April 6, 2006

Foreclosure Woes In Boston’s ‘Affordable Neighborhoods’

The Boston Herald reports on the ‘affordable’ part of town. “New figures show house prices in Boston’s traditionally affordable neighborhoods rising at a double-digit clip even as foreclosure woes in those areas soar. The Boston Department of Neighborhood Development reported yesterday that median house prices rose 10 percent to 17 percent during 2005 in East Boston, Mattapan and Roxbury.”

“But at the same time, figures also show a rising number of Hub homeowners in mortgage trouble. The city said banks seized 60 Hub residences last year for mortgage non-payment, a 140 percent increase from 2004.”

“An even larger number of properties faced ‘notices of default,’ the first step banks take when homeowners fall behind on loans. Citywide, 385 homes faced such notices in 2005, a 53.5 percent rise from 2004.”

“Problems particularly worsened in traditionally working- and middle-class neighborhoods, with default filings doubling in Hyde Park, Roxbury and Jamaica Plain. Filings also rose more than 50 percent in Mattapan, East Boston and South Boston.”

“Experts blame much of the problem on the wide use in recent years of risky loans like interest-only mortgages. These loans offer low monthly payments for a time, but costs often rise sharply after a few years.”

“City spokesman DeWayne Lehman said mortgage bills can shoot up as much as 50 percent when such loans’ introductory periods end. ‘Interest rates are going up on many of these loans at a time when..wages are not increasing, where jobs for blue-collar homeowners are diminishing,’ he said.”

“Jeremy Shapiro added that banks loosened lending standards during the recent housing boom. ‘When a housing market is appreciating as rapidly as Boston was, banks tend to be a lot more lax, because they can make up (for default risks) through price appreciation,’ he said.”

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Comment by Ben Jones
2006-04-06 06:00:58

‘Experts blame much of the problem on the wide use in recent years of risky loans like interest-only mortgages. These loans offer low monthly payments for a time, but costs often rise sharply after a few years.’

In states like Massachusets, there is very apparently little ‘affordable’ left. Notice how the media never cites the high prices of homes themselves. High prices are an undeniable ‘good.’ It’s those darn loans!

Comment by hd74man
2006-04-06 06:32:30

hehehe…MA now has universal health care with payment placed on the backs of small business.

People will be leaving here in droves.

Comment by Fishbones
2006-04-06 07:09:43

MA - the third richest state in the US.

Comment by hd74man
2006-04-06 07:21:21

As another poster noted:

MA-Welfare state w/ old money which pays no taxes.

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Comment by The_Lingus
2006-04-06 07:31:21

Although state taxes are oppressive in Mass, I’d say Florida or Arizona are could better qualify as welfare states. I bet in orders of magnitude over Mass.

Comment by Moopheus
2006-04-06 07:47:42

Taxes are much worse here in NYC–we have to pay both state and city taxes, and it comes out to a lot more than I remember it being in MA. Taxes in Mass. are hardly “oppressive.”

Comment by hd74man
2006-04-06 10:23:20

RE: NYC taxes…Enjoy the honor.

Comment by Upstater
2006-04-06 18:56:41

I agree with you Moopheus. Ogandaga County (NY) has $199,000 homes with $10,000/year property/school tax bill, 8.5% sales tax, and the lovely NY state personal income taxes and you still have to pay for garbage pick up! Lingus I do dream of my old $1800 tax bill right down the street from Hyannisport harbor. No ride by the ocean for my tax dollars here…just eau de vache!

Comment by Inspired
2006-04-06 15:22:23

You would never know it by the way their bonds trade!

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Comment by Simmsays...
2006-04-06 06:14:05

I don’t know if a 50% increase is meaningful. When the base number is so low, a 50% increase doesn’t mean much. What I would want to know is what % of total housing in the market is at foreclosure.



Comment by safe_as_apartments
2006-04-06 06:50:41

That’s not necessarily true, I think. I could be wrong.

It depends on history and the sample size. I think that if for the last 50 years the average was 30 with a standard deviation of 2, then (by the central limit theorem) the average number of foreclosures can be approximated as a normal distribution with mean of 30 and variance of 4/50. With these numbers, a 50% increase in year 51 means that the sample average over 51 years becomes 30.29. Then, comparing this new mean to the normal distribution established using the first 50 years gives this 50% change or greater only a 15% chance of happening, even with such a small number. Someone better at stats please correct me if I’m wrong.

Comment by bluto
2006-04-06 08:52:35

The 50% increase is looking at an autocorrellated series which tosses the CLT right out the window. You sort of combine looking at an index with an essentially random statistical method, which I’m not sure I understand. GP is correct a 50% increase from a prior period is essentially meaningless without a better method to judge relative to more historical points.

Comment by Inspired
2006-04-06 15:26:16

List Foreclosures, preforeclosures by state.

Comment by The_Lingus
2006-04-06 06:17:16

But exploding housing prices is “good for the economy”……[laughing]

You know the statement is coming from someone soon. Anyone care to take bets on who?

Comment by Pinch a Penny
2006-04-06 06:18:40

I think that MA is further along the bubble than most people realize. Yes, median prices are still going up, but from what I have seen, properties for sale this year compared to 2004 are asking about the same. The median price increases because the lower end is completely dead. No one in their right mind wants to actually live in those neighborhoods. There is no gentrification going on there, and do not get cought after dark.
The end starts at the bottom. The first ones to be impacted are those that unfortunately are the most vulnerable. Hard working lower class people who can not afford to lose their homes will do so. There are fewer blue collar jobs in MA than a couple of years ago.
With the finishing of the big dig, a lot of construction work, and contracting will dry up. Businesses are also looking into relocating to cheaper locales like RI and NH. The future does not look good.

Comment by nhz
2006-04-06 06:34:38

I see the same in the Netherlands, where the bubble is much older.

