|
bostonbubble.com Boston Bubble - Boston Real Estate Analysis
|
SPONSORED LINKS
Advertise on Boston Bubble
Buyer brokers and motivated
sellers, reach potential buyers.
www.bostonbubble.com
YOUR AD HERE
|
|
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.
|
View previous topic :: View next topic |
Author |
Message |
JCK
Joined: 15 Feb 2007 Posts: 559
|
Posted: Thu Jul 19, 2007 5:41 pm GMT Post subject: |
|
|
admin wrote: | JCK wrote: | This isn't even anecdotal evidence. No comparison is being made; just a few pictures of "for lease" signs. Third rate Italian restaurants and couple movie rental places go out of business and economy of the whole city is crumbling? Please.
|
JCK,
A comparison is not necessary for something to be anecdotal. In fact, a comparison would make something less anecdotal. I fully agree with you that this article doesn't offer any solid evidence, hence the "anecdotal" qualifier, which in other words means that this should not be the basis for any conclusions. What it does offer is the starting point for a discussion on what might be worth investigating. Are the number of "for lease" signs actually higher than in the past? If there is an increase, is this just a Mass Ave phenomenon? Is it limited to certain types of businesses, as you suggest?
- admin |
Hi admin,
Thanks for the response. Looking over Mass Ave. myself, I'm just not seeing much change over the past few years. There has always been some vacancies and some turnover of business, but I'd be hard-pressed to believe that things are getting worse (or better, for that matter). Harvard Square looks to me like it always has. Porter really hasn't changed much over the past couple years. Ditto for Central.
With regard to restaurants: Don't they have a phenomenally high failure rate?
With regard to Tower and the movie rental places: Aren't these places getting killed nationally by Netflix and Amazon?
If, for example, fancy restaurant (Rendezvous) in Central Square replaces a fast food joint (Burger King), what can we conclude from that?
There's a decent rate of job creation and increased absorption of office space in Boston metro, according the articles I've read. This doesn't seem to jibe with a poor economy. |
|
Back to top |
|
|
admin Site Admin
Joined: 14 Jul 2005 Posts: 1826 Location: Greater Boston
|
Posted: Thu Jul 19, 2007 6:06 pm GMT Post subject: |
|
|
john p wrote: | Admin:
If the P/E ratio for homes ranges from 3 to 5. What do you think the range is for interest rate? I mean the corresponding interest rate affects affordability and the percentage of household income to service the mortgage is really the best measure for the fundamentals right?
|
That is a good question (the range for interest rates) and one that you have convinced me is critically important. However, I'm still trying to figure out where to begin in trying to answer that. I don't think averaging from the early nineties would be sufficient, nor is it necessary since the data goes back further than that - there is a 1971 - 2007 graph on the page you linked to. Even going back to 1971 would be iffy since that only covers a single non-overlapping period of 30 years, the length of the typical mortgage.
I don't have much of a clue as to how to gauge where interest rates should be or where they could head. Could the yield on 10 year treasuries be used as a predictor? My instinct is that the abnormally low interest rates of the last several years have simply delayed and perhaps spread out the effects of the dot-com bust and that this will need to be corrected at some point, maybe through a more severe recession, maybe through high inflation. I don't have any numbers to back this hunch up, though. I am wide open to suggestions on how to crunch the numbers for interest rates.
While I do think that interest rates are a huge factor in setting short term prices, I wouldn't consider them a fundamental. They are not intrinsic to a specific property, whereas incomes and rents are as they define the revenue streams that give a property its underlying value. All asset classes can be purchased with leverage, and as such interest rates are an applicable factor in pricing across the board for homes, stocks, bonds, etc., I just wouldn't call them a fundamental since they are independent of the underlying value.
- admin |
|
Back to top |
|
|
admin Site Admin
Joined: 14 Jul 2005 Posts: 1826 Location: Greater Boston
|
Posted: Thu Jul 19, 2007 6:24 pm GMT Post subject: |
|
|
JCK,
I tend to agree with the points you made. However, I think your point about Amazon and Netflix clobbering certain local businesses actually supports the hypothesis of a waning local economy, at least a little. The point is that those local businesses are no longer providing jobs, tax revenue, etc. for the local economy. That has all be arbitraged to a cheaper location. This may not be a big deal if other companies offering different products and services take their place, although that hasn't happened yet for those particular storefronts.
