bostonbubble.com :: View topic - Housing crisis - why it may (continue to) become worse

bostonbubble.com
Boston Bubble - Boston Real Estate Analysis

FAQ

Memberlist

Usergroups

Profile

SPONSORED LINKS

Advertise on Boston Bubble
Buyer brokers and motivated
sellers, reach potential buyers.
www.bostonbubble.com

YOUR AD HERE

Go to: Boston real estate bubble fact list with references

More Boston Bubble News...

DISCLAIMER: The information provided on this website and in the associated forums comes with ABSOLUTELY NO WARRANTY, expressed or implied. You assume all risk for your own use of the information provided as the accuracy of the information is in no way guaranteed. As always, cross check information that you would deem useful against multiple, reliable, independent resources. The opinions expressed belong to the individual authors and not necessarily to other parties.

Housing crisis - why it may (continue to) become worse
Goto page Previous 1, 2, 3 Next

bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond

View previous topic :: View next topic

Author

Message

mpr

Joined: 06 Jun 2009
Posts: 344

Posted: Thu Aug 27, 2009 2:38 pm GMT Post subject:

admin wrote:

mpr wrote:

Buying bonds is about keeping interest rates low, which is about
helping housing which is about keeping the banks solvent.

Buying the mortgage backed securities was about taking toxic assets off banks' books, not about keeping interest rates low. The narrative matters, in this case. It's the difference between a temporary measure and a permanent distortion.

I dont think they were buying the toxic securities, but just the
securitized Fannie/Freddie loans. I forget all the acronyms, but the
one to deal with toxic assets was PPIP and it never really got off the ground.
As far as I understand they bought or planned to buy about a trillion dollars
worth of plain vanilla conforming Fannie/Freddie loans.

Here is one account.

http://www.nytimes.com/2009/01/06/business/economy/06feds.html

According to the NYTimes the program is explicitly aimed at
"reducing the price of mortgages and making home loands more affordable".
(= propping the housing market).

mpr wrote:

The issue is what the existing trends are. Prices have ticked up,
unemployment looks like its peaked. So where is the extra pressure to
crush the comparatively resilient Boston market going to come from ?

Hold on... prices are still falling in Greater Boston. Check out that CNN article: the most recent data point is an 8.3% nominal year over year decline. The latest MA unemployment numbers were also up over last time. What's the basis for assuming local unemployment has peaked?

- admin[/quote]

Year on year yes. But a lot has happened this year !
I dont expect the coming one to be quite as exciting.
Your chart (based on C-S) shows a month over month uptick for several months now.

I dont know about local unemployment, but why would you thihnk
local trends would be significantly different from national ones
(which include basket cases like California).

admin
Site Admin

Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

Posted: Thu Aug 27, 2009 2:59 pm GMT Post subject:

mpr wrote:

According to the NYTimes the program is explicitly aimed at
"reducing the price of mortgages and making home loands more affordable".
(= propping the housing market).

OK, point taken.

mpr wrote:

Year on year yes. But a lot has happened this year !
I dont expect the coming one to be quite as exciting.
Your chart (based on C-S) shows a month over month uptick for several months now.

The month over month price shows an uptick every spring, though. (I think you might be referring to the MAR inflation adjusted charts since the C-S ones haven't been updated recently.) The uptick has been bigger this year in the sense that the year over year declines have been significantly less shallow than last spring, but they are still declines. The trend is still down even if it hasn't been as steep. And I again attribute much of this "improvement" to the $8K tax credit.

mpr wrote:

I dont know about local unemployment, but why would you thihnk
local trends would be significantly different from national ones
(which include basket cases like California).

Boston is not a microcosm of the US. Unemployment will be heavily influenced by local factors for a variety of reasons, including but not limited to: the composition of local industries, tax and regulation differences, and demographic differences, to name a few. In fact, if I remember correctly, Massachusetts unemployment has actually been lower than national unemployment, which may go some of the way toward answering your earlier question about why the correction has been less severe here (so far). If you accept that employment trends are locally dominated, the trend is still toward more unemployment. If you think national factors are more important, MA unemployment is still rising and it has some room to continue rising before it hits parity with US unemployment. Either way, I don't see a reason to think the local rise in unemployment is over yet.

- admin

GenXer

Joined: 20 Feb 2009
Posts: 703

Posted: Thu Aug 27, 2009 3:14 pm GMT Post subject:

People are leaving MA more than they are coming in. Right now most local companies are holding their breath. They can be holding their breath for a while before they suffocate, but the tax cuts are set to expire next year, and taxes are increasing as we speak, while revenues are falling. Bailout money is going to run out in 2 years, and this is when the state will try to raise more revenue by raising taxes. This is just one episode of the whole scenario. What we are able to do in a sense is to drag everything out for as long as possible (unemployment benefits lasting 2 years now). This is not forever. Once this money is exhausted, something will have to give.