The cheapest homes is where you find the most problems; about a year ago there were pictures in the local newspaper with a real forest of ‘for sale’ signs in a street that was about as cheap as it gets in this part of the Netherlands. Explanation for this is simple: even the cheapest homes are so expensive now that even with two working partners, people who would normally buy there cannot afford them (probably the lenders are less creative with these workers than with their better paid clients). And people who have the money/income do not want to live there …

Due to even lower mortgage rates (thank you, ECB…) and probably more fraud, there are far less for sale signs in the cheap areas now than one year ago. I wonder how long the boom can continue if there is no more inflow at the bottom of the RE pyramid (maybe the inflow is now coming from the new EU countries like those in Eastern Europe?).

Foreclosures have been doubling every year for 4 years now, but they don’t give the details about where the real problems are (numbers are still low here, less than 0,1% of total homes every year). In the Netherlands this doesn’t affect the cheapest homes, because nearly all have them have some kind of ‘foreclosure protection’ from the government.

Comment by bostonbubble
2006-04-06 06:52:33

Yes, median prices are still going up

Actually, they aren’t. The real median price in Massachusetts has fallen 11.44% from its peak and there have been year over year declines in real prices every single month since September 2005, inclusive. See http://www.bostonbubble.com/forums/viewtopic.php?t=52

Comment by Pinch a Penny
2006-04-06 07:55:08

Agreed. We are just beggining to see YOY price drops. That is why I say that we are furthest along the cycle. Nowhere else has there been YOY drops yet. Prices do tend to drop from august to february year in and year out, and that is why YOY price drops are significant. Also houses bought 1-2 years ago are on the market for roughly the same prices, and not selling.
I saw a lot of properties go “on sale” last year, did not sell, and are trying to sell again this spring.
By the end of the summer, we could very well see significant price drops, but not in those cheap neighborhoods, as they have very little wiggle room (owe the bank what the house is worth, and they are entitled to their equity!!). Older, more established, and better neighborhoods, most likely, will owe less to the bank than the property is worth, and be able to reduce prices farther, than the low end stuff. This price reduction will glut properties into lower segments, screwing those with high debt into either staying, or getting foreclosed.

Comment by Fishbones
2006-04-06 07:13:57

I think a lot of pressure comes at the top though. There are more million dollar homes for sale than there are millionaires. No millionaire I know wants to buy a single family home in Watertown. Nice enough town, but million dollar? Ah, no.

Comment by NH_renter
2006-04-06 08:35:29

I notice MA businesses here and there moving to Derry, NH and surrounding towns right across the border. A lot of them are financial services firms.

Comment by Getstucco
2006-04-06 06:20:02

“Problems particularly worsened in traditionally working- and middle-class neighborhoods, with default filings doubling in Hyde Park, Roxbury and Jamaica Plain. Filings also rose more than 50 percent in Mattapan, East Boston and South Boston.”

“Experts blame much of the problem on the wide use in recent years of risky loans like interest-only mortgages. These loans offer low monthly payments for a time, but costs often rise sharply after a few years.”

I have only one thing to say to all the fools who stretched to buy on interest-only ARM financing: “As ye sow, shall ye reap.”

Comment by The_Lingus
2006-04-06 06:21:55

“I have only one thing to say to all the fools who stretched to buy on interest-only ARM financing: “As ye sow, shall ye reap.” ”

Careful Stucco, you’ll be accused of willing armegeddon into reality.

Comment by Getstucco
2006-04-06 06:29:45

You are right — it is always good to avoid reaping the “kill-the-messenger” effect which is the potential fate of those who favor truthfulness over thuthiness.

Comment by Getstucco
2006-04-06 06:32:12

truthiness, not thuthiness

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Comment by Getstucco
2006-04-06 06:24:14

OT, but it looks like the metals markets are starting to doubt the Bernanke inflation-control program, especially with rumors running rampant on the Street that the tightening phase is about to end…


Comment by Getstucco
2006-04-06 06:25:10

P.S. The 25-year high is historically significant. Guess who was Fed chairman twenty-five years ago?

Comment by Getstucco
2006-04-06 06:27:45

The bond market is also loosing the faith…


Comment by Getstucco
2006-04-06 06:31:30

losing (#@*&^ English spelling system!)

Comment by grammar queen
2006-04-08 11:01:20


you could always use “loozing”, which is at least phonetical ; — but then we would have to say “uze”

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Comment by nhz
2006-04-06 06:36:15

told you so :)

same in Europe, of course - the ECB is ‘nearly done tightening’.
what a sick joke …

Comment by dawnal
2006-04-06 06:52:48

Reaction to Bernanke, yes. But also growing awareness of massive short postion in both gold and silver. Central banks not selling as much gold and more are buying it. OPEC not recycling petrodollars into own stock markets as much now and instead buying gold. China buying gold and encouraging its people to buy also. Lots of interesting things going on.

Comment by rent2home
2006-04-06 08:34:58

Did you mean Massive Short position in Gold and Silvver. That means someone is thinking price of Gold and Silver will go DOWN. (and we should not buy)

Please clarify…may be u meant the opposite.

Comment by tj & the bear
2006-04-06 09:24:47

Ever heard of a “short squeeze”? The higher the price goes, the more likely those that are massively short the PMs will have to unwind their positions. IOW, an explosion to the upside.

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Comment by grammar queen
2006-04-08 11:06:38

The US financial system (Ft. Knox etc.) is short, but not because they think the price will go down, only because they needed to sell (or lend) to fund current expenditure and because they think they can continue manipulating the price

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Comment by iron56
2006-04-06 07:52:32

Which is why, as has been mentioned before, it really doesn’t matter whether BB raises rates or not; the global market will do it for him in any case, and since mortgages are tied to _long-term_ rates anyway, it doesn’t look good for the easy money that’s fueled the bubble.

BB’s going to be in the position of trying to stay ahead of the curve to maintain the illusion that the Fed’s in control, which suggests short-term hikes may continue longer than the Street expects. He may also be more ready to defend the dollar than I would have figured–again, a question of maintaining credibility.

Comment by nhz
2006-04-06 10:06:52

I think you are very wrong about the global market raising rates.

what will happen is competitive currency devaluation and central banks forcing their rates (including long term rates) down by increasing the money supply - just like the FED is doing.

If you punish savers and reward debtors by keeping real rates deep in the red and make sure there is an endless supply of free money for the taking, people will have to put their money in the stock market and very likely The Housing Bubble number 3.

