bostonbubble.com

[balor123]

As the media was reporting, rent prices were very high this year. 2br apartments in my complex were renting for about $2500/mo only 2 weeks ago - the highest that I've seen since 2005 (lowest being $1500/mo). I'm currently paying just under $2000/mo so it would still have been a very large jump for me and I was surprised that inflation wasn't coming in higher as a result of the rent increases. Maybe because they're using "mortgage equivalent rent" instead? Anyway, the prices dropped $200/mo in the last two weeks so while there were reports that high rents were driving the home market, it looks like it may not last.

[CL]

Another news that is interesting is Fed move to buy longer dated Treasury and sell shorter dated Treasury - that should be lead to direct downward pressure on mortgage rate (most correlated with 10 yr Treasury).

My guess is once Fed controls long rate, there will be substantial political pressure if Fed let it rise too quickly to the extent it hurts the housing market, which means the "sharp interest rate rise leading to sharp house price drop" thesis may no longer be valid.

30 year mortgage at around 4%, which for $2000 rent means 419000 mortgage principle. Add another 100-150K in downpayment saved, you can buy a very decent home in good district that you don't need to trade up/down for a long long time (say 20-30 years).

[admin]

[john p]

I read a great article recently in Bloomberg about the context of when the US closed the Gold window during Nixon's Administration and we got off the gold standard. What it seemed to be about was how politicians used the Federal Reserve to to create favorable short term bubbles to give them a lift and get them reelected. No politician wanted to be around during the bust or the correction so they would invent new stimulating monetary policy.

They've been doing this for decades. There hasn't been a "normal" time period.

Administration after administration new rules would undermine our economy. Bush gets dealt 9/11 at the time we're feeling the correction of the Stock Market Bubble so he offers a massive tax cut which costs over $1 Trillion in revenue. At the time it creates a stimulus, but due to the spending on the Wars and the growth of government the deficit starts to swell to almost $1/2 Trillion. Obama gets Stimulus, QE1 and QE2, monkeys with the down payments on housing, etc. There isn't much at this point that is available to Obama and he is feeling the corrections of tons of prior bubbles. The problem was that he wasn't a bubble fighter who wanted to get on some rational play by the rules society. He was a bubble, he was that start up that had no track record that everyone invested in. He was Solyndra, that solar company with great aspirations without a business plan or a viable market. Now, his guys are looking for the new bubble trick, they're even calling things "Twists". He's certainly causing uncertainty and he's certainly trying to help out Unions, public workers (his base), but what politician hasn't?

I think the rental market today reflects uncertainty. With all the mergers and acquisitions and the monkeying of government and the problems in Europe, many feel powerless, unmoored without wind hoping a random cannonball doesn't hit them. Unemployment is absolutely the most important thing to watch. People are renting because they, as admin said, can't see a stable future. So what do you do? Do you buy a house with a 30 year mortgage or do you rent?

Here is a great white paper on political economic cycles

http://www-personal.umich.edu/~franzese/FranzeseJusko.EPBC.OxfHndbk.chap30.pdf

Think about it, there are PhD's who have focused on the integration of political science and economics; about the manipulation of message, coalition building and policy.

Too bad these guys weren't focused on fundamentals which was a lot more sustainable than playing these little games.

The deeper my research goes back the more an more I'm liking this guy Ron Paul. My current concerns with him is although most of what he says is right, how abruptly will he make some of these necessary changes and although the direction may be right, will the abruptness be too damaging? I guess my thinking is the basis for why so many generations have chosen to make the step in the wrong direction because they were afraid of change?

Bottom line is, we can all sit here and try to figure out the forces acting upon us or we can choose to become a force ourselves. I think the best course of action for young people is to become competent and successful in a growing field so you have a foundation of fundamental under you. Even if you score a great house, without the stable job you could even lose that.

I remember when I took Kung Fu, we had this kid who could whip this chain with a steel weight at the end of it all around like a blur. If this kid hit himself he could have easily lost an eye or ear; it was pretty serious but the kid was kind of mental and talented. Anyway, I told my sifu that I had absolutely zero interest in that and was it ok to just focus on the basics. He said of course, but I thought that a guy who could do that thing certainly would be also building his base of skills because by choosing to tackle something hard sometimes helps build a foundation if broken down and approached properly.

I think you just need to be aware of any action response assumptions you may have, kind of like "if I buy this girl flowers she will love me", or if I spend a lot of time reading this or that, I'll be able to pick winners, or if I get this degree I will be rich, etc. Sometimes certain things work for some people and other times they don't for others. I always found the "Immune Towns" conversation interesting. Posters have come and gone but that is a common theme. Kids pull their head out of the sand after doing everything their parents and teachers and society told them to do and they see their prize out of reach and ask what the hell happened. They keep pumping these kids out of these schools in the area and sometimes things work out for them and others end up renting in Somerville for decades. The kid renting in Somerville might get the last laugh, but maybe the kid who went to Bridgewater State who relocated to North Carolina or Kentucky?

Just like bubble and bust cycles, so too are value cycles. My grandparents got married during the peak of the Great Depression. Obviously, they had a different set of values as say the "Me Generation". My parents were Korea War era. Funny how the Roaring 20's people's kids were post WWII and saw that bubble, who's kids saw the 80's bubble, who's kids saw the bubble of 2000. Kids see their parents and their parents friends successes and failures and those are the impressions they have to flow their lives into. Understanding how many people are programmed in each way will help you better understand the behavior.

Look at people today. They say Obama isn't dumb; he went to Harvard, was on the Law Review, head of the Law Review.... He did what academia said and that's not bringing the results, what's going on?

We either find a sobering moment of clarity or we'll find the next form of bubblemaking which I believe would be serious inflation. I think that Obama, if reelected will side with the debtors not the creditors and like Jimmy Carter will create inflation (which may be the right thing to do... read Ezra Klein on this..). I do think that if he doesn't get elected we'll have to be the military empire because our own house is not working.

I guess this is why I'm really liking Ron Paul. I just wonder if we can handle the truth?

[admin]

[mpr]

Johnp,

I think you will find this book interesting.

http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867

It gets at some of the issues you are thinking about, especially the nature of debt and how it has traditionally related to social contracts etc.

[mpr]

[admin]

[Kaidran]

Hey John, any comment on the media ignoring Ron Paul? The only commentary I've seen on it has come from Jon Stewart?

[john p]

Admin:

If I worked in a turbulent field, I'd rent for sure, maintain a decent emergency fund and try to do side projects or work on a start up with my extra time hoping to eventually get a big payout, this way you could put a bigger amount down where your mortgage was comperable to rent and you could absorb a reasonable drop in house prices. Also, I would stay away from any homes that needed work because you won't want self created hardships....

MPR:

I went to the Downtown Crossing Borders to buy that book and the store is totally closed; sign of the times. Maybe they'll have it on Kindle?

Kadrian:

I am not sure why the media isn't covering Ron Paul. I loved the John Stewart piece on him. Robert Kennedy said:

[mpr]

[balor123]

Just an update, my complex has upped the referral bonus for new residents through Oct 1. I'm thinking that they predict rent prices will drop, at least with the coming winter, and they want to lock in high prices now. I've never seen them do this before in the 5 years that I've lived here.

[admin]

[mpr]

[admin]