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Karl Case is "optimistic" about the housing market
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Renting in Mass



Joined: 26 Jun 2008
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Location: In a house I bought in December 2011

PostPosted: Tue Sep 14, 2010 1:39 pm GMT    Post subject: Karl Case is "optimistic" about the housing market Reply with quote

Here's Karl Case talking about the housing market with NPR.

He says he's optimistic about the market, but his arguments aren't very convincing. He points out that according to the Case Shiller index prices started rising about a year ago. He must know (but doesn't mention) that the index is guaranteed to start heading lower soon. Prices are down now, but it takes a while to show up in that index because it's a three month average with a two month delay. Strange that he would point to the fact that the index is up as indicative of a bottom, but then not mention that it's headed back down in the near future. He also doesn't mention the role that the tax credit played in the rising index.

Another piece of his argument is that you can get a good deal in California. The market in California truly crashed. It went down like 50%. That doesn't really apply to Mass where prices are down only like 15%.
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mpr



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PostPosted: Tue Sep 14, 2010 4:55 pm GMT    Post subject: Re: Karl Case is "optimistic" about the housing ma Reply with quote

Renting in Mass wrote:
He must know (but doesn't mention) that the index is guaranteed to start heading lower soon.


Well, its not quite guaranteed. You're assuming the coming months will be down also. I'm not saying this is unlikely of course. What is fair to say
is that the Case-Shiller number for June was already down. It would be nice
if someone broke this out of the index.
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FreedomCM
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PostPosted: Tue Sep 14, 2010 5:11 pm GMT    Post subject: Reply with quote

And Case is wrong about California too.

The only places that prices are down 50% are ones with 25%-40% U6. It won't matter until prices are down to the level that welfare (if it still existed in its past form) or SSI would support.

And in those areas, prices increased 300+/-50% during the bubble, so 50% off is still 50% more than yr2000, and twice the level of the last trough in 1996.

CA case shiller values in decent middle class areas are still 175. They peaked around 275, and were about 75 at the last trough.
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Renting in Mass



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PostPosted: Wed Sep 15, 2010 3:29 pm GMT    Post subject: Reply with quote

Quote:
You're assuming the coming months will be down also. I'm not saying this is unlikely of course. What is fair to say is that the Case-Shiller number for June was already down.


The CoreLogic data, which is ahead of the Case-Shiller data, suggests that you can add July too.
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PostPosted: Mon Sep 20, 2010 3:19 pm GMT    Post subject: Reply with quote

Case was talking up the market.
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Renting in Mass



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PostPosted: Mon Sep 20, 2010 3:52 pm GMT    Post subject: Reply with quote

That was my feeling too, but what's his motivation?
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housing_bull
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PostPosted: Mon Oct 25, 2010 6:44 am GMT    Post subject: Reply with quote

Anonymous wrote:
Case was talking up the market.


the fed ought to hand out government sponsored bullhorns so that we can all walk up and down our neighbourhoods talking up real estate prices...at gun point if we have to
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Boston ITer



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PostPosted: Mon Oct 25, 2010 8:52 pm GMT    Post subject: Reply with quote

http://www.cnbc.com/id/15840232?video=1622289522&play=1

On the other hand, Gary Shilling is calling for another 20% leg down.
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Renting in Mass



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PostPosted: Tue Oct 26, 2010 12:35 pm GMT    Post subject: Reply with quote

Great video. Thanks for posting it.

Maybe Case and Shilling just like playing good cop bad cop.
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Renting in Mass



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PostPosted: Tue Oct 26, 2010 12:38 pm GMT    Post subject: Reply with quote

Quote:
You're assuming the coming months will be down also. I'm not saying this is unlikely of course. What is fair to say is that the Case-Shiller number for June was already down.


You can put August in the negative column.
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john p



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PostPosted: Tue Oct 26, 2010 2:47 pm GMT    Post subject: Reply with quote

When a market is following a steady course and expectations of sellers and buyers are aligned somewhat, it comes down to affordability. If you look at things from this perspective you can understand why one might assume that the market might have hit bottom.