Comment by iron56
2006-04-06 14:46:21

It’s already happening as Treasuries get discounted. Price down ==> yield up; i.e., effectively you’ve raised the interest rate.

And however much money gets printed, it doesn’t create any more actual goods and services. That way lies hyperinflation.

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Comment by iron56
2006-04-06 17:11:47

To put it another way: the bond market sets long term rates by what people are willing to pay for bonds. And that market is global. A government may be able to force its own nationals to buy its own bonds; it can’t coerce foreigners. And the US relies on an awful lot of foreign bond buyers.

Furthermore, there’s only so much debt monetization (i.e., buying bonds with printed money) that central banks can do before the market gets wise to it and discounts them accordingly–and that can spiral out of control very quickly. Treasuries were dubbed “Certificates of Confiscation” in the late 70s. As the inflation mentality takes hold, it also drives the flight into hard assets simply because they’re less vulnerable to manipulation.

That is essentially what happened in the late 70s, and no matter what Bernanke’s political connections may be he’s not immune to economic fundamentals. In fact, I am now suspecting that BB wants to get shy of the “Helicopter Ben” label more than anybody really thinks. I can’t imagine he wants to be remembered as the Fed chair who destroyed the dollar.

The prospect of this whole vicious circle is also why the Fed is so preoccupied with managing inflation “expectations.”

It’s happened before, and in Santayana’s chestnut, “those who cannot remember the past…”

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Comment by David
2006-04-06 08:08:34

Ben will raise rates to 5.25 or 5.5 and then stop.


Comment by Getstucco
2006-04-06 08:38:52

Which brings us back full circle to those soaring commodities prices and bullish optimism on Wall Street…

Comment by nhz
2006-04-06 09:42:06

… and for sure another and even bigger round for the housing bubble.

I already said this months ago. See what this Bernanke guy has been preaching for the last years: ramping up the printing presses, combined with ‘inflation targeting’ as a sure fix for all economic problems. Of course, inflation targeting is just a nice word for making inflation so high that every saver is scared to death and sends his remaininb savings to the RE mob or Wall Street. This Miller guy will look an inflation fighter when Ben B has been in office for a few years.

And don’t worry about the ECB and BOJ dimwits because they clearly understand what Ben is expecting from them: they will make sure that their savers get just as scared, so that we can do away with the ‘global savings glut’ for good.

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Comment by Getstucco
2006-04-06 09:50:25

Note how long “this Miller guy” stayed in office at the Fed before you get overly certain about the outlook your crystal ball is showing you…

Comment by nhz
2006-04-06 10:08:53

but the Bernanke guy has far better political connections; I’m sure the Bush government is involved in the plan.

I think he will hold on much longer than you can imagine, despite the fact that everyone can see that this cannot end pretty.

Comment by iron56
2006-04-06 14:57:21

RE did well in the rampant inflation of the late 70s, but stocks did not. The famous Bizweek cover on “the death of equities” was about 1982. You’ll see money flow into hard assets instead (esp. commodities & gold) because their amounts remain limited however much paper you print.

Happened in the 70s.

Comment by Inspired
2006-04-06 15:56:54

Here is my 2 cents>
I have posted other financial sites or written rebuttals to some of the gold bug authors. I E - M3
It is concensous wall street thinking that M3 was dropped by the FED so Ben could be free to drop USD’s from the helicopters.
However I have a different take….{contrary opinion can’t here don’t ya trhink?}
1) Ben can’t “fool” the markets about the growth in M3. {For me you have to accept the M-3 numbers that were being released.- I don’t}
2) It is common knowledge that the Fed while raising rates 15 times was clearly keeping the peddle to the metal with over 7% M3 growth the past 2 yrs. While pulling back on the bloated Fannie & Freddie.
3) With rising stock, gold, commodities, Real estate, and even long term bond values……while M3 rose almost every body remained happy! Until they quit buying our bonds..enter the mysterious Carribian bank buyers?
4) M3 - Fed was adding nearly 81 billion a week in Feb to the system
5) despite all this real estate debt, and M3 additions by the FED…Humpy Dumpty’s fiat currency - Volocity was going negative…
6) facing the reality that the Global Real Estate bubble was pricked {Ausie-land, Netherlands, UK, Shangi, China,Japan (18 yrs in a row now)the remedy must have placed great fear in the Central bankers when Gold blew through 560 and Oil wouldn’t stay dropped below their shorts @ 70.. that it took an ever increasing supplies of cash- electrons to hold the volocity decline from furhter erosion.
7) Solution Stop reporting M3 and let it fall…Make sure the Media is aware that consumers are pulling back (see retail reports today)and Corporations WON’T borrow for CAPX- {an ongoing trend}!
8) Plausible deniabilty for the FED, and harvest time for the elite super rich!
9) Start another war {Iran?, Nigeria} - the “Rothchild formula” soon to return 2008?.

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Comment by Salinasron
2006-04-06 06:25:07

‘When a housing market is appreciating as rapidly as Boston was, banks tend to be a lot more lax, because they can make up (for default risks) through price appreciation,’ he said.”

This is the herd thinking that helped to get us where we are today. Inate in this thinking is ‘Prices always go up’…….

Comment by Moopheus
2006-04-06 06:26:55

I can remember a time when folks in neighborhoods like Mattapan and Roxbury complained that they couldn’t get loans at all, due to bank unfair bank redlining (which it turned out upon investigation that they were not imagining).

My mother’s family is from East Boston, and it’s kind of weird to think of how pricey that area has become–I’m not sure it really qualifies as affordable any more. I guess they mean “not as insanely expensive as some other neighborhoods.” If there are rising foreclosure rates (not surprise, really), that would seem to be evidence that those prices are _not_ affordable to the people who live there.

Comment by housegeek
2006-04-06 06:28:19

This is exactly what I fear for Boro areas– Bed Stuy, Bushwick (which already has highest foreclosure rates in city), Jamaica, East NY, Canarsie, Hollis, you name it. And Crown Heights, with its new arson cases. There are too many mortgage scammers preying on low-income dreams for me to ridicule these homeowners, and we all live in too close proximity for me to gloat about these neighborhoods’ impending decline.