- admin |
|
Back to top |
|
|
Guest
|
Posted: Thu Jul 19, 2007 6:46 pm GMT Post subject: Run the numbers .. it's not that bad?? |
|
|
John p,
Median Home Price for Wilmington, MA: $405,800
Median Household Income $78714
At 6.5% for 30 yrs and a $40K down payment (which most average folk do not have saved up anyway), that's $ 2,307.05 a month for the mortgage. Add $4500 a year for property taxes and $1500 a year for home insurance which comes to an additional $500 a month, giving a grand total of about $2800 a month. Income tax deduction might bring that down to $2500/ month.
That comes out to $30K a year. On a median household income of $78.7K, that 38%!
House prices in this area are overvalued. Sit back and wait for prices to decline. |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
Posted: Thu Jul 19, 2007 7:04 pm GMT Post subject: |
|
|
Guest:
Your numbers are great. Think about it this way though, it is only the buyers in the past few years that are the real casualties. If you bought prior to that, you'd have $100k from a prior sale. That $100k would bring things down to a better fundamenal level. This is exceptionally painful for new buyers. Think about what percentage of people in the population actually are new buyers. To everyone else, if they want to trade up from a $400k house to a $550k house and you lost $80k to the market, so didn't the $550k house so it's relative.
How much of a presence do new buyers have to drive the market down? I see people being stuck in their condos a bit longer, but until the backslide fully takes place; the new buyers have to wait. I think if we were talking about a stock or a liquid asset the correction would be faster, but the nature of this material is not liquid so even if it is under some stress it will take a bit of time to adjust, which is why I see the big correction happening in 2006 and 2007 and flat for a few years (like in the 90's, I think....) The 90's also had a deep recession which is why it may have been more pronounced. Is it possible that the housing market drives a recession? Again, only new buyers are really feeling the pain and they are a smaller segment; the rest are just going to feel a hangover for about 5 years. |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
Posted: Thu Jul 19, 2007 7:20 pm GMT Post subject: |
|
|
Admin:
A little structural analogy...
They design beams based on properties material and section modulus. If you use A36 steel it has certain structural properties, different from say Douglas Fir (wood). Also, if you hold a 2x4 with the longer side of the 2x4 vertically it is stronger as a beam than if it is held sideways (section modulus). The shape of a Wide Flange Beam or the trade term "I" beam is made because it yields one of the strongest shapes for the material.
Anyway, the fundamentals as you describe for housing would be the property of the materials and the section modulus. What I'm saying is that if you turn up the heat, it changes the property of the material i.e. the steel melts. I'm saying that the interest rate changes the property of the fundamental.
My head is a bit wired in the CAT tunnel ceiling collapse. Take an elastic band; it's nice and stretchy right. Take that elastic band 2 years later and it breaks up in your hand when you stretch it. The properties of the material of the epoxy break down over time so the fundamentals in a static state work fundamentally, but other real factors that cause the fatigue weren't considered. The big question is whether or not we have some epoxy anchors that "passed inspection" still out there with this disintegrating property. Don't make the mistake of the structural engineers where they ran the calculations in a controled static sterile state and not in reality where some guy with his but crack showing and who's thinking about when the lunch truck is coming and maybe be a bit nervous about falling or having his arms tire out, is squirting the epoxy upside down. That's the human factor, that's reality.
In the end, most decide whether to buy a house based on whether they can swing the monthly payment. As the guest pointed out with the fundamental analysis that yielded 38% of take home pay versus 28%, you take those buyers off the table. Are there enough other buyers out there with the $100k down payment out there to fill the void? If not, how slow are the adjustments going to take to a point where the new buyer can get in? |
|
Back to top |
|
|
admin Site Admin
Joined: 14 Jul 2005 Posts: 1826 Location: Greater Boston
|
Posted: Thu Jul 19, 2007 7:50 pm GMT Post subject: |
|
|
john p wrote: |
Anyway, the fundamentals as you describe for housing would be the property of the materials and the section modulus. What I'm saying is that if you turn up the heat, it changes the property of the material i.e. the steel melts. I'm saying that the interest rate changes the property of the fundamental.
|
Fair enough. Interest rates are a major environmental factor. There are others (e.g., tax law), but interest rates seem particularly dominant, perhaps in part because the other factors don't change as frequently.