For example, "affordability reach height" is what I consider to be what the typical buyer for a particular type of house typically is. For example, if you see say a 1,400 s.f. cape in Arlington in a family neighborhod, decent condition for $X amount of dollars, it typically gets bought within a month or two.... Now, lets say that mortgage rates go up, fewer buyers might be available to swing that monthly payment so it changes the buyers to sellers ratio and that house might sit on the market for a few months. To a guy like Case, he must be like saying hey, How is it that typical families in Massachusetts were able to swing $X amount of dollars for that cape in Arlington when the rates were like 7% and now that house is .85X with a 4.25% mortgage rate? Sure, you've got 8.5% unemployment, but you're talking 5 years of albeit modest salary growth for a lot of people since the Bubble.

I think today's market is about "Willingness" to do something. People were willing to spend 4 times their salary when they thought that their salaries were going to double in 5 years. They don't think their salary will double in 5 years and to be honest will be happy if they have their current job next year, so again, they're not willing to expose themselves to risk. The questions us students of the market must be asking is "What's it going to take to get people to do something?" Will people be elastic and snap right back to buying at the recent affordability reach heights or are they now lower for the foreseeable future?

Beyond that, are companies "willing" to pay the commercial lease rates for office space in Boston even if they don't expect a wider profit margin in their business? If not, are Boston's commercial property owners "willing" to lower their rates? What's going to happen to the investors of these REITS when people start to undercut eachother to attract tenants?

Even from a talent perspective, would a talented individual be "willing" to relocate to Boston and live in a crappy and expensive apartment and get worked like a dog to make matsa-matsa money? People are now looking for different types of rewards or benefits in their lives like having balance, having fun, enjoying family and friends and is it really worth it to slug it out and grind and grind until you're burnt out and not really get the rewards you want at the end of the day? Areas that are past their prime have to think about that concern. The other side of the coin is that we already have a lot of talented people here camped out so presumably they'll be coming out with the next wave of new product and service offerings which will create an abundance of opportunities. Who knows? Which way it swings and where is what I'm looking at anyway.

Even in a geographic attribute, people may be "willing" to buy a condo in Dorchester or South Boston when we're in a Bubble, but when they see stabbings and shootings when people are fighting for scraps in a down economy, they're less willing to take a chance in these areas. This is why I see certain inbetween towns getting traffic. On the one hand people don't want to overpay and risk in that regard, but on the other hand they don't want to buy in sketchy areas either. I think of it like what people invest in. For example, during boom times, people buy risky stuff like penny stocks like they say would buy in Mission Hill or Savin Hill, or the premium stocks like EMC or Wellesley; today we see those inbetween investment types and we're actually seeing bubbles in certain types of Bonds. So ask yourself, what is the equivalent of a "bond" in Boston's housing market? However, unlike EMC's plunge in stock value after the dot.com bubble, Weston and Wellesley didn't plunge in value because homes in these areas are just vessels for wealthy people and their either filled by people in the finance industry, real estate investors and a whole range of sources so if one part of our economy sinks, that person in Weston might sell their home, but a person from a segment of the market that is doing ok will come in and buy that house.

A good fisherman watches the birds.


Bottom line is "willingness" to do something goes back to the risk versus reward or cost and benefit and when you reduce the reward or benefit you totally change the "willingness equation".

The reason why D.C. is going up in value is that those people have job security and the government presence created a lot of stability and when they got to take advantage of the subsidies that were really ment for areas that were suffering, they just really enjoyed the benefits.

I agree that affordability helps long term, but if government has contributed to the bubble, they should try to step it down incrementally and not let it crash. Sure there were irresponsible people but a lot of people are victims of circumstance because that is the hand life dealt them. We're talking ten years of housing bubble/bust and that is a long time to sit around and wait it out.

The reason why I think the banks ought to be eating more of the shit sandwich is because people like myself are. The banks are getting my premium mortgage rate based on an inflated price; and there are millions of people like myself and wife who are continuing to pay for their homes based on bubble prices. The banks did a risk assessment as to what percentage would go belly up and how many people like myself could hang on and the amout of people who are hanging on are still giving them a lot of money. My mortgage rate of 6.5% is significantly higher than what future earnings and inflation prospects are so the banks are cleaning up on someone like me. Now a guy who bought prior to the bubble can refinance as low as 3.75% to 4.25 depending on the term so just like D.C. benefitted from the bailout so are others who never got harmed by it.