Comment by Larry Littlefield
2006-04-06 06:28:27

I was told by an assistant DA that a house sold in East New York, the worst part of Brooklyn, for over $500,000 on a street where back i the early 1990s there were five murders in one year.

Comment by housegeek
2006-04-06 07:17:21

It’s true Larry — anyone who thinks scams and flippers aren’t prevalent in NYC need only look at that area. Also in Harlem, East NY, Brownsville they have built crappy new “affordable” housing and shoehorn low/middle income buyers into bad mortgages for those -some of it already is falling apart:

Homeowners are in a fix in Harlem
Monday, August 29th, 2005

Vicki Seabrook got the estimate from the contractor — and the news was bad.

It will cost a staggering $98,350 to repair her new Harlem home, which her college friend Desmond Emanuel built in a city-sponsored affordable-housing development.

So far, she has spent $18,000 for everything from replacing inadequate heaters to covering her basement’s disgusting dirt floor with concrete to paying the lawyer she and 13 other homebuyers hired.

They’ve filed notices that they plan to sue the project’s sponsors — the city Housing Preservation and Development department and the nonprofit New York City Housing Partnership — after trying for two years to get repairs paid for.

Seabrook’s estimate doesn’t include extras like a fix-up for her nasty, weedy back yard — which her purchase agreement said Emanuel would “grade and seed.”

A flight attendant and single mother of a teenager, Seabrook spent years saving for the downpayment for her $493,858 three-family home. “I have worked overtime and holidays since the day my daughter was born,” she said.

The project’s developer built up his businesses with the help of a Housing Partnership mentoring program, and in the late 1990s he said in a New York Times story that his Santa Fe Construction was the city’s largest minority-owned contractor.

But after apparent success, he shut down Landmark Projects IV, the entity that built Central Harlem Partnership Homes — and left Seabrook and other buyers without warranties or a developer to hold responsible for repairs.

Some of the angry owners of these properties are going to hold the city responsible for their plight, claiming it should have done more homework before assigning the project to Emanuel.

The development — for first-time homebuyers with annual household incomes of $70,950 or less — is one of two city-sponsored affordable projects in Harlem with unresolved construction problems. The other is the Madison Park Townhomes, 20 three-family homes on E. 119th and E. 120th streets whose buyers have tried for almost a year to get their developer, the Velez Organization, to make meaningful repairs.

Owners from both developments came forward after Your Money broke the story of affordable homebuyers in East New York, Brooklyn, who are struggling to get their properties repaired — an all-too familiar problem for the Harlem residents.

At the other affordable Harlem development, Seabrook is still stunned that her friend left homebuyers in the lurch.

When she signed up to buy one of the 41 two- and three-family houses he was building on sites from Fifth to Eighth avenues and W. 121st to W. 128th streets, he phoned to ask if she was the Vicki Seabrook who went to the University of Pennsylvania when he did. She remembered him, too — as a smart guy who tutored other students in math.

The Ivy League education was a big opportunity for them both — she grew up in a public housing project on W. 103rd St., he was an Antiguan-born immigrant raised in the South Bronx. Now she thinks he has betrayed the standards of their school.

Your Money was unable to reach Emanuel by phone or fax. New York City Housing Partnership CEO Dan Martin said after months of trying to find him, the organization was told he’d declared personal bankruptcy.

The partnership has offered homeowners money for repairs — and 17 people accepted, he said. Seabrook’s offer of $10,050 was a fraction of what she needs — so she joined the group that hired attorney James Vagnini of Leeds Morelli & Brown.

The Madison Park homeowners have spent more than $10,000 on a lawyer they hired to get the city and the Housing Partnership to respond to their complaints.

Since then, the two sponsors have been prodding the developer to get things done — or at least trying. For example, on May 4, partnership architect Pierre Dubois sent Velez a letter with a list of 13 repairs, and asked Velez to set a work timeline within 10 business days. It’s nearly September, and repairs still haven’t started.

But Elizabeth Velez, the firm’s executive vice president, told Your Money that the work will get done. She said the architect who designed the project recently did an assessment of the houses, and will write out an action plan for Velez.

“As soon our architect hands us a scope of work, we plan to start on it immediately,” she vowed. “I have no doubt these repairs will be done in time for winter.”

Homeowners have bad memories of last winter — when winds whipped through drafty window frames and badly fitting doors, and pushed up heating costs sky-high. Con Edison called homeowner Nancy Herard to ask why her monthly gas bill was so high — it was about $800 per month, she said. Many people covered their windows with plastic to slow the rush of frigid air. But until repairs are made, there’s nothing they can do to stop water from pouring in through the ledges above their windows when it rains, peeling the paint and making big holes in the plaster.

“They used cheap materials,” said homeowner Maria Delgado, an Ecuadorian immigrant whose husband is with the Army Reserves in Iraq.

One thing Velez won’t be fixing is the “door to nowhere” on the upstairs floor of owners’ apartments — which opens onto thin air, because there’s no staircase to the yard below.

There’s nothing but a short child guard outside it, which would be big enough for a window, except this isn’t a window. In one house, the door won’t stay shut — so the owner has piled two boxes and a chair in front of it to keep her child away.

Comment by hd74man
Comment by Getstucco
2006-04-06 06:36:02

Maybe this is a good time to revisit this recent obituary:


“Involvement in Democratic politics led to his appointments by Carter. He oversaw the U.S. central bank from 1978 to 1979, when stagnant growth and high oil prices, inflation and unemployment were being dubbed “stagflation.”

At first he spoke of a broad agenda to tackle inflation and unemployment, but he was soon chided by some Wall Street observers for being overcautious.

During his brief tenure, he was said to act too slowly in increasing interest rates while inflation became unwieldy, but Mr. Miller spoke of concern that higher interest rates would prompt a major downturn in the economy. His successor, Paul A. Volcker, was credited with far greater skill in taming inflation through a major increase in interest rates.”

