bostonbubble.com

[admin]

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.

- admin

[Boston ITer]

[admin]

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.

- admin

[balor123]

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.

[admin]