bostonbubble.com

[barrys]

Job growth during the recovery has been weak even though the unemployment rate has dropped. The declining unemployment rate has been more of a function of fewer people in the labor force than of robust job growth. Indeed, job growth has been tepid and mostly in part time employment. The most recent non farm pay roll job report nails this home. It showed that in the past three months few jobs were created and those that were created were mostly part time and in the retail and restaurant sectors. The latest report also deducted 74,000 jobs from prior estimates for June and July.

Wages during the recovery have declined and the US Labor Force Participation Rate is now at its lowest since Aug 1978 at 63.2%. The rate was 66.1% in 2008.

Fewer people with jobs means fewer people that can buy houses. So even if getting people to buy houses is an economic panacea-it wont happen with higher priced homes, higher interest rates and fewer people working making less money.

Fewer people working also means more people on food stamps. During the recovery, the number of people on food stamps has increased to nearly 1/6 of the population. You have to be able to fill the fridge before you can buy a home.

How in the world does this work? When are we going to see the type of correction this market actually deserves? Rental rates going up, decreasing saving capabilities of new buyers... It is all just a house of financial cards and the deck is running out, while the wind is blowing.

[admin]

[mpr]

The short answer is that the people on food stamps are not the ones contributing to price pressure in the desirable parts of the Boston area.

Its just one aspect of increasing inequality in the US. Unemployment in these areas never went about 3-4% even during the recession. I'm not sure what it is now.

[Former Arlingtonian]

MBR,

You are wrong about people on the low end now contributing to the rising cost of homes is CDFI - Community Development Finance Institutions - they are literally flooding Massachusetts with CASH and Debt for all sort of well intentioned causes (with lots and lots of government support).
For example:
https://www.masshousing.com/portal/server.pt/community/affordable_housing_trust_fund/208/trust_fund_home


Then you have the CDFIFund.gov support for SuperMarket - to help Americans in Food Deserts - I think Whole Foods that are popping up in Massachusetts are qualifying for this special financing - that cost less because of Corporate Tax Credits- provided by the US Treasury at the discretion of the Secretary of Treasury and the President.

Read:
http://www.cdfifund.gov/what_we_do/resources/SearchingForMarkets_Report_web_Low_%20Res.pdf

The Loan/Credit spigots are Wide Open and where this ends is anyones guess. But, the notion that credit in the Building/Housing space is constrained is false.

Regards

Editor's note: the first link in this post was broken and has been corrected ("ttps" was used instead of "https").

[mpr]

You appear to have something against low income people having a place to live and buy food.

The first group you link to spent a total of $23M last year, an amount unlikely to have any real impact on prices. Part of what they support are new developments. Since this increases supply the impact on prices is at best unclear.

The second group supports grocery stores. That may raise prices in the effected areas by making them more desirable, but overall it should have little impact since it would take some pressure off more desirable areas.

In any case this isn't what is fueling the home market in the Boston area.

[Former Arlingtonian]

Please - some of the greatest Americans come from the low income ranks - its the drive that poverty creates that has driven some of the greatest Americans to achieve. When Government intervenes in markets tbey create bubbles and inflate the cost of living. The rise in the cost of living disproportionately has negative impact for the poor (they don't own financial assets and they end up paying more for everything they need to survive).

I group I listed was just one of many CDFIs operating in the United States. The real Winners are the Executives of these CDFIs who often make ridiculous salaries for funneling Tax Credits for the US Treasury.

A better example is the following:

These investment dollars often flow to non-profits that buy properties, and rehab the property.

Many of the Projects the Mass Housing Investment Corp invests in are 'Low Income' - keep in mind that this $2 Billion in Capital that is supposedly designed to help low income - is a $2 Billion flow of new capital into Massachusetts and New England (it contributes to the rising cost of living).

In just two years Banks, through their use of New Market and Housing tax credits, have invested $2 Billion in Boston/New England area affordable housing and other real estate building.

The following reports detail for Massachusetts Housing Investment Corp which Banks are investing and the percentage of their investment that qualifies for Tax Credit status(reducing corporate taxes for the Bank making the investment) vs loans.
http://www.mhic.com/annualreports/2010%20Annual%20Report.pdf
http://www.mhic.com/annualreports/2011%20Annual%20Report.pdf

I look forward to mbr telling me that $2 Billion doesn't affect the economy......

[mpr]

[Arlingtonian]

Americans who grew up with poverty and achieved greatness

http://www.biography.com/people/andrew-carnegie-9238756

http://en.wikipedia.org/wiki/Bill_Clinton

http://en.wikipedia.org/wiki/Abraham_Lincoln

http://inventors.about.com/od/wstartinventors/a/MadameWalker.htm

http://www.britannica.com/EBchecked/topic/53661/Albert-C-Barnes

[mpr]

Omg. Yeah there are some people who grow up poor and become great (though I note that all the examples you cited are from some time ago when upward mobility in the US was higher). But they do that *despite* being poor.
Your chances of being successful if you come from a disadvantaged background are far lower than if you don't. There are a lot more successful people who don't grow up poor.

According to people like you as long as there is at least one person who can overcome being disadvantaged in the US, then this proves the disadvantages are not yet severe enough, and those people don't deserve any help !

Using your logic I could argue that being shot in the head is not bad for you because there are some people who get shot in the head and survive.