Comment by shel
2006-04-06 06:34:00

I feel bad for all those people who stretched to buy *a place to live*…I don’t feel bad for people who stretched to *speculate*, but I think our culture has done much to screw with people’s heads about how stupid they are, how “rootless” they are to rent instead, how much better it is for society, for their neighborhoods, for their god and country, for them to buy buy buy.
Not to mention the sentiment that it is good for god and country to keep retail afloat in these treacherous times by using the homes they might be able to afford as ATM machines–this is, after all, a nation whose leader told them to “go shopping” as a response to the alleged first shots in a new kind of war we’re fighting.
Interest-only financing was touted as a benficience of this new reality for some, who maybe thought they were forever relegated to the fringes, and I don’t think anybody sat down with many of these less well-educated or greymatter-endowed prospective buyers and told them of their dangers.
When our leaders also get on their pulpits and talk about how more and more people are finding ways to own their own homes, and make it seem that this in itself is desirable apart from affordability which at the very same time was moving in the opposite direction, then I don’t think it’s merely a question of individual risk-takers reaping what they alone have sown…
sad sad sad…

oh, well, cheers anyway!

Comment by UnRealtor
2006-04-06 06:48:30

this is, after all, a nation whose leader told them to “go shopping” as a response to the alleged first shots in a new kind of war we’re fighting.

The US economy was directly attacked on 9-11, actually closing the NY Stock Exchange for the first time in history. When the market finally reopened, people dumped all their stock.

Thankfully people did spend and and pump money into the economy.

And those first shots were not “alleged,” they were very real, as my office at One World Trade Center definitely no longer exists…

Comment by Kim
2006-04-06 07:24:06

The attack on 9-11 just hurried the bear market process that the stock market had already been in for over a year, the market would have dropped to the same point anyway eventually.

Why be thankful for the spending of unearned money that has caused a “recovery” that cannot last and has increased inflation by expanding the money supply through expanding debt? In order to experience a real recovery we will have to go through a real correction of the economic imbalances, and not just a spending spree of borrowed money that has brought our savings rate to a negative and our personal debt to an all time high, and our home equity to an extremely low level in spite of high appreciation of home “values.” This spending spree will only increase the pain of the correction that was starting 5 years ago and still has to be completed.

Comment by Getstucco
2006-04-06 08:44:20

100% agreed. Add to that the waste of America’s future prosperity on building second homes that many will soon regret having bought, and I would say the US economy has some heavy lifting ahead over the next 1/4 century or so…

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Comment by UnRealtor
2006-04-06 11:07:45

Why be thankful for the spending of unearned money that has caused a “recovery” that cannot last and has increased inflation by expanding the money supply through expanding debt?

As you say, the economy was shaky on 9-10. It was attacked directly on 9-11. What if it was attacked again 6 months later?

No, the right move was to get the economic recovery going IMMEDIATELY.

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Comment by waitingitout
2006-04-06 18:57:43

That’s true. The fact is that everything comes back to baseline eventually. The longer the feds held off the eventual drop in economy the harder the fall back to baseline it will be. I’m a nurse and the same goes for the body. The longer you hold off getting something fixed or diagnosed, the more painful it will be later on.

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Comment by shel
2006-04-06 07:45:27

sorry for my lack of clarity–I didn’t mean to imply that there was anything small or not real about 9/11, truly. The ‘alleged’ I meant to modify the “new war”.
I never meant to make light of the awful attack, and agree that our economy was a target. I too am glad that people didn’t hole up and stop economic activity, because that would indeed have been a ‘victory’ for the murderers responsible for 9/11. I only meant to point out that people who’ve gone and participated in this irrational run-up in spending and debt weren’t without some serious cheerleading from our leaders, saying how this was all “good” and not thinking about the consequences.
As a New Yorker born and bred, I was doubled over in tearful distress at the towers going down and the people running over the bridge to escape the ash clouds. I’m so sorry for your losses that day, and apologize for my ill-considered words.

I do hope our economy recovers okay from the huge run-up in debt that has been created since then. I think perhaps I used the modifier “alleged” for “war” because when I think about wars I think about consumer belt-tightening, not simultaneous tax-cutting, credit- and spending-sprees, *and* warmachine outlays.
again, apologies…

Comment by turnoutthelights
2006-04-06 07:48:43

A very nice recovery.

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Comment by MsTerra
2006-04-06 08:34:43

I got your meaning, shel. I was here in NYC on 9/11 (uptown, actually - it was very surreal to hear about events unfolding just a few miles downtown while all we saw from our windows was a beautiful late-summer day) and was disappointed at being told that the best thing I could do for my country was go out and shop. I was prepared then to make sacrifices if asked, and am preparing myself for the inevitable sacrifices now. Of course, hindsight is generally 20/20, but I can’t help thinking that if we hadn’t been told to indulge our urges for instant gratification then, we wouldn’t be heading for so much trouble now. I just hope that when it all comes down we as a nation will finally get back to the “old-fashioned” values that made us great in the first place.

As far as MA goes, I really hope that a correction will make it more affordable when the spouse and I move back, but I do feel badly for those people who fell victim to predatory lenders. It’s easy to say that they should have read the docs thoroughly, etc. etc., but it’s also not hard to understand how people could be lured through doors that used to be shut tight against them.

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Comment by foreclose_me
2006-04-06 10:47:47

that would indeed have been a ‘victory’ for the murderers responsible for 9/11.

They have had at least one small victory: You seem not to dare even speak their name. Their group leader was Mohammad Atta. Their master is Osama bin Laden. Their goal is worldwide Islam; their method is Jihad. Their book is the Koran. Their last words were Allahu Akbar.

Their war is real.

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Comment by UnRealtor
2006-04-06 11:09:56

No problem, don’t sweat it.

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Comment by asgardragnarok
2006-04-06 07:34:43

Alleged first shots. Screw you hippie.

Comment by shel
2006-04-06 07:52:28

As I’ve said above…I miswrote…I should have said “…first shots in the alleged new kind of war we’re fighting”.
I didn’t mean to challenge the idea that the “first shots” of 9/11 were terribly real, or that it reasonably meant a serious “battle” in the making. sorry to get you all upset :-(

Comment by The_Lingus
2006-04-06 07:48:23

Right on the money Shel. Everyone drank the economic koolAid served by the voodoo economists and is now in the painful stages of early sobering up. The sad reality is that we are now being bombarded with trite phrases like “the economy is doing just wonderful”. The problem is, they don’t indicate whose economy.

