bostonbubble.com Forum Index bostonbubble.com
Boston Bubble - Boston Real Estate Analysis
 
 FAQFAQ   SearchSearch   MemberlistMemberlist   UsergroupsUsergroups   RegisterRegister 
 ProfileProfile   Log in to check your private messagesLog in to check your private messages   Log inLog in 

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.

Boston Bubble Wrap: The Real Story for MA - Oct 2010
Goto page Previous  1, 2, 3, 4  Next
 
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond
View previous topic :: View next topic  
Author Message
Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Mon Dec 06, 2010 4:49 am GMT    Post subject: Reply with quote

Quote:
Honestly, doing consulting work is a lot more profitable


The way I've seen it done was that one parent gets a W-2 job, with blanket health insurance for the family, while the other consults, since he/she isn't required to have an additional policy. And then, the consultant uses the S Corp or LLC write offs, to lower the overall taxes for the family.
Back to top
View user's profile Send private message
mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Mon Dec 06, 2010 12:45 pm GMT    Post subject: Reply with quote

balor123 wrote:
Hopefully the correction will have completed by then but somehow I think it will drag on well past that point unless there is a catalyst.


Catalyst ? If the most severe financial crisis in 80 years hasn't dropped
prices to your satisfaction, what precisely do you imagine will ?
Back to top
View user's profile Send private message
admin
Site Admin


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

PostPosted: Mon Dec 06, 2010 2:14 pm GMT    Post subject: Reply with quote

mpr wrote:
balor123 wrote:
Hopefully the correction will have completed by then but somehow I think it will drag on well past that point unless there is a catalyst.


Catalyst ? If the most severe financial crisis in 80 years hasn't dropped
prices to your satisfaction, what precisely do you imagine will ?


This reversing direction could do the trick:

http://finance.yahoo.com/q/bc?s=%5ETNX+Basic+Chart&t=my

I think that the housing price declines thus far have been moderated by interest rates which have continued to fall. I also think that rising rates would be a catalyst for further declines. How likely that is, I don't know. I'm not going to bet on it myself.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Mon Dec 06, 2010 2:23 pm GMT    Post subject: Reply with quote

Also, foreclosures are being slowed down artificially. This will keep prices from falling for a while. But what I see happening eventually is that prices will not fall for many years, but at some point, interest rates will have to rise significantly. This will be the ultimate undoing of the housing market. Also, unemployment will keep rising, and there is only so much that the unemployment payouts will extend to. Everybody is hoping for an economic miracle, and so trying to push all debts down the road, which is the best way to continue this recession indefinitely by keeping the taxpayers on the hook for even more debt.
Back to top
View user's profile Send private message
mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Mon Dec 06, 2010 3:37 pm GMT    Post subject: Reply with quote

GenXer wrote:
This will be the ultimate undoing of the housing market.


This is not a movie with an "ending". There is no "ultimate" involved.
You can have a view on prices over the next few years one way or the
other, but statements of the form "eventually" this or that will happen
are not very useful or meaningful.

I grant that if interest rates rise then that puts downward pressure on
prices - whether they fall or not at that moment depends on the state of
the rest of the economy. But low interest rates right now are a justified
(from the point of view of the buyer) reason to pay more; as I've pointed
out before the savings over even the average seven year period can be
substantial.
Back to top
View user's profile Send private message
admin
Site Admin


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

PostPosted: Mon Dec 06, 2010 4:17 pm GMT    Post subject: Reply with quote

mpr wrote:
But low interest rates right now are a justified
(from the point of view of the buyer) reason to pay more; as I've pointed
out before the savings over even the average seven year period can be
substantial.


I don't think that's so clear cut. Higher interest rates (usually) mean higher inflation, which in turn reduces the real burden of the debt much more quickly. All other things being equal, this can make higher interest rates preferable for buyers - Dean Baker actually ran the numbers demonstrating this.

