bostonbubble.com

[Boston ITer]

One thing that is observable is that the states with the <7% reported unemployment tend to be along the agricultural or mining type of regions: Kansas, Nebraska, Minnesota, Iowa, Oklahoma, Dakotas, etc. Locally, it would be New Hampshire/Vermont.

So the question that brings up is why isn't the white collar, value added type of work bolstering the urban corridors as it did in prior times?

I'm going to state that we're in a structural shift, where proximity to Superstar cities (except for NYC or Hollywood) no longer adds the same value as it did before the internet.

[john p]

Renting in Mass has found one of the most important links I have read (other than this one of course). I have added it to the "Context is Changing" thread because I want to see people's analysis from a more global context perspective.

Home affordability ratios by state. http://www.deptofnumbers.com/affordability/states/

data from this link:

House Price / Median Household Annual Income

The United States Average:
House Price / Annual Household Income = 3.62

Massachusetts
House Price / Annual Household Income = 5.61

Rule of Thumb (not by this link)
House Price / Annual Household Income = 3


House Price / Cost to Rent for 1 Year

United States Average
House Price / Cost to Rent for 1 year = 19.57

Massachusetts
House Price / Cost to Rent for 1 year = 23.93

Rule of Thumb (not by this link)
House Price / Cost to Rent for 1 year = 17

Analysis (not by this link)
The question is will the United States Averages revert back to the historical "Rule of Thumbs" or will they actually drop further, or bottom out before reaching the historical rules of thumb?

The more important question is how long can Massachusetts tower at 5.61 when the US Average is 3.61 and the rule of thumb average is 3 times? At what point does the overturning moment and the economic winds blowing on them uproot them?

The Answer is two fold:

1. Recent Low Mortgage Rates helped existing homeowners refinance.

Existing homeowners have been able to refinance. The monthly savings for refinancing has pumped money into the local economy as well as helped families replenish emergency funds.

2. The expansion of the Money Supply

http://bigpicture.typepad.com/photos/uncategorized/2007/12/21/money_supply.png

At what point in this chart were these "Historical Norms" or "Rules of Thumb" based?

If the M3 has doubled since 1995, isn't that like the water level rising and won't it lift all boats?

No, the majority of that newly created wealth is in the form of derivatives which, like I've been saying is in a gaseous form and not a liquid form and it can burn off.

http://silverbearcafe.com/private/07.09/images/Liquidity-Pyramid.jpg\

Notice Trace Mayer, J.D.'s quote

[balor123]

Those rules of thumb are well known but surprisingly hard to find on Google. I had to scan and post an clip form Consumer Reports on Money to back up my claim that it even was a rule of thumb! Maybe now that you've posted it a link to this post will appear and people can cite it

[john p]

The Rules of Thumb are an amalgam of benchmarks within an individual, meso and macro economic context.

You get these from different sources and have to discount any conflict of interests...

From what I gathered here are some benchmarks with context for Boston:

Assume:

8% Mortgage Rate,
30 Year Fixed,
20% Down Payment,
3% CPI
4.5 to 5% Unemployment
38% Debt Ratio (percentage of monthly income to service debt)
1.5 Ratio Starting Salary / Cost of Year's Tuition
3 to 3.5 Ratio: Median House Price / Household Median Income
1 Primary Earner and 1 Part Time Earner = Household Income
17 times yearly cost to rent = Cost of Median Home
6 to 8 years average amount of time people stay with an employer

Now, if mortgage rates drop or other major changes to the context take place, those ratios change obviously.

The speed in which some of this context is changing as well.

Again, this is just based on one guy banging around the information that is floating around.

[Renting in Mass]

[john p]

I think the answer lies in a 15 year price appreciation history. I think despite what happened in the past 5 years, people who bought 15 years ago still have price appreciation equity plus 15 years paying down a mortgage, plus have refinanced and most likely are in the low 5's or even 4's.

I also think Massachusetts is kind of regionalized and according to this list we are 17 out of 50 with respect to having the highest percentage of renters.

http://www.statjump.com/lists/rental-costs-dp4c192ts.html

now compare that list with your link:

http://www.deptofnumbers.com/affordability/states/

In States with a higher percentage of renters, the price to income is very high. Basically, I think this means that more of the lower end income numbers are associated with rentals versus house prices.