Comment by shel
2006-04-06 08:30:32

thanks for the kind words as I try to recover from my badly composed statements (edit feature would be *so* nice!)…
…as I’m sitting here re-visiting memories of that whole 9/11 period it makes me wonder how much of the psychology of that factors into this all in a way I hadn’t really thought much about before. I think back to how devastated I was, how worried. That whole year after the attacks felt like shock to me…I have relatives living in NYC and went back for the first time in a long long while to visit there at Xmas time 2001, drove past the Towers site and my throat hurt for days from the couple minutes we had the car window open driving past. I still can’t forget the smell of it, or the fear I felt for a whole year afterwards waiting for the next shoe to drop. I think for even longer than that, and still now, there’s a part of me waiting…maybe for others too. I wonder how much of all this bubbly-ness is a sort of denial, in way, of fear and dread. People desperate to find some source of optimism. Imagining that housing will forever go up up up and fund buying jetskis and motorcycles and shoes and vacations and so on and so on is nicer than wondering whether Russia really has control over all their stockpiled nukes and whether we should worry that the anthrax mystery was never solved and whether airport security is really tight enough etc. And perhaps it’s not just the dotcom bust that put small investors off stocks and onto RE but also the fear that any big terrorist (or even small ones…) attack would send the indices into a freefall.
I’ve quite depressed myself today! probably go shopping to make myself feel better… :-(

Comment by Upstater
2006-04-06 19:39:47

Shel, I think you’ve hit the nail on the head. People have spent w/o thinking almost because they had to.

The Missouwi (sp?) trial has affected us today too. My son and I were talking about it at bedtime. I shield my kids from violence and sex on tv but not the news. Tonight we talked about how he felt about that day. He was 6. He mostly played w/ a few other children while I sat with a Mom whose husband was on a plane to London—just trying to get some info. Alot of the other parents at the preschool (in Hyannis) were pilots out of Logan Airport. One grandfather was on a plane to California that same morning. Luckily not one of those 2 but it took so long to find out. Later one of the pilots reported knifecutters had been found on his (grounded) plane too.

Men w/Uzis patrolled the Bourne and Sagamore bridges and there was lots of fear based around the Pilgrim nuclear plant and spent fuel rods being stored outside. It was later in the paper that a nuclear accident/attack would result in the Sagamore bridge closing to avoid sending traffic thru a nuclear plume. I knew I’d never get off that Island via the 2 lanes of the Bourne. That’s when I decided we were moving. I lived in a panic for a while too. Something about that trial today really brought some feelings back. Maybe it was Gulliani’s testimony. Sigh! Everyone do something good for themselves tomorrow. It’s been a tough 4 years….even if we didn’t realize it.

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Comment by Getstucco
2006-04-06 08:46:37

“… alleged first shots in a new kind of war we’re fighting.”

Are some posters here still confused whether those were Iraqis or Saudis who flew the airplanes into the WTC towers? Because your posts suggest as much…

Comment by shel
2006-04-06 09:18:42

well, you know, according to the current administration of course the iraq invasion was part of the process whereby we implant democracy in the middle east, thereby ending the anti-west and especially anti-US sentiment that created al-qaeda, right? Now, of course, we all (should) know that it was US involvement in affairs of the middle-east that inspired the anti-US sentiment, and that our actions in Iraq have increased suspicions and negative feelings toward us in the region, and that we are doing close to nothing with this strategy to affect the rhetoric of hatred encouraged by countries like Saudi Arabia in their schooling and theological interpretations, and that in the name of enforcing “democracy” as in decisions-by-majority-vote we have to accept the instantiation of islamist regimes or even actual terrorist organizations in the case of Hamas for example…I guess to the degree that anyone can come up with justification for iraq as part of all this it’s that on the one hand we are somehow keeping the terrorists occupied over there, and on the other that if we somehow succeed in forcibly creating secular democracies in the middle-east, we will be on the way toward stemming the tide of radical islam and its call for jihad.
but I never meant to get this political, honestly!

I just wanted to say how I thought people were being encouraged to spend spend spend apparently as part of this “war against terrorism”, however one conceptualizes its parameters, and that’s mighty deep sort of encouragement, as well as mostly counterintuitive when one thinks about ‘war’.

Comment by foreclose_me
2006-04-06 10:59:27

… and on the other that if we somehow succeed in forcibly creating secular democracies in the middle-east, we will be on the way toward stemming the tide of radical islam and its call for jihad.
but I never meant to get this political, honestly!

Very good, I see you can at least see that Islam is a key attribute of the enemy. War is always a political act.

As to stemming ‘radical’ Islam and the Jihad, I laugh at the mere idea. 1,400 years of Jihad, and GW Bush thinks he has the cure?

I tell you what: If you can find a cure for Tom Cruise, I might think there is hope for Muslims.

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Comment by TheLingus
2006-04-07 13:42:05

Shel, It’s just further proof of the disastrous failure of the neo-con bush administration.

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Comment by stuckinhouston
2006-04-06 09:48:20

I feel frustrated!
I wanted to comment on how beautifully shel put some of my thoughts in to words and was wondering if you were a writer?
I am afraid to say anything!!!!!!!
The way I interpreted alleged was that many other things happened before 9-11 that was “instigating”.
What about the bomb at Tradecenter?
I would be honored to be able to write like shel.

Comment by shel
2006-04-06 19:06:26

thanks stuckinhouston, that’s very kind of you, and a much-appreciated ego-stroke for someone who is dealing with the writing-hell of a dissertation!
I forgot all about the bomb at the tradecenter from years before…but had flashed on all those off-US-soil attacks on US interests, like the USS Cole, the embassies in Kenya and Tanzania etc..
hard to sign off with “cheers” thinking about all that…

Comment by robamherst
2006-04-06 06:36:59

We are renting in Amherst and have spent the last two months looking at properties. We use zillow as well as county tax and mortgage records to help analyze value. Inventory has exploded upward and sales have crawled to a slow pace, especially for anything over 300K here. We selected nine properties which looked nice to us. All nine were overpriced by at least 10%. Some by as much as 25%. Most properties were bought with ARM’s. Eight out of nine have Helocs taken out within the last three years. One such Heloc was for 400K - half the asking price of the house and the same price the house had sold for seven years prior. As the spring rolls on and the situation worsens, you will begin to hear the screams of pain from these homeowners. It is going to get very bad.