Separately, lower interest rates are a disincentive if your down payment is above average as you must pay more to compete with the increased leverage from other buyers.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Mon Dec 06, 2010 4:48 pm GMT    Post subject: Reply with quote

Increased leverage from other buyers (subsidized by the federal government) is my nemesis.
Back to top
View user's profile Send private message
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Mon Dec 06, 2010 5:05 pm GMT    Post subject: Reply with quote

Unemployment support won't last forever...holding foreclosures back won't last forever, lower taxes won't last forever, and state deficits won't last forever. And of course, house prices will depend on how fast the rest unravels. Fast or slow, somewhere along the line somebody is going to pay for this, and it's not going to be the Chinese.
Back to top
View user's profile Send private message
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Mon Dec 06, 2010 5:18 pm GMT    Post subject: Reply with quote

And people wonder why house prices can fall even more? Because of this:

http://www.cnbc.com/id/40517158

Any idea what happens to 'fair prices' when prices are manipulated? That's right, sometimes when the prices are not really correct, there are massive 'corrections' to be had to adjust to reality. Right now the prices are still PROPPED UP, and completely unaffordable for an average person living in MA. Of course, MA will not be the first, but when the CA and the rest have their corrections, MA will follow pretty shortly thereafter, as it is not immune from the rest of the economy.
Back to top
View user's profile Send private message
mpr



Joined: 06 Jun 2009
Posts: 344

PostPosted: Tue Dec 07, 2010 1:37 am GMT    Post subject: Reply with quote

admin wrote:

I don't think that's so clear cut. Higher interest rates (usually) mean higher inflation, which in turn reduces the real burden of the debt much more quickly.


Perhaps I should have said real interest rates.

admin wrote:

Separately, lower interest rates are a disincentive if your down payment is above average as you must pay more to compete with the increased leverage from other buyers.

- admin


A larger down payment only decreases the benefit you would get from low
interest rates, but actually not by that much since the generally lower
returns on investment would also lower the rate you were "paying"
on your downpayment.
Back to top
View user's profile Send private message
balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Tue Dec 07, 2010 3:55 am GMT    Post subject: Reply with quote

Low interest rates hurt but large leverage hurts more. The borrowing limits were "temporarily" increased for expensive homes. For others, low interest rates meant that they could take on FHA loans instead, reducing their downpayment to only 3%. Concessions from the government and sellers can now be used to pay for the downpayment. And then there's people who bought during the bubble with low or no downpayment loans who continue to stay in their homes. I don't think the government will enact policies to significantly harm the market at this point but I don't think they are going to stand by while prices rise over a prolonged period of time while the budget is in focus and a significant portion of it is being forked over to GSEs. As I stated, I (and current futures) think that for the foreseeable future home prices will stagnate being eaten away by inflation slowly. Without taking a stance on whether they are desirable, one can accurately state that only catalysts (aka black swans) can cause a deviation from the expected path.

That being said, since I haven't purchased yet, I would like such a catalyst to appear, preferably within the next 2-3 years so I won't enter at the bottom of the pyramid Razz
Back to top
View user's profile Send private message Send e-mail
admin
Site Admin


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

PostPosted: Tue Dec 07, 2010 9:04 pm GMT    Post subject: Reply with quote

mpr wrote:

Perhaps I should have said real interest rates.


Actually, in Baker's calculations, both the nominal and real interest rates were higher in the high rate scenario than in the low rate scenario, and the high rate scenario still came out on top. Maybe it would help clarify things to point out that he is holding the nominal monthly payment constant between the two scenarios. So any decrease in interest rates creates a rise in prices sufficient to keep the monthly payment the same. I would agree that a long term drop in real interest rates would justify some increase in prices, but not a large enough increase to keep monthly payments the same given the two mechanisms that Baker identified as making the higher rate scenario more favorable, namely the faster shrinking of monthly payments in real terms and the faster growth of equity resulting from the faster growth of the home's value in nominal terms.

