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Compounding affect of housing on economy
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu May 17, 2007 3:41 pm GMT    Post subject: Compounding affect of housing on economy Reply with quote

Tuition at University of Kentucky:

http://www.usnews.com/usnews/edu/college/directory/brief/drglance_1989_brief.php


Tuition at Boston University:

http://www.bu.edu/admissions/apply/financial_tuition.html

So University of Kentucky is $13k and Boston University is $46k.

Is the quality of a BU education almost 4 times better than UK? Will you get 4 times more salary getting out of BU that you would at UK? The truth is that the cost of living in Boston weighs into the cost of professors, the cost of land to build and expand the University, the cost of construction, the cost of taxes, the cost of police to baby-sit the kids, the cost of blah, blah, blah.... So when you get to the end of the 4 years learning about the fundamentals at Boston University do you ultimately end up with the most detailed, well written, well articulated and thorough understanding of what a dumb mistake you made in going there versus University of Kentucky? Maybe you get so skilled at selling the dumb mistake; you can get the next guy in line to make the same mistake. Trouble is what happens 5 years from now when UK might be $18 and BU might be $65k. If you graduate with a hefty note how on earth can you relocate with a short salary where you are competing with kids who paid peanuts for their education?

The flip side is that you're buying into a network. You'll get better connections from Boston University than University of Kentucky. How long will this be true however? At what cost is this network worth it? At what cost is it not even worth paying for a college education? If you put $46k in the bank for 4 years and your kid got a job working for the DPW with the State Pension Plan, what would that investment be worth 30 years later when your kid was 48 and wanted to retire early. My guess is that the kid would be rich with all that compounding of interest with the tuition money that was invested instead, then add the State Pension and you're better off than almost all of the white collar professionals.

So if you're a jet setter baby-boomer and you have a big nest egg and a big chunk goes to Boston University, you'll end up at the same retirement community as the government worker in Ohio. If you stay in Massachusetts you'll get killed with property taxes.

I looked into relocating to Virginia a few years ago. The comparable salaries were so low that after I deducted my student loans, the house I could afford would be relative to what I could get here. It was all relative. If I had gotten in 5 years ago, I could have really been ahead. I'm sure there are some states out there that the delta is just right; I'm not sure what they are.

15 years ago it was Atlanta. Now, you have a lot of Generation X's with a lot of experience down there where up here you have to wait in line behind the glut of baby boomers for opportunities. Atlanta might in fact have a power generation coming up with all the Gen-Xer's that settled there in the early 90's and moved quickly up the ladder because of the opportunities there for them.

In Boston, lots of times you see a guy in his 50's doing the work that someone in their 30's could do. The personal relationship network that governs and regulates the flow of opportunities often filters out professional talent. If in Boston, it is more about who you know who you play golf with, quality will suffer and if we're overpriced to begin with and our performance dips we're totally not going to be competitive.
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PostPosted: Thu May 17, 2007 5:30 pm GMT    Post subject: Reply with quote

I think the whole idea here is that Boston schools are world reknown and prestigious and I really don't agree, outside of the name brands of MIT/Harvard. The so-called network of BU, BC, etc is overrated because one can take classes and get those one yr masters part-time, while working a job, and still have access to alumni clubs to pass around one's business cards. And as you'd stated, the golf course is where most of the deals are made nowadays among the in-crowd.

MIT/Harvard are the Boston schools where students have access to internships at exclusive banking and consulting firms like Goldman Sachs, BCG, Blackstone, etc w/o familial connections. That's a big plus to a person from a more humble background but at the same time, she could be relegated to the entry level stints and never move up but again, that's an after graduation scenario.

I think what the typical "smart" person wants is a prestigious degree but within a price range like the Univ of Kentucky. The solution for this is the Univ of London, which is a worldwide reknown name school and with an elite distance education program (http://www.lse.ac.uk/collections/LSEExternalStudy/) within a decent price range (less than $6K USD). And how this school differs from the whole overpriced American private colleges is the abject lack of grade inflation and the fact that all of the British Commonwealth is graded to the same standard. I believe places like Barclays and Bank of NY take notice of these things.
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john p



Joined: 10 Mar 2006
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PostPosted: Thu May 17, 2007 9:54 pm GMT    Post subject: Reply with quote

McGill in Canada is also affordable.

I think that because Boston is such a college town you get tons of young people here after they graduate. This puts a big demand on entry level housing in the Boston area. Because so many kids come to Boston and aren't natives they don't really know many areas or what most of the suburbs are like so they look for condos in Boston.

The younger crop of graduates have student loans up to the gills, way more than prior generations, so even though there are always going to be tons of young people wanting to live in Boston after their graduation, fewer will have the financial flexibility to really save for a down payment.