I'm considering using capital from an ESOP payment to buy down more of our mortgage so we can get into a 15 year term (to get the really good rates) in the near future so that is why I haven't refinanced with the closing costs and the PMI right now.

Initially, I was very frustrated with the government intervention and bailout because you don't know to what extent these politicians will take it. If you think Obama is a moderate, you'd expect moderate quantative easing, but if you saw him as a radical liberal, you wouldn't know what to expect (which is why people on either side don't understand eachother as well).

This election is about whether or not the citizens think it is wise to absorb the risk of carrying a lot of debt versus administering medicine that can keep us alive now. Because people don't understand how this medicine can help us and because that medicine that has been administered hasn't kicked in, they're more afraid of the debt. It was a hard sell and it is hard to compare to what might have been, but they were limited in that regard because they said that if we passed the Bailout unemployment would be a lot lower already and that didn't happen. The fall back argument is that they didn't understand how bad things were, which basically begs the question, if you weren't able to determine the nature and depths of the problems, how can you guarantee that this is the best approach?

I also think that Obama's success is part of his problem right now. Let's say that the American public shifts gears as necessary from left to right and right to left, because Obama got the Health Care Bill passed, that is a massive undertaking and maybe they just feel, ok, that was the big score and we can't now add to that with other massive spends like Cap and Trade and shifting to the right is just the American's priority to take a bite out of the right side of the apple. Our Democratic process is designed to arrest and gum up if an Administration is out of touch with the people.

In the end, what Obama is experiencing now is kind of like what a lot of modern age professionals are experiencing. Think about how many people deliver something pretty big and once their done they get their walking papers. Sometimes because of the pace of things, lifecycles, etc. job security isn't always based on doing a good job, if the market sees you as someone they can plug in and out you're on an "as needed" basis and if people are in that category, they're not "willing" to take on long term risk of buying a home.

Sadly, sometimes those that go for the glory get spit out as soon as they have achieved what they set out to do because the process of driving change can make certain people uncomfortable. Its like on the show Survivor, some of the status quo people who fall under the radar stick around longer.

The Catch 22 of our generation with respect to Health Care was preexisting condidtions. Let's say that a person never buys health care until they get diagnosed with a serious condition at which time they decide to then go out and get insurance. It's like wanting to buy car insurance and get coverage after you get into a car accident. Is that fair to all those that are paying into the system when they don't have a preexisting condition? On the other hand, what about switching jobs and being denied coverage, that doesn't work either. In the end, we had to create a way where out new health care abilities could reach the widest range because that was the right thing to do, the problem was that our system was just too progressive and you had way too many people expecting a free lunch with delusions that there was an endless supply of money. Because too many people are selfish, they'd abuse the benefits of expanded coverage and their dead load on the system would be too much for the sled dogs who actually pull society. I think if with this Health Care Bill they had a parallel campaign that would support the social values necessary to make it work such as a public campaign shunning those that would abuse and tax health care unnecessarily and you saw public opinion galvanizing around these values you'd at least feel more comfortable that if we had an "open bar" policy so some respect that people wouldn't act like boozehounds and abuse it. Because they needed people to believe that they were "entitled" to a home, "entitled" to free health care, they just had too many people expecting something for nothing and because of that the ones that currently pay into the system weren't "willing" to add in others whom they felt might abuse the situation.

A pretty smart guy told me that we're in a "life raft" situation where at first people pull others on to the life raft until too many people are on it and then the water starts to flow in and starts to sink it, at which point people start to beat away those coming towards the life raft. My philosophy is that we build a bigger boat and you do that by cutting taxes on small businesses. It's not that I'm heartless, I just see a certain level of capacity in the current life rafts and because I want to save more people, I want to build that bigger boat.
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PostPosted: Wed Oct 27, 2010 3:57 am GMT    Post subject: Reply with quote

john p wrote:
... My philosophy is that we build a bigger boat and you do that by cutting taxes on small businesses. It's not that I'm heartless, I just see a certain level of capacity in the current life rafts and because I want to save more people, I want to build that bigger boat.


That was an awfully long windup. What do you mean by small business? We can do a lot to make the recovery stronger by encouraging hiring by small business, in particular by raising income taxes so that the incentive for successful small business owners is to invest in their businesses, not to rake off as much cash as possible. I am living in Europe now, and there is a very healthy small business sector in part of a comprehensive health care system that makes expanding a small business much, much easier. FWIW, the system is run by non-profit parastatal corporations and includes an individual mandate.