Boston ITer
Guest

Posted: Thu Aug 27, 2009 6:35 pm GMT Post subject:

Quote:

GenXer: People are leaving MA more than they are coming in. Right now most local companies are holding their breath.

As you know, the only reason why I haven't left is that I'd grown up here. I suspect that nostalgia can't be a long term motivation for those who want to settle down and start families. The local economy is tenuous, at best, and it's surely not positioned to grow beyond a smidgen, above the day-to-day skeleton crew. In a sense, the whole vying for stimulus money is really all our local entrepreneurs have up their sleeves to keep businesses like health care IT, "Green"-this, etc, going.

mpr

Joined: 06 Jun 2009
Posts: 344

Posted: Thu Aug 27, 2009 7:30 pm GMT Post subject:

admin wrote:

I dont understand the remark about the uptick being related to the
the sharper pace of declines. In any case March-June shows a huge
increase. Much bigger than the usual Spring bounce.
Its gone from $260K to $300K which can hardly be explained
by an $8K credit for which most people dont qualify.

admin wrote:

If you accept that employment trends are locally dominated, the trend is still toward more unemployment. If you think national factors are more important, MA unemployment is still rising and it has some room to continue rising before it hits parity with US unemployment. Either way, I don't see a reason to think the local rise in unemployment is over yet.
- admin

I dont really know much about local employment dynamics.
However I find the argument that unemployment has risen less here
and therefore has room to grow, strange. The fact that it has risen less
indicates that the local economy is on a sounder footing than nationally.

I guess even without knowing specifics you can expect that you have an
overlay of local and national trends. We know what the national
ones are, and MA is doing better than that. Why not expect it to
continue to outperform in the future ?

admin
Site Admin

Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

Posted: Thu Aug 27, 2009 8:21 pm GMT Post subject:

mpr wrote:

I dont understand the remark about the uptick being related to the
the sharper pace of declines.

I was referring to this graph, which is what I thought you were talking about:

I see now you were probably talking about this graph:

mpr wrote:

In any case March-June shows a huge
increase. Much bigger than the usual Spring bounce.
Its gone from $260K to $300K which can hardly be explained
by an $8K credit for which most people dont qualify.

Why not? That's only a difference of $40K. From eyeballing the graph, a typical spring bounce looks like it's around $20. The credit is $8K. People were aware of the upcoming credit before it took effect, and it isn't implausible that those who bought shortly before it took effect mentally discounted their offer price by an equivalent amount to offset what they would be losing, so that's an additional $8K. That leaves the unexplained portion of the spring bounce at a much smaller $4K. That could easily be chalked up to the extra, temporary demand generated by more buyers than normal being lured to the market by a time limited credit. It could also be chalked up to lower mortgage rates.

I am half playing devil's advocate, but I also think you are reading too much into the spring bounce. My point is this is not something that I would hinge the call of a bottom on. It is too early to make that call especially given that the longer term (year over year) data still shows declining prices. If this is the extent of the support for the hypothesis that we've hit bottom, I don't think it's fair to dismiss everybody who expects more declines as a perma-bear.

mpr wrote:

That was not my argument, I was simply stating that if you think Massachusetts unemployment should match the nation's (and I don't), then you should expect it to continue rising.

mpr wrote:

I guess even without knowing specifics you can expect that you have an
overlay of local and national trends. We know what the national
ones are, and MA is doing better than that. Why not expect it to
continue to outperform in the future ?

I don't think that Massachusetts unemployment is simply a function of US unemployment and I would expect local trends to dominate. In fact, US jobless claims just fell, whereas Massachusetts unemployment rose again. Local unemployment is still getting worse.

- admin

admin
Site Admin

Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

Posted: Thu Aug 27, 2009 9:03 pm GMT Post subject:

I was at first playing devil's advocate, but the more that I think about it, the more I think that there's something to the idea that the $8K had a greater than $8K impact. I thought of two more reasons in addition to the ones I listed before. The fact that Massachusetts instituted a program that enabled buyers to use the $8K credit toward their down payment totally changed the pool of potential buyers. It wasn't just people scrambling to take advantage of an expiring credit, it was also people who would not have been able to buy now without it. Surely it increased the pool of potential buyers and therefore demand. The other thing that occurred to me is that the anticipation of the forthcoming credit wouldn't have just directly depressed prices immediately beforehand, it would have depressed prices indirectly by decreasing demand too. More precisely, it would have taken demand from the beginning of the year and shifted it later in the year as buyers would decide to simply delay their purchases a few months. This reduced demand would be another contributing factor to the lower starting prices that make the bounce look bigger than it otherwise would have. - admin

mpr

Joined: 06 Jun 2009
Posts: 344

Posted: Fri Aug 28, 2009 12:37 am GMT Post subject:

admin wrote:

The other thing that occurred to me is that the anticipation of the forthcoming credit wouldn't have just directly depressed prices immediately beforehand,
- admin

Really ? You cant think of anything else that might have been a more
significant reason for suppressed prices during Jan-Mar of '09 ?