Boston is becoming a place where younger people go to college, rent and work a handful of years to gain experience and then leave for a more affordable place to raise their family.

That chapter where your kids are young up and through elementary school is the toughest for those around here. As a parent, you're not in your peak earning years yet, but you want to be kind of close by to spend time with your kids while not shortchanging them by sending them to a lousy education in a poor school district. If you can make it here until your peak earning years, you'll be ok, I think anyway. The trouble here also is that because we have a lot of professional people here, job stability is often a wildcard. It is that soft patch in your career where you have young kids; you don't want to have instability. If a young person settles in a lower cost of living right after graduation, they will be more established and have more contacts. I find that in some industries the "action" is here or New York; they are a bit more captive to the region. This stagflation that we're experiencing is prolonging that soft patch in young to middle people's careers and they begin to wonder if they will ever get to their "peak" earning years and by that time, they'll have to be socking away for kid's college and retirement with every dime of the excess.

Anyway, long story short, I think we are due for a big amount of wage inflation in order for fundamentals to come back in line. The weakening dollar may provide a bit of steam for that to happen. We need to find more equilibrium in the rest of the country as well as the world. The ones that are really at risk are the young kids who are so deep into debt because of college. I honestly really feel bad for them. The price to earnings ratio of price of a year of college versus the earnings of the first year after graduation's salary is so, so bad. Housing costs are so bad, when you consider the hole most kids are in before they even get to that home purchase chapter, it really has made prices really tower higher than most economists or general people even think.
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PostPosted: Fri May 18, 2007 12:48 am GMT    Post subject: Reply with quote

John, you're absolutely right and even as a native Mass person, I can't afford the risk of owning property here given the job instability situation. My dad now rents, after the original '89 condo crash, which killed a huge chunk of his savings/retirement. I'd rather save (and invest) and look to buying property later in a less bubble prone region.

Also, I'd almost completely forgotten about McGill in Montreal, a great option if one can get in (and stay in). I heard it's tougher to get A's there than even MIT whereas the typical private stateside college (sans Chicago, Cornell, Caltech/MIT) gives A's like they're candy. And in comparson to Boston, Montreal's a much more happening city for a young person.

I believe that students who come to Boston, are wasting their parent's money. There's really no advantage in owing $150K+ unless there's a six figure job at Goldman Sachs waiting for one. I know that sounds opportunistic but a state program (like UK) in most locales, would suffice for perhaps half the students in town. And for those middle classers, who're good exam takers, London's distance program got that worldwide cachet if one needs to compete against the Commonwealth w/o a grading curve to help one out.
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Heloc
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PostPosted: Fri May 18, 2007 12:57 pm GMT    Post subject: Who's better off? Reply with quote

Ok, say you go to college for a bachelors and graduate with 175K debt, assuming you get a good job and are able to pay, say $500 towards the loan each month, it would take you about 29 years to pay it off. OK, say I graduate from High School, go to work for say, the MBTA, retire at age 45(with a comfortable pension-paid healthcare Question ) and pick up a part time job, whose ahead?
My brother-in law is about to do just that and I'm jealous...
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri May 18, 2007 3:43 pm GMT    Post subject: Reply with quote

Back in the Day, cough dust, we used to have this guy named Mike Dukakis. The thing is that Mike Dukakis's style of governing was to be inclusive. Inclusive to a fault. He started out as a moderator on a TV program "The Advocate". Pretty much he would advocate for people that were thought to be left out of the system. His governing approach was very similar; he hired everyone to be "part of the system” again, almost to a fault. We had a hiring bubble go through the state system and they are coming out for their pensions pretty soon, whoooo hooo baby!!! It was the evil Republicans that would have to do the dirty work of asking if it made sense to have $100k salaried janitors. Wait until we have to pay 80% of their salary on pension and for all their medical when they retire. Whoooo Hooo!

In all fairness to Mike D. Boston was going through some very troubling times. We had people throwing rocks at school buses with little kids in them because they didn't have the right color skin, we had gay bashing, we had neighborhood gangs, drugs, crime, pollution and we needed a nice honest guy to help the State heal and strengthen the fabric. Further, Mike Dukakis was part of that was the backlash generation that wasn't keen on ripping apart communities with highways or urban renewal. His administration was instrumental in putting together the Central Artery Project that Tip O'Neil drove home with his pull in the House. This project will help weld the fabric of the downtown to the waterfront. Mike Dukakis is a humble guy and you can see him now and then riding the Red Line and if you wave to him, he'll wave back and smile; decent guy...

So on the one flank you have Universities way out of control lopping off limbs of the younger generation, as well as their parents, then you have this pension bubble.