- admin |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
Posted: Thu Jul 19, 2007 8:13 pm GMT Post subject: |
|
|
We have a lot of really smart people in this community with different perspectives who offer pretty good temperature readings of these environmental factors, so I am dying to hear everyone’s input and the approach that they see things through. Now that the temperature is coming back to normal, your consideration of the fundamentals is absolutely the way to see things.
Fundamentally, I see a crash.
It is these environmental factors that I see the excess heat conducting the heat away.
I kind of have this workboat / moccasin mentality. Sometimes you approach things like the workboat and leave a footprint like George W. Bush, and other times you tread lightly like say a Mike Dukakis. I see this real estate correction making a big thud workboat stomp on the economy and seeing it channel through to change interest rates, currency exchange rates, salary adjustments, etc. I think much of the correction might be dissipated with other economic adjustments like a dollar depreciating, salary adjustments. I see the behavior of buyers in the prior 3 years like the bullish George W's who are almost like screw everyone, I don't care, if I go down, everyone else will be going down too anyway, instead of us being beaten by the contributing factors, let's collectively push back and make our splash and let them feel our ripples. I feel that these shock waves are already in motion. Some will blast through and others will break their heads trying to ram into the wall.
I so want to see this through another viewpoint to compare perspectives, so I appreciate everyone’s. |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
|
Back to top |
|
|
admin Site Admin
Joined: 14 Jul 2005 Posts: 1826 Location: Greater Boston
|
Posted: Thu Jul 19, 2007 8:47 pm GMT Post subject: |
|
|
john p wrote: | What Shiller needs to consider is the power of the herd mentality. |
That would be chapter 9: Herd Behavior and Epidemics.
- admin |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
Posted: Thu Jul 19, 2007 9:01 pm GMT Post subject: |
|
|
Jeez, now I've got to buy the damm book. You've already got me thinking about that mathematical proof and my mind is pretty frail to begin with...
What I'm thinking is that there is this thing called the "elastic limit"
www.auf.asn.au/scratchbuilder/metals.html
Scroll down to 9.5 #4, about 2/5ths down.
What does he say about the power of the herd to actually break through and deform the fundamentals?
When I played lacrosse I would find that when I would hit someone I would either ring someones bell or get my bell rung. By my lack of lucidity you can tell how I faired in the overall exchanges...
Anyway, I am wondering if the housing market will get its bell rung or will the herd behavior make other environmental changes that bring the surrounding fundamentals up to their levels? |
|
Back to top |
|
|
admin Site Admin
Joined: 14 Jul 2005 Posts: 1826 Location: Greater Boston
|
Posted: Thu Jul 19, 2007 9:17 pm GMT Post subject: |
|
|
john p wrote: |
What does he say about the power of the herd to actually break through and deform the fundamentals?
|
I don't think he addresses that as the focus is on how herd behavior gets people into messes, not how they get out of it. Maybe that would be a good addition for the third edition, should that ever be in the works. There's a "contact" link on his website if you want to ask him about it.
- admin |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
Posted: Thu Jul 19, 2007 9:39 pm GMT Post subject: |
|
|
This is a pretty cool website:
http://www.csiberkeley.com/Tech_Info/19.pdf
The FED needs to employ this viscous dampening. Basically, it is like a structural engineer creating these hedge style forces that counter and dampen the effect of a force (typically base shear, which is like someone pulling out the table cloth and knocking over a glass). I think Alan Greenspan used to always grin and say that the market will find a way to correct itself. I think that because there are so many assets tied together the correction won't be progressive. It will be like an old barn that goes down slowly versus a fast collapse. However, an economic earthquake or hurricane could drop this market like it did in the 1990's. It's partly cloudy and I don't see anything that dramatic on the horizon.
http://www.pcrc2007.neu.edu/ |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
Posted: Thu Jul 19, 2007 9:40 pm GMT Post subject: |
|
|
Shiller has a restraining order on me |
|
Back to top |
|
|
john p
Joined: 10 Mar 2006 Posts: 1820
|
Posted: Thu Jul 19, 2007 9:40 pm GMT Post subject: |
|
|
As well as Neil Diamond. |
|
Back to top |
|
|
|
|
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
|