[arlingtonian]

Here are 9 more rags to riches stories from USA.... Governments don't inspire creative minds - it happens because of the individual, hard work, timing, hard work, never giving up, a parents influence........

http://www.fastupfront.com/blog/entrepreneurs/9-american-entrepreneurs-who-went-from-dirt-poor-to-stinking-rich/
Sheldon Adelson
Jay-Z
John Paul DeJoria
Oprah Winfrey-
Howard Schultz-
Larry Ellison-
Steve Jobs
David Geffen
Stephen King

[dISMAYED]

Don't forget - people have survived the plunge over Niagra Falls. Perhaps we should use it as part of our transportation system.

[admin]

As someone who grew up below the poverty line, I can attest that being poor absolutely was a motivating factor for me to achieve something better. It's too broad of a statement to say that being poor is a net disadvantage for everybody and that achievement can only come despite being poor, because everybody is different and motivations are individual. However, I wouldn't extrapolate from that to say that not interfering with poverty is a good policy for most people. Growing up in similar conditions did not have the same end result for most of my previous peers. It also wasn't just a matter of motivation and hard work on my part, but also the existence of programs which ostensibly exist to facilitate social mobility, specifically college financial aid and scholarships. (I question whether the poor are the largest beneficiaries of the financial aid system, but if you are poor and use the system to get a financially practical degree, it can be a tremendous help individually even though the system probably does more to help colleges and lenders overall and can be a terrible deal for most given that the debt is not dischargable in bankruptcy and not tied to the financial practicality of the degree.)

Whether individual government programs are worthwhile is another matter. Slapping a "helping the poor" veneer on them shouldn't exempt them from dissection into whether that actually is the primary motivation and main effect. For example, QE is supposedly meant to stimulate the economy in general, including for the benefit of the poor, but the benefits have gone disproportionately to existing asset holders. If you want to talk about growing wealth inequality, QE is a good place to start. It hasn't resurrected the economy for the poor an middle class, just the well off, and has worsened inequality by inflating asset prices.

Also, to return somewhat to the original topic, $2B in capital does seem like it could have a significant impact on the regional real estate market. Whether that specific program is worthwhile or not is a separate issue. I would be curious how long that program has been around, how the amount of capital they provide has changed over time, and how the leveraging of that capital has changed over time.

- admin

[Arlingtonian]

People really don't understand CDFIs because they have only existed since 1990. Here is the Mass Housing Investment Corp's self description

found here:http://www.mhic.com/about.cfm
"MHIC was founded in 1990 as a private non-profit by a consortium of banks to fill a critical gap in meeting the credit needs of affordable housing developers at a time when the real estate market was in turmoil.

Initially focused on attracting investor capital for LIHTC tax credit properties, and a loan pool for construction and acquisition lending, our product lines expanded in 2000 to include the New Markets Tax Credit program, and again in 2008 with the Neighborhood Stabilization Loan Fund to address the mortgage foreclosure crisis. "

From the description of MHIC you get a sense of how the pool of Investment Dollars (and tax credits from the US Treasury) have accelerated with each Real Estate crisis.

I don't object to low income people being helped (I've been one and could be one in the future- if things don't go well) - but these CDFI benefit the Executives of CDFIs and Big Banks with tax credits.

Joe Flately - CEO of Mass Housing Investment Corp (a NOT for Profit business) - is paid $494,000 plus additional $39,000 -

[Arlingtonian]

In the year 2000 Mass Housing Invesment Corp - Investment for Banks and other Corporations into New England Real Estate - $562 Million on page 31 of their annual report found here:
www.mhic.com/annualreports/2000%20Annual%20Report.pdf‎

In 2012 - Mass Housing Investment Corp invested - in New England (lots of Massahusetts ) $1.56 BILLION - just in 2012.

This is just one example of a CDFI - there are others operation in Massahusetts and New England - MHIC is the largest-

You'll be happy to know that the CEO of www.mhic.com (THE NON-PROFIT)
has seen his pay go from $387,000 in 2009 to $494,000 in 2011

Joe is so concerned about the Poor folks -he had to get a $100,000 pay raise - after all who can live on a measly $387,0000

[Guest]

Another interesting note that i picked up from some discussions recently:

A home in an "immune" town recently listed for $790k, 15000 square foot lot, had not been touched in 50 years... So there are 17 bids, accepted offer at over $1million. Cash offer, and one in which they will tear down the home, put in a new $150sqft build and sell for a 1.5mill in 6 months

Another home i heard about was a similar situation. Bought for around 600k, torn down, new home built for $95sqft sold for 1.4 in about 4 months total turn around.. nice $400k profit in 4 months .

Now i undertand that the majority of Mass has aging housing stock, and there is a premium to be paid for new contruction but in reality how many buyers of $1+ million dollar homes can there really be.

Let assume the following link(google Massachusetts income distribution) is correct, and that 5% of the population households are making $300k per year (I am saying that is what is required for a for a million dollar home) and there are 125,000 potential buyers (based on 2.5 million households)

Now with 32,000 housing units in Newton alone, with the median home price of ~700k, lets assume that there are 11000 units over the $1million dollar mark.

Even with equity in houses how the fuck is this still supported, there has to be a point at which, with the current economic conditions, stagnant wages, changing demographics (300k population increase in past 10 years, but mostly immigrants) this just stops.

However my guess is that with the equity markets the way they are we are going to continue to see investors spending cash in the market... Cash buyers, to new construction, increased property density (condos, multiple units), rentals, and hold and hope will continue to support unrealistic housing prices.

Pardon the ramble and poor grammar