The silver lining is the Construction Industry in Boston. We have allowed a culture of rewarding stupidity, laziness and failure. Through case law over the years we have eroded any professional standard for contractors. You will find executives in construction companies that don't even have a builder’s license. Think about how many communities have to pay extra taxes because the construction on their schools went way over budget. The filed sub bid laws kill the competitive aspect of the industry. Essentially if a General Contractor (responsible for all divisions of a project) can not pick their Subcontractors to do things like electrical, masonry, etc. So you might get a plumbing subcontractor that hates the general contractor and them battle, blame each other and the result is a project that goes over budget and over schedule. After both the general contractor and the subcontractor realized that they got more money through change orders with this nonsense and then by playing Mickey the Dunce and not being accountable they could make more, the wrong people made the money and got control and the whole industry eroded. Tax payers get screwed. The tunnel ceiling collapse is reflective of this lack of professionalism in the industry.

Another important note about the construction industry has to do with their pay. Before the Big Dig many contractors would have gaps in their working periods because they would be being shipped from project to project. Their higher hourly pay rate was based on working about 80 percent of the time. So when the Big Dig came along and they got 100 percent time and then overtime in many instances, you had lots of very, very wealthy tradesmen. Good for them right; the problem was that despite this incredible burn rate of labor, it was a design build and we had those awful case laws in place that rewarded delays and mistakes, so while these high paid guys were in a holding pattern for direction most of the time, we all had to pay the meter, wait in traffic, pay for the overtime in the police detail etc. The absolute worst part of all of this was that it drove up the cost of labor because of the demand of the amount of work, the good workers didn't make as much profit as the lazy dumb ones that dragged the project out, and absolute worst, people in the trades could work 8 months and collect unemployment for 4, on and off the dole. We have so many sacred cows here in Boston that politically it is hard to get these parasites off of us and empower the truly talented tradesmen and contractors.

Question is, what other cities suffer from the same thing...
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Heloc
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PostPosted: Fri May 18, 2007 4:15 pm GMT    Post subject: Big Dig Dollars Reply with quote

But John, you didn't answer my question, whose better off?
On a seperate note, I was actually one of those guys that made a ton of dough from the Dig and I still have some of it Wink The roof failure in the Tunnel to the airport could be attibuted largely to a schedule driven timeline for getting that tunnel open, it's funny that incident garnered so much attention, we had people drive into ecavations and get killed with little fanfare. Whatever sells newspapers I guess. I get your point with the details, I musta signed 3M in slips, but you'll never see anyone touch that issue in this state
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PostPosted: Fri May 18, 2007 5:36 pm GMT    Post subject: Reply with quote

A good college town is not an RE bubble plus outsourcing heavy (internal and abroad) city like Boston but an intellectual hamlet like Boulder CO, Madison WI, Austin TX, or Burlington VT. These areas were designed to provide student (and priced accordingly to the student budget).

Cambridge MA, sorry to say it, is pretty lame these days (see Harvard Sq as an outdoor Mall of America instead of a cheap eats, intellectual beehive) with everything priced for successful professionals than people getting their lives started.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri May 18, 2007 8:39 pm GMT    Post subject: Reply with quote

Heloc: the 45 year old retiree is the one that won the game in my opinion; I think we're in agreement here.

The construction site accidents are absolutely awful. I don't think the Press presses enough into getting to the bottom of things. If people thought that it would do any good they would report things. I think people understand that construction is a dangerous line of work to some degree so people do write things off to "accident". More people identify themselves with the innocent person driving through the tunnel than someone that driving heavy equipment. What I don't see is the solidarity of those who do work in construction sites to advance the issues. It is almost like there is this "no snitching" code because everyone wants to be pals on a jobsite and if you get tagged as a troublemaker you won't be chosen to be on the next project team... I think that Unions and professional organizations need to get back to the values of their organizing principles which were mostly to create a safe environment for their workers. It's funny when people would think of an image of a contractor 40 years ago, you'd imagine a guy that was in shape, had callouses on both sides of his hands, and actually knew how to build and were proud to show off how hard they could work and how they could solve problems. Now, many are like their work trucks, $60k luxury rides that are pretending to be work trucks. They are proud to be unknowledgeable and instead of being proud to be able to solve problems, they want to be spoon fed. The few hardened ones that actually do work are the gems we need to lead into the next decade. I think too many lightweights have hijacked the industry. Just my observation, take it with a grain of salt...

How this relates to housing is really property and state income taxes. If more communities have to get bonds to pay their bills the next generations will have to pay the loans off through their taxes. If contractors are in a habit of gouging, at what point will a community not be able to get another affordable bond and we see taxes really go up? Taxpayers are not really dialed into this whole problem because the bond solution post pones the problem to the next generation and little by little the waterline goes up up and up until you're under water. Moreover, Boston has an older infrastructure so we more than anyone need to reel in this industry. California is totally screwed, they are a total mess and couldn't get bond until the Terminator came into power. Because he gave investors faith that he was going to reel in spending he got a big fat bond to stop the bleeding. Plus, people thought that Warren Buffet was looking over his shoulder a bit right?

