bostonbubble.com

[samz]

[john p]

http://www.boston.com/realestate/news/articles/2008/04/13/homing_in/?page=2

Check out the graphics on the left of page 2. Check out the change between 2001 and 2002. House prices went up from $288.7k to $332.3 while salaries dropped from $74.2k to 73.4k.

I think it was due to stock market dollars plowing into the real estate market.

http://en.wikipedia.org/wiki/Stock_market_downturn_of_2002

In the past couple of years the incomes have been going up modestly and the home prices dropping, so I think the fundamentals are actually better now than in many prior years. I think Massachusetts will come out of this before the majority of the nation. I also think that the recession may last a while, but based on pent up demand and improving income to price ratios in the past couple of years, I think that it won't collapse and perhaps has the potential to bottom in many locations.

[john p]

Plus, in 2000, the interest rate was approx. 8.5% so the $275k mortgage yielded about a $2,114 mortgage payment.

Today's $399k with a 5.75% mortgage rate yields about a $2,328 mortgage payment.

Between 2000 and 2008 you're making $20k more, so the extra $214 a month is covered by the extra $1,000 in the salary growth.

Also, if you bought in the year 2000 you'd have just 23 years left on your mortgage and most likely got an opportunity to refinance.

Before you think we get a crash ask yourself honestly, how the United States who is in a similar boat as many other nations could fall independently of other nations. If we get a correction, I wonder if it will be an inflation or wage correction or currency correction, but whatever the changes are, the fundamentals will remain close to the norm based on the three primary components: median house price, median income, and mortgage rate. I think things like the 2002 stock market collapse will deform fundamentals temporarily, but they will eventually migrate back to the historical fundamentals.

[Guest]

i think those numbers are a little misleading-- 2000 mortgage the year at 8.32 and went as high as 8.71 but ended at 7.58... 2001 was 7.3 to 7.34 and ending at 68.5... and the lowest month in 2003 was at 5.43...

als with recession comes unemployment and underemployment which could easily take away any modest income gains we have seen

I do think this market is slightly more insulted due to lack of huge development but looking at cost of living and salary fundementals this market will continue to go down...

If the 8.7% to 12% form 2005/6 highs that has been reported in the boston market was reflected in all RE maybe we would be closer to the bottom- but it is not.

I believe the people on the sidelines are going through the kubler ross model-- 5 stages of gried: anger, denial, bargaining, depression acceptance. Where do you think the typical 2004/5/6 buyer is in that stage? or the typical real estate broker? This is not an easy pill to swallow.

[BK]

Samz,

Yes - discussing College Costs seems off topic - but, its the loose Credit that has driven Real Estate and College costs. Many parents have used Credit to extract Equity from their homes to pay for the absurd price of College.
Cutting Edge research doesn't and won't die back with cut backs.

Your belief that we can't cut back on spending demonstrates how screwed up the system is .
Young couples have to have a 2,500- 3,500 sq ft home for the children to live well and a giant SUV. The oly way to acquire either of these for most people is CREDIT!
This logic will die with tighter credit standards - and we can start living within our means.

[stillRenting]

@BK

...I also want a pool.

[john p]

Median Price to Median Income Ratios: Source:

http://www.boston.com/realestate/news/articles/2008/04/13/homing_in/?page=2


2000 - 3.78 Price - $275.7k, Income - $73.0
2001 - 3.89 Price - $288.7k, Income - $74.2
2002 - 4.54 Price - $332.3k, Income - $73.4
2003 - 4.68 Price - $356.9k, Income - $76.2
2004 - 4.79 Price - $387.6k, Income - $80.9
2005 - 4.84 Price - $411.1k, Income - $84.9
2006 - 4.48 Price - $403.4k, Income - $90.1
2007 - 4.23 Price - $399.0k, Income - $94.2

Monthly Mortgage (principal based, again, on Blanton's article for median price, assume 20% down using July's mortgage rates)

2000 - $2,032 @ 8.35%
2001 - $1935 @ 7.25%
2002 - $2,084 @ 6.75%
2003 - $1,972 @ 5.45%
2004 - $2,111 @ 5.45%
2005 - $2,279 @ 5.75%
2006 - $2,340 @ 6.5%
2007 - $2,430 @ 6.75%

CPI (Inflation)

source: http://www.bls.gov/ro1/9150.htm

2000 - 4.3
2001 - 4.3
2002 - 2.6
2003 - 3.8
2004 - 2.7
2005 - 3.3
2006 - 3.1
2007 - 1.9

The next exercise I need more time to do is a year over year summary of the entire context. I believe that the cost of living including and surrounding housing outpaced wages and although mortgage payments grew more modestly due to the interest rates, the affordability issue became more of a problem as people became more burdened by bills. Further, property taxes increased at least 2.5% each year, so the tax burden in addition to inflation costs are causing people to fall behind.

[john p]

If you take the $2,033 mortgage of the year 2000 using the $275.7 @8.35 and ran it out each year at a 3% increase, you'd get $2,500 in 2007, so factoring in interest, the actual mortgage payment is growing just under 3% based on my calulations. If I'm wrong please let me know, thanks...

[john p]

One other very important point, is to see what quality you get for the price year over year.

I would take the type of home I was targetting in the target market and see what price it was selling in 2000, 2001, 2002, etc. I think that you can sort by price ranges in a given year and then you take those addresses and drive by them and see if the quality of what you got for the money has changed materially.

My point is that what the median can pay stays fundamentally pegged to normal increases like 3%. The deformation due to interest rates skew the price numbers for sure, but researching the Shiller's sales pairs like Admin. suggests gives you a better feel of how much bang for the buck the median has the power to buy.

[Boston ITer]

[samz]

[john p]

http://www.gse.harvard.edu/news_events/features/2006/05/02_long.html

http://www.highereducation.org/reports/affordability_supplement/affordability_1.shtml

Many of our younger real estate buyers today are buried in student loan debt.

It always bothered me that people complained that people were using their homes as ATM's, but to pay for college, most families were forced to do so.

[BK]

Samz,

Your comments speak volumes. Student Loans are good! Please don't get offended - I'm sure you are a great teacher - but, education costs are sending Towns and parents to the poor house. Towns budgets are 60% or more related to education and many families borrow to finance $160,000 College educations. Not all Students end up in a career that requires a $160,000 education.

You'll know the economy is finally on the right track when more and more of your fellow teachers are replaced by On-Line learning and many students will opt for a technical or trade school in place of college. With the withdrawl of credit from the Housing and College systems - things will have to be done in a more Cost effective way - cheaper.

Most Colleges I've seen have had their own Housing/Building Booms in the last 10 years. Many of them have expanded to support todays student population that is the Biggest in the history of the USA.

But, its OK to over spend on Education (the education insiders will tell us) - because its for the Children.

PS: I am a Parent.

[admin]

[admin]