I have to admit that I tend to underestimate the significance of the
downpayment for a lot of people, and you could argue that $8K
translates into a 20% downpayment for an extra $40K of loan.
I still have trouble believing this would make such a huge difference,
especially in an expensive city like Boston.

As for unemployment in MA, it turns out that
from July 08 till April 09 the MA economy
lost a little over 100,000 jobs, but since then the number of
seasonally adjusted jobs had remained stable. So the number of
jobs in the economy shows a clear bottom (not excluding a double dip etc).
It has gone from a steep decline until April to being essentially flat after that.
This is perhaps a better number than the unemployment rate which
can be effected by people leaving and entering the work force.

mpr

Joined: 06 Jun 2009
Posts: 344

Posted: Fri Aug 28, 2009 12:44 am GMT Post subject:

admin wrote:

I am half playing devil's advocate, but I also think you are reading too much into the spring bounce. My point is this is not something that I would hinge the call of a bottom on. It is too early to make that call especially given that the longer term (year over year) data still shows declining prices. If this is the extent of the support for the hypothesis that we've hit bottom, I don't think it's fair to dismiss everybody who expects more declines as a perma-bear.
- admin

Well of course once you have really convincing data you've missed the
bottom. Nothing wrong with that when deciding to buy. It may well
be a safer approach.

For what its worth my remark about perma-bears was based on
the tone of some of the posts here. I agree that just being unconvinced
we've hit bottom is not enough to qualify for perma-bear status.

admin
Site Admin

Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

Posted: Fri Aug 28, 2009 1:30 am GMT Post subject:

mpr wrote:

Really ? You cant think of anything else that might have been a more
significant reason for suppressed prices during Jan-Mar of '09 ?

Are you saying that waiting for the forthcoming credit wasn't a significant reason for lower demand beforehand or do you have something even more significant in mind? If it's the latter, you've got me - I'm drawing a blank. Was everybody here in liberal land too busy partying in celebration of Obama's inauguration to buy houses?

mpr wrote:

I have to admit that I tend to underestimate the significance of the
downpayment for a lot of people, and you could argue that $8K
translates into a 20% downpayment for an extra $40K of loan.
I still have trouble believing this would make such a huge difference,
especially in an expensive city like Boston.

It's not the city, though. The numbers you're pointing to are for the Massachusetts median for single family homes which was $306K. That's nowhere near the ballpark of normal homes in the Boston suburbs I've been looking at.

mpr wrote:

As for unemployment in MA, it turns out that
from July 08 till April 09 the MA economy
lost a little over 100,000 jobs, but since then the number of
seasonally adjusted jobs had remained stable. So the number of
jobs in the economy shows a clear bottom (not excluding a double dip etc).
It has gone from a steep decline until April to being essentially flat after that.
This is perhaps a better number than the unemployment rate which
can be effected by people leaving and entering the work force.

Actually, the government's unemployment figures supposedly only count people in the work force, so it should hypothetically give a better picture if you're worried about people entering and leaving creating a distortion. As for seasonal adjustment, it is the seasonally adjusted Massachusetts unemployment that I was referring to when I said local unemployment was still increasing. Do you have a chart of your jobs data that shows a plateau? I'm not sure what would be causing a discrepancy - perhaps a growing population (in recent months) or perhaps people are taking on second jobs to make ends meet now that they can't live on credit so easily anymore.

Quote:

For what its worth my remark about perma-bears was based on
the tone of some of the posts here. I agree that just being unconvinced
we've hit bottom is not enough to qualify for perma-bear status.

OK, good. The (still high) price to income ratio is really the main thing that's keeping me bearish still.

- admin

mpr

Joined: 06 Jun 2009
Posts: 344

Posted: Fri Aug 28, 2009 2:28 am GMT Post subject:

admin wrote:

mpr wrote:

Really ? You cant think of anything else that might have been a more
significant reason for suppressed prices during Jan-Mar of '09 ?

There was a near total financial meltdown !
Just the uncertainty about jobs would have been enough for
most buyers to pull back, and the general level of fear was such
that buyers were demanding big discounts and many sellers were
giving in. I think the biggest reason for the uptick is that much of
the fear is gone.

