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Boston MSA Price/Income Approximation: 1975 - 2009 (- 2014)
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admin
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Joined: 14 Jul 2005
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Location: Greater Boston

PostPosted: Wed Oct 20, 2010 6:42 pm GMT    Post subject: Reply with quote

I read another good article on video conferencing too:

Beaming in Grandma - Videophones have finally reached the living room
http://www.economist.com/node/17209514

It touches on business uses as well, in case the title suggests otherwise.

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Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Wed Oct 20, 2010 7:24 pm GMT    Post subject: Reply with quote

Quote:
It touches on business uses as well


Well, one thing's for sure, many business trips are frivolous and unnecessary.

And thus, video conferencing is a must, looking ahead. There are many, who travel as a habit for 'face time' but really, once a deal is closed and signed off, many of those visits are a waste of time. I'd seen projects where the travel budgets were cut 50% but the work was still delivered.

A customer site should never evolve into a home away from home.
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PostPosted: Thu Feb 10, 2011 9:44 pm GMT    Post subject: Reply with quote

Returning to the topic of interest rates and monthly payments, I've made a separate set of calculations to compare the ratio of monthly payment to income over time. I want to emphasize that it is not advisable to treat this as an affordability index for the reasons mentioned earlier. The motivation was to investigate whether the general trend is for people to buy based primarily on monthly payments, even though that is not what Homo economicus would do. Here is an experimental chart of the approximation of this ratio for the Boston MSA:



This lens does indeed look like it has explanatory value given its closer adherence to historical norms during the recent bubble. Notably, the payment-to-income ratio is already below the historical average. Expectations of additional price declines, while justified by the historic price-to-income ratio, are not supported by the history of monthly payments, though it would be curious if the bottom of the cycle ended up higher than the two previous bottoms despite the constant proclamations that we just lived through the worst downturn since The Great Depression. Importantly, an increase in mortgage rates would change this picture entirely - historically low interest rates are a single point of failure.

I used many of the same sources already listed but also several additional ones. If anybody is interested in reconstructing things, let me know and I will try to post more details.

The monthly payment is based on rates for 30 year fixed rate mortgages with a constant down payment percentage. That probably loses some accuracy given the declining lending standards, especially during the bubble. I would expect down payments to be lower in more recent years and therefore actual monthly payments to be higher.

Future dates are estimated using the S&P/Case-Shiller futures and inflation expectations. Those are obviously very subject to change.

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balor123



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PostPosted: Fri Feb 11, 2011 4:00 am GMT    Post subject: Reply with quote

The chart seems to indicate that people spend more money during boom economies, which isn't surprising. So are you saying that rising interest rates will affect home prices then? Based on this chart, it looks like people won't spend more on a monthly basis if it happens.
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PostPosted: Fri Feb 11, 2011 3:30 pm GMT    Post subject: Reply with quote

balor123 wrote:
The chart seems to indicate that people spend more money during boom economies, which isn't surprising. So are you saying that rising interest rates will affect home prices then? Based on this chart, it looks like people won't spend more on a monthly basis if it happens.


Yes, I would expect rising rates to affect prices. You make a good point about boom economies, though (and I believe mpr mentioned something similar earlier). If the rates rise because of a boom economy, new buyers probably will spend somewhat more per month on mortgage payments, for a limited time anyway, and up to some ceiling (~20% above average, in the past). Perhaps that would offset the decline in prices that higher rates would create, for the boom years anyway. However, if the rise in rates is due to more than just an improving economy, I would expect that to put strong downward pressure on prices. I can think of a bunch of catalysts for rising rates, just off the top of my head: the end of QE2, rising inflation expectations, the end of Fannie Mae and Freddie Mac, or a shift away from the dollar as the sole reserve currency.

By the way, I should have mentioned what the scale is on the chart. It is normalized so that the running average equals 100 for the most recent month. So the y-axis is expressed in terms of percent of the historical average.

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