My thoughts are sometimes fast and loose so nobody let anything I say bug them please...
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PostPosted: Fri May 18, 2007 11:03 pm GMT    Post subject: We need a few Towns and Cities to go Bankrupt Reply with quote

The Insanity and out of control spending will end when a few towns go bankrupt. Its the only hope to hold the line on spending. Imagine what will happen to Brockton (or any non-Wealthy community) if foreclosures continue and Inflation rages on.
A town stuck with few property owners and higher and higher costs of operating the Municipal Services.

Regarding the MBTA retiree - these overly generous pension are one of many reason that the MBTA (Massachusetts) has more Debt than the MTA of New York or the Transit Authority of Chicago. Believe it or not!

Politicians will not change the system until there is a financial disaster. The financial disaster will be the best thing to help out all of us NON-Government employees.
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PostPosted: Sat May 19, 2007 12:54 pm GMT    Post subject: Hamsters on a wheel Reply with quote

Everybody Please! Just keep paying your taxes.....Thank-you Laughing
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Sun May 20, 2007 2:23 pm GMT    Post subject: Reply with quote

Heloc:

I have a sense that you have a lot to offer in this stuff. What are some of your quick thoughts about reeling in some of the wildcards that surround and affect housing?

BK: I didn't know all that about the MBTA. Do all the retirees have COLA's? I wonder if we do get hit with inflation if they play monkey math with the retirees and benchmark against a set of criteria that effectively minimizes the payout.

So look at the current generation, we had to wait to buy a property, lots of times waiting longer to get married, the school systems close to the city are in disrepair and are pretty bad, we have poor job security and we face awful college tuition prices for our kids. Oh, then there is day care, the weakening dollar, medical expenses, rising taxes due to fewer and fewer in the work force and more retirees. If we don't get wage inflation we'll be eaten by parasites...
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PostPosted: Sun May 20, 2007 9:32 pm GMT    Post subject: Colas for all the Public Employees Reply with quote

I think most Government and Government Authority Pensioners have Colas built into their contracts. Only a Private Sector employee would take a job that didn't have a Pension with Cola.

So, if we are hit with a bout of inflation/stagflation like the 1970s - things will be different. Folks on a Pension from a State/Local/Fed or Authority (like the MFTA, Mass Water Resourses) will get a Cola increase.

In the 1970s Many-many more people held Union jobs and wage increases were a result of the Union contracts. Today, most of us Non-government employees (chumps) are not Union employees. We will see our cost of living rise and will have less able to extract a Pay increase.

Meanwhile , the burden on the Pension plans to meet higher and higher payouts for the Smart Government employee retiree will strain the able of the Public to keep these plans funded.
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Heloc
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PostPosted: Mon May 21, 2007 12:23 pm GMT    Post subject: The great unraveling Reply with quote

Regarding any measures that could be taken to lessen the collapse of the housing market and subsequently the economy as well, I think the cat is out of the bag. The last few years have been a mania involving excessive loose credit which chased real estate, think of the Tulip Bulb mania. The run-up was global, not just a US phenomenon. It's kind of sad, the last few years people have been living high on the hog(feeling "house wealthy"), and now the party is basically over, but people are fighting tooth and nail to retain that standard of living(even more credit card debt). The issue of homeownership has always been affordability, not entitlement, this mantra got lost somewhere along the line. Everywhere I go I hear "if you're renting you're throwing your money out the window", then I ask have you ever done the math, they say no(they wouldn't know how to do the math). If the guy next door is renting a condo for $700/M0 less than the mortgage on your identical condo, something just aint right.
On a seperate note I will agree it is quite difficult to raise a family these days, I have no idea how people do it(I think thats why white people aren't having kids anymore-just one Golden Lab). I sold a house in 2003 during a divorce(no kids Laughing ), made a tidy sum, just through sheer luck. The trick to navigating life is maintaining a low level of long term debt, don't buy it unless you absolutely need it. Buy a house at a reasonable price and pay it off(forget the Tax savings crap). Having a father that endured some of the depression may have imparted some frugal ways I guess. But, in summary, there has been a great deal of fiscally irresponsible behavior the last few years and a reeducation is underfoot. My two cents, remain as liquid as possible for the next few years Wink
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Heloc
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PostPosted: Mon May 21, 2007 12:44 pm GMT    Post subject: Message of the Day Reply with quote

"Perception and Pyschology are what drive manias"
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