Since you have an economics background, do you know of any empirical information about which policy incentives and disincentives encourage that type of job growth? I appreciate your honesty in saying that you are motivated primarily by philosophy, but is there something more that you can offer?
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Boston ITer



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PostPosted: Wed Oct 27, 2010 2:03 pm GMT    Post subject: Reply with quote

Hello John, concerning healthcare ... can we be a bit candid here? The reason why healthcare costs so much is because doctors all make over $160K and surgeons, >= $300K. And in tandem, ancillary health care workers earn from $60K to $140K, depending upon how well their area limits the supply of workers. Remember, the most experienced surgeon in the world cannot work in the US w/o being re-certified through an American or Canadian residency program.

Thus, I propose that health care is another govt/union type of work, unaffected by the laws of supply/demand, found in most private sector work. Thus, we have three tiers of work: govt/union, healthcare, and private sector. Of the three, only the private sector has a dearth of jobs, benefits, and quality of life when one's not an executive or a financial person.

There are MS holders in biochemistry earning $40K or lower whereas the average Pharmacist is at $110K. What significant knowledge base does that Pharmacist possess? Simple, a license which allows him to dispense the drugs whereas the MS in biochem would be tossed in jail for pushing drugs.
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john p



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PostPosted: Wed Oct 27, 2010 2:14 pm GMT    Post subject: Reply with quote

Quote:
That was an awfully long windup.


That's my m.o. bore people into submission.... Smile

I think this website documents the bubble quite well with a pretty diverse range of viewpoints (typically weighted on the first time buyers perspective however), and when we go back and look at the date of any particular entry or response to a set of data, I think it is kind of important to document what kind of stuff is being kicked around in people's psyches.

If you talk to Robert Shiller who wrote "Irrational Exhuberance", he'll tell you that pschology played a big role in the Bubble, so in this context where Karl Case might be basing his optimistic perspective on data that was supported by a psychological context in the past that has now changed and therefore the prices aren't held up by that psychological foundation and therefore isn't supporting the price structure even with the lighter load of significantly lower mortgage rates.

Because my motivation is to really just provide context to the psychology, I lose my audience when I start to take sides. I try to limit myself to what I feel will be policy that works or not and then try to support why. I do this because, say, when I heard Deval Patrick, our State Governor say in his last election that he would lower property taxes, at the time, I really thought that was just a hollow promise and also at the time I was a devout Democrat; he was the first Democrat I actually didn't vote for. I was right, but my motivation was to just throw a few thoughts out there in the case that someone might actually financially plan with the hopes that they would actually have lower property taxes. Today, higher taxes are a big possiblity even though Obama says that he really isn't planning on it; if he can hold on to that great, I'm just trying to protect people by giving them a perspective that may induce them to factor in a scenario where taxes do in fact go up a few basis points; I mean that really makes a difference if one intends to overextend to buy that place that they really love. There are people a lot smarter and more honorable than me who think otherwise, so again, I'm just throwing that out there. My father is going door to door trying to get support for the Democrats in Florida. I'm actually pretty proud of him for doing so even though I don't agree with him....

more long wind up I'm sorry....

ahh hem,,,

What I mean by small business are the first generation companies where you often see the person running it with their name on the shingle (sign outside the office). First generation companies usually have dynamic, "all of the above" types. What I mean by this is that they have to wear different hats, research and development, sales, accounting, management, creative, strategy, logistics, etc. They become the essense of what a liberal arts degree is all about but in applied and not pure sense. When your brain is firing on all cylinders like this and you choose others of the same who are also hard working, talented, motivated, etc. things can happen. Pareto talked about the 80/20 rule where 80% of the output came from 20% of the effort. In a society we need to identify the "vital few", or those that are the sled dogs and create the new products and industries that create the abundance and increase the capacity of the life rafts. When Ronald Reagan talked about how Government was the problem not the solution, he was talking about how the government's dead weight and debt and red tape and useless and meaningless regulation and graft and nonsense made it harder for the "vital few" in society.