Comment by Simmsays...
2006-04-06 06:45:14

I believe that we wil see price cuts in later summer when the hopes of a spring sale fade and people start feeling scared that they may have to go through winter with the house around their necks.



Comment by Chrisinpnw
2006-04-06 07:35:48

Thank you Rob for the comment as you are out there looking & checking what is really going on. This is worth far more than many of the general opinions as to what is going on. You will do well, timing is the only question. It may take until late summer as posted above.

Comment by Tulkinghorn
2006-04-06 15:22:52


I too, am looking to buy in Amherst, but it looks like I will be moving into a rental. If you look at Zillow for Boston suburbs the mean prices are back down to 12/04 territory, clearly showing a cresting around 5/05. If you look at Amherst, there was a peak in 10/05. and the market has given back half of the 20% rise from 1/05 to 10/05. If you look at a nice town in the Berkshires, they have not reached a peak yet!

I read this to mean that the post=bubble deflation, just like the earlier rounds of speculative increase, are moving out in a wave from Boston and New York, with about a 6-month delay. So I will get serious about buying in Amherst when it appears Brookline and Newton have hit a trough of relatively reasonable prices.

I predict some relative good pickings by Spring 07, but still not cheap by then. Cheap will be if declines continue for two years at least.

Comment by Robert Coté
2006-04-06 06:41:50

Boston is different from other places. No, wait stop laughing. It is different in a bad way. It is the bubble area that is ALSO losing population. Double bubble badness. The problems we see there now are the population effects. Those problems will multiply when the finance stresses start in.

Comment by also renting in ma
2006-04-06 07:23:27

Is there a point here?

Comment by Robert Cote
2006-04-06 08:29:32

Yes, Boston is going to see a double hit. What we see now is the ageing population and productivity exodous. When the financial problems arrive they won’t add, they will multiply. Then we’ve got Taxachusetts’ new crush small business healthcare legislation. As a former native I can tell you it is going to get real bad.

Comment by hd74man
2006-04-06 10:33:19

RC-Fair analysis…What until the public employee pensions come due…Whooweee.

MA is the only state in the country that instead of utilizing minimum wage flaggers at worksites, mandates a police postings to the tune of $42.00 per hour.

Small town cops are making in the range of $120k per year with this extra detail work.

Elementary ed teachers with double masters degrees are makin ‘$100k.

Whoever is gonna be stuck to payin’ the pensions on the “top” 3 year earnings of this crowd is beyond me.

MA is one sick place.

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Comment by Karen
2006-04-06 08:12:48

Humboldt County California is prolly in worse shape. Not only are they bubbly, & loosing population, unemployment tends to run at about 20%.

Comment by cereal
2006-04-06 10:31:04

karen nailed it.

such a nice place too.

Comment by Getstucco
2006-04-06 08:47:48

SD is another bubble area which is losing population…

Comment by Upstater
2006-04-06 19:47:50

“Double bubble badness” Ok Robert someone’s gotta coin that phrase. Send it on to the press!

Comment by also renting in ma
2006-04-06 07:12:48

Affordable = Less Desirable (formerly crappy)

Boston has never really had much slum/ghetto in the way bigger cities do, but these areas can be scary. Urban pioneers have done well in Boston (like the South End). Still remember when one end of Newbury street was being rehabbed.

As we are starting to see, one of the things driving the boom was the making of marginal borrowers into potential homebuyers. This increased demand. We’re now seeing the effects of that.

Comment by hd74man
2006-04-06 07:28:15

Immigrants will now continue to pour in because of universal health care. All will drive whether they have licenses or not.

Traffic gridlock in MA right around the corner.

Quality of life flushed down the toilet.

Estimated 650k Boomers ready to bail w/ pensions (if available)

Get out while you can!!!!!!!!!!!!!!!!1

Comment by Robert Cote
2006-04-06 08:32:45

The Commonwealth sends my mom her retirement check from the Dept of Ed every month autodeposited to her Florida residence account. And of the children all in our peak earnings years not a one of us still lives in the Northeast.

Comment by NH_renter
2006-04-06 08:38:24

I’m contemplating a move out West myself… No place stand out though.

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Comment by Robert Cote
2006-04-06 09:05:59

I dropped off my thesis, borrowed $200 from my uncle and rode my motorcycle through every state on the east coast and southern border until I ended up on the Santa Monica pier and never regreted it. That was 1983. Southern California today? NFW.

Comment by cereal
2006-04-06 10:33:13

or what was left of the pier. i remember watching it get destroyed by 20 foot surf that winter.

Comment by Upstater
2006-04-06 19:56:13

hd74, your post reminds me of that guy on “The Banana Splits” It can’t work….we’ll never make it….;)

Comment by Jim
2006-04-06 07:33:15

Excellent point! The new lingo is misleading. Subprime = Junk, Neg-am = Ponzi scheme, Cozy = $hit box etc. The list goes on forever…

Comment by turnoutthelights
2006-04-06 07:52:41

Yeah. Sort of a Matrixesque 1984 - the string pullers charm you with reversed wording, as through the looking glass we go.

Comment by Larry Littlefield
2006-04-06 07:30:48

(It is the bubble area that is ALSO losing population. )

It may have been losign populaton because of the bubble. Existing houses occupied by empty nesters, few places to build more (except condos in Boston), sky high prices for the limited homes for sale, families with kids go elsewhere. A bursting bubble will be a help in some ways.

Comment by Upstater
2006-04-06 20:02:58

Seems there are a few here from the area. Any one else besides MsTerra planning on heading back if home pricing subsides? I will go back eventually but not till kids out of school. Crime also way out of whack compared to here so I’ll put myself in harms way for the love of home but not them.