[Boston ITer]

I should put this in the article section but I think it parallels the housing situation pretty well ...

http://tinyurl.com/66gnc6s

I think a driver for much the greater Boston housing costs are the so-called *top* nearby high schools like Newton N'/S', Lexington, Lincoln-Sudbury, Belmont,etc. In a sense, it's like paying the $35-40K per year in tuition, to send one's kids to Riverdale, Horace Mann, or Dalton in NYC vs an ordinary HS with their social problems. So for NYers, they opt to pay more to live in nearby Westchester Co's Scarsdale or Greenwich CT, just for the high schools, if they can't live on let's say Manhattan's East Side & send their kids locally to Dalton from there.

[CL]

The net present value of private tuition can range from 150K-ish (middle and high school) to 300K-ish (private all the way). If you think Lexington public school is equivalent to private school quality, you are, in finance terms, capitalizing your educational expense if you live there, and you have a chance to recoup them when you sell. The risk is the school district declines which can happen but typically it's slow moving. Not a bad deal I think.

[Boston ITer]

[CL]

Boston ITer - I like the idea of home school too. And regardless of which school/form of education my kids have, there will be some sort of additional formal education at home, as most Asian families have.

Do remember, however, that the trade-off impacts not only your family, but every family in MA. So it has implications in future demand, on top of your own tuition trade-off.

[john p]

Here is Bill Gross's 2 cents on the subject:

http://www.businessinsider.com/bill-gross-college-2011-6

[Boston ITer]

[CL]

John P, Boston ITer - I have experience in university education in different continents (including US), and there are university education in the world that is not 4 years partying (which is, honestly, a joke, and an expensive one at that). I highly recommend people to consider university overseas, which typically is more rigorous. Cost is comparable (or cheaper).

It also depends on the student. I went to Michigan, and finished the degree in 3 years. Only attended one party my whole time there.

[Boston ITer]

CL, couple of points here ... whether not a person parties is not an issue. There are many brilliant & successful persons who let loose on a Friday or Sat night. Then on other nights of the week, they work till 3AM.

The cue is that for the most part, many white collars workers do not use a bulk of their formal education for their subsequent desk jobs. Part of the reason for this is that the MBA-leaning careers are more the mainstay than let's say R&D specialist at a Honeywell Corp.

The degree really then becomes an HR barrier of entry vs a tactical accoutrement for being an office worker. Today, I'd say that a highly degree-ed person is better off working in the National Security Agency than in the private sector. They have excellent career tracks and value the academic acumen of their new fast trackers.

Next, the main cultural or socialization purpose of the US high school was to form those lifelong friends and associates, much in the spirit of the movie, 'American Graffiti', which really isn't a reality for many persons outside of rural communities nowadays. If this is less the case today, then only 30 years ago, then perhaps homeschooling (with transferable college credit courses) is a better M.O., looking ahead.

[john p]

There was a great episode of "Cheers" where Woody, the dimwitted bartender went out and bought himself a golf trophy and Frasier, the stuffy cultured guy was giving him some grief, saying that he should buy clubs, take lessons, get a tee time and play all the time..... Woody's response was "Why, so I can get a trophy?"

If your kids future is worth so much, BANK the MONEY. You can give your kid a $ Million when they would graduate college.

If your kid works at the DPW and starts at age 18 and works until he is 43 he can qualify for 80% of his $65k salary or get a permanent check for $52k per year with cost of living adjustments and Health Care.

Having $52k per year is like having $1M in the bank and living off 5% interest cash flow.

Now add the $1M you give him instead of college and buying in an expensive town and he will get a $100k salary, (add both 50k's).

Now, lets let the guy double dip and get another salary of $50k doing a job he loves and let him make another $50k. This guy will be working in a job he loves making $150k.

Now lets say his wife did the same thing, she worked at the DPW as well. This couple now makes $300k per year.

Who are the dumb hillbillies?

The only reason why you don't see more of this is because that DPW guy needs at place to live in the meantime.

The answer is to find a really great low cost of living area and find a stable job with a great pension deal.

Federal Government is a great answer for this. I know someone who was a personal trainer and worked at a running store on weekends and is now a glorified clerk for one of the big federal agencies making $100k. He has a completely low stress job that doesn't tax him at all; if anything he needs more stimulus so he parties on weekends and has fun. The rest of us schleps look like idiots for actually trying.

Good time to be a Virginia Farmboy.