bostonbubble.com

[JCK]

[admin]

[admin]

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

[Guest]

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.

[john p]

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.

[john p]

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?

[admin]

[john p]

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.

[john p]

What Shiller needs to consider is the power of the herd mentality.

I think that the NAR and MAR should watch this video very carefully.

http://www.sbishere.com/crowdsourcing-and-power-of-the-herd/1070/

[admin]

[john p]

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?

[admin]

[john p]

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/

[john p]

Shiller has a restraining order on me

[john p]

As well as Neil Diamond.