Comment by MsTerra
2006-04-07 06:12:13

We’re moving back for family reasons regardless of what RE prices do. If house prices don’t come back in line with fundamentals, we’ll continue to rent. It’d be nice if we had the freedom to go someplace less bubbly but our hands are tied until Moopheus’s mom kicks the bucket. ;)

Comment by bostondude
2006-04-06 11:02:56

Boston’s population is more or less stable, not decreasing. It’s expensive, there’s a reason for that… it’s a nice place to live! Outside of NYC (too big), what other cities are nice to live in? Baltimore? No thanks. Philadelphia? No thanks. New Haven? Ew. All of those three are crap holes compared to Boston. For whatever reason, Boston has done a great job of attracting federal grants to redevelop the downtown areas clean itself up, while other cities have struggled.

On top of which, Boston’s #1 business is education (and by extension, health care), which is one of the most stable businesses to depend on. Something like 150,000 students age 18-24 live in the area, out of a total population of 600,000! Harvard, BC, BU, and MIT all have billion dollar endowments that are dedicated to redeveloping and improving areas of Boston. MIT’s endowment is almost 8 billion now. Harvard’s endowment is almost 30 billion I think. Plus individual endowments for Brighams & Womens Hospital, Children’s Hospital, etc. All this cash gets pumped back into Boston which is the reason the police officers and teachers make 60k to start.

Prices here aren’t even high when compared to a true bubble area of California. CAP rates on new purchases are around 4.5%, not like 2% in San Diego or San Francisco. So trash Boston all you want, but honestly, compared to other cities in the mid-atlantic or northeast, it comes out on top for a reason.

Comment by skep-tic
2006-04-06 11:27:06

most people would agree that Boston is a nice city overall, but this doesn’t mean that its real estate isn’t seriously overvalued, or that every part of Boston is nice. Beacon hill will always be very expensive relative to most of country and relative to Roxbury, but both are overvalued, and most people wouldn’t consider Roxbury nice

Comment by Fishbones
2006-04-06 11:34:25

What! You are only supposed to say negative things on this board!

Comment by Mike_in_FL
2006-04-06 12:05:19

I went to college in Boston, graduated in 1998. Loved it and all. So yes, Boston is nice.

But to bring this back to the topic of real estate, you say cap rates are 4.5%. Am I the only person out there who can use Yahoo Finance and call up a 10-year Treasury yield quote? The one that shows 4.9% today? Why would anyone in his or her right mind buy real estate, take on all the associated risk of loss, etc. when you can earn 40 basis points more, risk-free (at least, risk of non-payment. Obviously you can lose money on the value of long bonds if you try to sell them before maturity)?

With such a high risk-free rate, it sure seems to me that even COMMERCIAL real estate pricing, by and large, makes no sense.

Comment by bostondude
2006-04-06 13:26:16


The big difference between a housing CAP rate and the 10 year treasury bond yield is that housing rises with inflation while bond prices do not. For most investors, the #1 long-term concern is inflation, as we face the sunset of a massive credit expansion and potential monetization of large amounts of Government debt.

A direct comparison does exist between the housing CAP rate and the I Bond, which is a Government bond indexed to the CPI, which is a decent, but often underestimated, measure of inflation. Current I Bonds yield something like 3% plus the CPI.

Treated as a security, a condo in Boston (just to use Boston as an example) yields 4.5% + true inflation (higher than the CPI) + 1%. Over the long term, housing will win. The reason that people don’t sell in areas like California where the CAP rates have plummeted and bonds become more attractive, is a combination of proposition 13 (low taxes), not wanting to rent or leave the area, etc.

Now, the condo is not guaranteed to be rented on a continual basis. It could sit vacant for a couple months. The sink could break and need replacing. The tenant could skip town, etc. This gets into the business of managing rental properties. But to compensate for some of these headaches, are additional tax benefits (deductible depreciation, losses, etc) for ownership. So in the end it might be even.

Comment by sf jack
2006-04-06 13:12:36

Well said bostondude.

It’s sport around here, led by Robert Cote, to slam Mass and Boston. Immigrants, taxes, high salaries to cops and teachers - where else have we heard that? California comes to mind.

Boston will be fine. In part because of the factors you describe (education, health care) it will continue to do better than many other places.

Comment by hd74man
2006-04-06 14:13:54

Health care sytstems provided by a bankrupt Medicare and Medicaid system and a bloated educational system paid for by taxing the elderly retired out of their homes.

Like with 9 trillion in debt the FEDS got money for grants-LMFAO!!

Sounds like a sound economic foundation to me (smirk).

New England=Dead money.

Comment by sf jack
2006-04-06 14:40:03

hd -

I’m talking the Boston region’s higher education industry as a driver of economic growth.

I’m also talking about the health care industry in the region as a driver. Boston’s hospitals and MD’s are the best in the world. That attracts talent and money. As well, Boston is number two or three in venture investing, as a region, in the world.

Think about the other large American cities (there are dozens) that would DIE to have 1/10th of these kinds of things.

I’m not saying Boston and Mass don’t have their problems, they do, but we’re not talking Detroit here.

Be real.

Comment by shel
2006-04-06 19:23:22

I went to school in Boston area and liked it lots, but I really wouldn’t want to raise kids ’round there, honestly. Send them to college there, sure, but I found there to be a really nasty edge to the culture in general. Something not real, something tight and aloof and massively competitive…something very passive-aggressive as well. Also driving there is beyond a nightmare. Took my husband years of living in the midwest to finally stop driving in ways that got him honked at all the time, having grown up in MA. I’d have to agree that it has a lot of good stuff in its economy compared to many many places. And it’s got a lot of prettiness too. Just kinda depressing/depressed people in it in my experience.
Oh, and housing’s gotten too expensive lol!

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Comment by John S.
2006-04-06 16:14:13

Not all of New England is “dead money.” NH is pretty sound. After all we’re Boston’s India. We’re claiming 20,000 of Massachusett’s brightest each year. And the Mass $ multitrillion medical boondoggle should sent a couple hundred thousand more jobs this way

Comment by bostonnorthrenter
2006-04-06 12:13:32

it’s true, boston has been losing population. check out the link I provided or if the link doesn’t come up, search for suffolk county losing population or boston losing population on google.

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