Look at the difference between Obama and the President of Chile's response to the two crisises, Obama brought a Nobel Laurete from an unrelated field, he brought lawyers and politicians and they were observers. The President of Chile went to the site and never left. They got a drill from Pennsylvania that had a bit that could drill faster. Contrast that to Obama who refused to let the foreign vessels into our harbours because the Unions pushed for rules to prevent these vessels in our ports. We kept help away from the situation while Chile magnitized the "vital few". What if that drill from Pennsylvania never made it to Chile?

With too much politics, too much government, decisions are based on what is good politics and not what policies will actually work. The lesson for 2010 is that if you make policy, you need to get people to understand why it will actually work and without their buy in, they will eventually shut it down. The first phase of 2010 was that the Administration was acting like "elites" where they were doing things that seemed to defy conventional wisdom i.e. spend your way out of debt. MPR convinced me that you don't count your pennies when you're trying to keep a nation from falling into deep Depression. I guess Obama's "wind up" of "Hope" and "Yes We Can" got people's expectations that he actually had a plan that we could be hopefull about and we could actually together get stuff done. When he get elected and then says if we can spend all this money, unemployment will drop and it doesn't, people will turn back to their conventional wisdom that tells them that spending during a bad time isn't wise. I mean if you see our current personal savings rate, which is what percentage of our take home pay we save, you can see that Americans aren't consuming and they are saving more. Now in a consumer society where consumption is a huge part of our Economy, if people are afraid, they'll be less "willing" to spend and that contraction of spending shrinks the market. Obama was actually right when he said we behave funny when we're scared just like I was saying when we find out we're get a snow storm people go out to the supermarket and buy all kinds of food. Even if it is a small passing 6" storm, you see a surcharge at the supermarket. The Republicans jumped on his comment and said that it was calling the electorate "stupid" and it played into their claim that the Administration was "elites" that were out of touch.

I think creating the capacity or abundance to take care of the poor requires a balance of empowering the "vital few" and creating a set of values that keeps the herd from overspending or underspending and maintaining a respect for the limited resources that are spread around to help the many.

I'll try to find some data and post a few links when I get a bit more time...
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balor123



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PostPosted: Wed Oct 27, 2010 3:36 pm GMT    Post subject: Reply with quote

$160k is what a primary care physician makes. Specialists make $200k - $500k. And I fully agree that based on what they have gone through to get there they deserve to make good money. I don't fully agree that the profession has the right to put up those roadblocks that allow them to justify those high rates.

Check out this article on the new residency rules. New rules would allow residents to get at least 5 hours of sleep. The concern is that these new rules would reduce patient care. No it's not because residents would be less experienced. It's because there would be a shortage of labor.

Quote:
unless there is a substantial increase in human resources to replace resident


There's no mention of the fact that residents will retain more of what they learn, make fewer mistakes on the job, and otherwise be healthier (pregnant residents often have pre-term babies).

The article Medical miscalculation creates doctor shortage is also very informative and discusses the problem with the AMA and its doctor limiting program. Funny thing is, fewer than 20% of doctors belong and anecdotally most I know don't even support them yet they are given executive powers. I think most doctors don't realize how much their incomes could do down if the AMA were abolished but at the moment they seem more concerned about reduced quality of care that patients are getting as a result of not being able to see doctors for long, extra healthcare due to having to wait months for appointments (4 months for new patient primary care in MA now), having to jump through those hoops for those who actually just want to be doctors regardless of the money, etc. Many doctors are, in fact, now openly calling for the immigration of foreign doctors to meet the demand.

Anyway, we do have a royally screwed up healthcare system and an even more screwed up political system that allows it to continue to prosper. If the deficit doesn't kill this country in 10 years, then healthcare will.

Already white collar workers are starting to feel the pinch of healthcare. Working at a prominent Fortune 1000 tech company, our healthcare coverage is getting radically more expensive with less coverage starting next year and I suspect once the precedent is set at companies like this the slippery slope becomes a lot more slippery. What was once a policy for recruitment has now become a burden. My company has a policy that if your spouse has access to another sponsored healthcare plan then you can no longer have a family plan without significant costs.

Though I don't support CA policies, I think our best hope is that states pass laws that are incompatible with federal laws CA style that might fix the healthcare sooner than that, at least for some residents. The first state to do that, I suspect, will have a massive influx of people and jobs.
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