Note that I don't think that Baker was asserting that monthly payments necessarily stay constant in reality, he was merely demonstrating that the Housing Affordability Index, which is calculated using monthly payments, misrepresents actual affordability. That said, I have gotten the impression that there is indeed a prevalent overemphasis on monthly payment on the part of buyers and those in the FIRE industries, often to the exclusion of other considerations. A graph of the NAR's Housing Affordability Index bears this out. Their index was falling during the peak years of the bubble, meaning monthly payments were actually increasing. This, even though mortgage rates were falling too at the time. If buyers were acting rationally, falling mortgage rates should have led to an increase in the NAR's affordability index to compensate for the flaws in equating the index with affordability which Baker pointed out, but the response was actually in the opposite direction.

It's interesting that the index has risen quite a bit since 2009, though. It is at least responding in the right direction to the additional mortgage rate declines this time around.

mpr wrote:

A larger down payment only decreases the benefit you would get from low
interest rates, but actually not by that much since the generally lower
returns on investment would also lower the rate you were "paying"
on your downpayment.

That's just the direct effect to an individual buyer considered in isolation. The indirect effect from other buyers may be the bigger detriment. That is, other buyers are the ones setting most of the demand curve which sets prices, and by focusing solely on monthly payments they amplify the effect of interest rate changes on purchase prices beyond what would be neutral with respect to inflation.

- admin
Back to top
View user's profile Send private message Send e-mail Visit poster's website
CL
Guest





PostPosted: Thu Dec 16, 2010 2:12 pm GMT    Post subject: Reply with quote

GenXer mentioned about unemployment rate - I am not sure it applies to Boston (or at least the towns people in the board are interested in)

http://www.bls.gov/news.release/metro.t01.htm

Boston-Cambridge area unemployment rate has been declining, and even in 2009 it's high, not THAT high to begin with (mid 8%). Project Oct 2010 is 7%. Dallas unemployment rate is 8%, Houston is 8.2% by comparison.

I also think it is safe to assume in areas like Brookline, Newton, Lexington where education level is high (75% plus residents have bachelor degree, nearly half have Master or above), and employment is dominated by university/hospital/etc, you will find a lower unemployment rate and even less chance for sustained high employment.
Back to top
CL
Guest





PostPosted: Thu Dec 16, 2010 7:21 pm GMT    Post subject: Reply with quote

From Sperling's BestPlaces - unemployment rate (towns are selected purely because I am interested in those towns as of Jun10)

Newton - 5.6%
Brookline - 5.3%
Lexington - 6.0%
Winchester - 6.0%
Needham - 6.1%
Hingham - 5.8%

You get the picture. Unemployment hit specific areas hard and will depress property price (due to forced selling, foreclosure, etc), but not really in those towns.
Back to top
GenXer



Joined: 20 Feb 2009
Posts: 703

PostPosted: Thu Dec 16, 2010 7:30 pm GMT    Post subject: Reply with quote

Boston immune to unemployment? That would be interesting. Unemployment rate is a meaningless number - self-employed are not counted (that is, all business owners, many of whom had to close shop), and neither do those who stop receiving benefits. Why is anybody seriously using this number? Historically, MA has/had a lot of small businesses, and now many have gone under. Defense is about to get crushed, and so are hospitals. Anybody who knows anything about MA healthcare knows that this system is unsustainable as it currently is. Universities will also feel the pinch, but that is in the long term. State is bankrupt (i.e. running a huge debt), and there will come a time when municipal bonds will be unsustainable (i.e. interest would be so huge that no state could afford to issue those). Same goes for municipal/union employees - they are overpaid and their benefits are more than the state will be able to bear. I'm not saying all of this will bite us in the next 2 years, but none of this is good for our employment situation. In the past couple of months the state lost more high tech jobs than it created in a while (over 1000 in biotech/defense), and it is just a tip of the iceberg.
Back to top
View user's profile Send private message
Display posts from previous:   
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond All times are GMT
Goto page Previous  1, 2, 3, 4  Next
Page 2 of 4

 
Jump to:  
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


Forum posts are owned by the original posters.
Forum boards are Copyright 2005 - present, bostonbubble.com.
Privacy policy in effect.
Powered by phpBB © 2001, 2005 phpBB Group