painful process.

With easy Credit out of the Market you will see the cost/price of homes drop. Most families that are just starting out have a very hard time raising a down payment of greater than $50,000. The added wrinkle is that the USA could continue on this Inflation trend. ITs even more difficult to save when taxes, food, and gas are climbing at a rate of 4-6 % per year.

This will create great buying opportunities with those who:
1. Sat on the Sidelines of the Housing Bubble
2. Have invested their nest egg in things that increase in value during Inflationary economic policies.

[admin]

[Eti]

You know what I wonder, with MA's job market and now with the mandatory health insurance soon people will not be able to buy food let alone a $500K house. Look at the statistics, how many people in MA or in entire US make over $150K/year so that they can buy a $500K house. Noone is looking at the reality. There is a game everyone is playing, and noone seems to open their eyes and look around. I do not understand how we can even think about the future of housing market when a median home is $300K and median income is $50K.

[JCK]

Admin,

I wonder if you and she aren't talking about two different things. In the quotes you've pulled, she says "don't bother making an offer more than a few percent below what the home is worth." From your comments, I deduce that you're talking about the about the seller's asking price, which may be well above what the property is worth.


Just my two cents.

[admin]

[JCK]