Apart from that mortgages were incredibly difficult to get during this
period. Things have improved even since then, although there nothing
compared to the bubble days.

admin wrote:

So I would have thought this would make the $8K even less consequential
in Boston, where you're looking. I guess you're saying that since the
data is for MA, you'd need to see the uptick in Boston prices.
I suspect its there (you could look at C-S).

admin wrote:

Here is the link.

http://lmi2.detma.org/Lmi/LMIDataProg.asp

What I was saying that the number of jobs is a cleaner indication of
recovery since it shows how many people businesses are hiring/cutting.
The unemployment number can be affected by new people entering
the workforce, or people leaving.

The chart on the left of the link shows that things have flattened out,
but this is not enough to absorb new job entrants graduating from
college/high school. In theory they should seasonally adjust for that,
but who knows exactly how that works ? Maybe the adjustment only
controls for this effect in a normal year. This is just one of several
possible explanations of course.

balor123

Joined: 08 Mar 2008
Posts: 1204

Posted: Fri Aug 28, 2009 3:22 am GMT Post subject:

mpr wrote:

Put another way, the fact that the Boston correction started earlier
and corrected less than other parts of the country would suggest
that the market is more resilient, less overleveraged and healthier.
If you believe it has further to fall, I think you have to explain
why this hasn't happened already given what's gone on in other parts
of the country.

More difficult to walk away and, more importantly, more protections against foreclosure. For example, our unemployment insurance is among the best in the nation. CA became insolvent before we did. Our government still has a good payroll, which supports housing. Lots of money going to finance sector, which Boston is strong in. If you look at housing prices relative to income in the immune towns, Boston is very highly leveraged!

balor123

Joined: 08 Mar 2008
Posts: 1204

Posted: Fri Aug 28, 2009 3:28 am GMT Post subject:

mpr wrote:

Again, I would argue there's less to this difference than meets the eye.
They had plenty of programs in place which directly helped the banks.
Buying bonds is about keeping interest rates low, which is about
helping housing which is about keeping the banks solvent.

The Fed's official directive is to control inflation. It's pretty clear that they have assumed a new role - protecting the economy. Really, though, there is no political insight. They are represented by banks and guess what banks care about? Banks! Banks profit from a healthy economy but those banks wouldn't be happy about a healthy economy that doesn't include them. This is why an audit is necessary - to know if every dollar spent was absolutely necessary to help the economy and not their buddies.

Quote:

Boston was indeed less overleveraged than other parts of the country.

It seems that we had a lot less of the liar loans that allowed people to be 100x leverage but that doesn't mean we are a low leverage group. We seem to be running about 4-7x, depending on neighborhood.

balor123

Joined: 08 Mar 2008
Posts: 1204

Posted: Fri Aug 28, 2009 3:36 am GMT Post subject:

mpr wrote:

I haven't looked but I suspect that unemployment is relatively low here due to the high unemployment insurance and a big government. This is all fueled by high debt - I've heard the highest per capita in the nation!

Check this out. I'm not entirely clear why CA broke before NY and MA but we can't be far behind - maybe a few years? I think politicians are hoping for a massive rebound and/or state bailouts.

We know that private industry is and has been suffering here for a long time. Employers have trouble raising income for employees, don't want to grow here, and are slowly trying to move jobs elsewhere. This was one of the last major markets that even Google moved into!

admin
Site Admin

Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

Posted: Fri Aug 28, 2009 2:30 pm GMT Post subject:

mpr wrote:

Oh yes, of course. I forgot that this was so recent. I also probably ruled it out mentally because I knew it started in the fall rather than Jan - Mar. I was also never fully convinced that the financial crisis wasn't WMDs Part II.

mpr wrote:

Yes, I'm saying the uptick in MA median wouldn't say much about a bottom in Greater Boston even if it occurred in the absence of complicating factors like the tax credit and financial crisis. Ignoring the complicating factors for a moment, not only would the S&P/Case-Shiller Index be better, but you could use the tiered version to see more precisely whether the month over month uptick was most pronounced in the low, middle, or high tier. My guess is that the $8K credit would have the most effect on the low tier and that the financial crisis would have the the most effect on the high tier. I'd graph this out if I had time, but I probably won't anytime soon.

As for the impact of $8K on a down payment, the way people talk on here and on other boards, the idea of a 20% down payment sounds downright quaint. The $8K will go much, much further if you put a smaller percentage down. There are FHA(!) loans for as little as 3.5% down. That plus the the advance on the tax credit would let somebody bringing absolutely nothing to the table buy $230K worth of house. I don't know what the average down payment is, so this is hypothetical, but I would be surprised if the $8K didn't significantly expand the pool of people who bought by virtue of completing a down payment that they wouldn't have otherwise had. $230K may not be a whole house in Boston, but it's about halfway there.

- admin

Display posts from previous:

	bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond	All times are GMT Goto page Previous 1, 2, 3 Next
Page 2 of 3

You can post new topics in this forum
You can reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum