‘Stagnant Housing Market Compounds’ Defaults: Mass.
The Boston Globe reports on rising defaults in the state. “Foreclosure filings against Massachusetts homeowners increased 30 percent in the first three months of 2006 and have doubled in the past three years, as homeowners in one of the nation’s most expensive real estate markets struggle to cope with high prices and rising interest rates.”
“Rising interest rates and a softening real estate market have put a squeeze on homeowners who sometimes can’t make the higher payments on adjustable-rate mortgages or refinance their loans to lower their payments.”
“‘These are numbers everybody should be paying attention to,’ said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance. ‘There are things that could happen like further increases in interest rates and or more serious decreases in [house] values that can make this a lot worse than it is now, and it’s pretty bad right now.’”
“In the first three months of the year, lenders filed notices against 3,762 Massachusetts borrowers who were at least 30 days delinquent on their mortgage payments. That is more than double the 1,858 filings in the first quarter of 2003, when the housing market was booming.”
“‘We have seen a real increase in numbers of foreclosures in Boston,’ Mayor Thomas M. Menino said yesterday, noting that the city has recorded 58 foreclosures so far this year, almost as many as the 60 filed for all of 2005. ‘The sky isn’t falling yet, but it’s really a cause for concern.’”
“‘We’ve got to stop having these mortgage companies give these loans out for people who shouldn’t get loans,’ Menino said.”
“Rates on these loans are fixed for one, three, or five years and then begin to float. Often that floating rate is based on the prime lending rate, which has increased to 7.75 percent, from just 4 percent a year ago. The stagnant real estate market compounds the problem. With housing prices stabilizing or falling, the refinancing option is not available.”
“‘The forces behind the erosion in the quality of credit are powerful and numerous,’ said economist Mark Zandi. Zandi said it is especially troublesome to see foreclosures on the rise ‘at a time when the job market is very strong,’ he said.”
“Mortgage problems are cropping up in a variety of loans, association data show. High-rate subprime loans exploded during the housing boom and have among the highest delinquency rates: 12.6 percent were past due at the end of last year in Massachusetts, up from 10.4 percent a year ago.”
“Yet, Massachusetts’ delinquency rates are below those in other parts of the country, such as Florida, where real estate speculation is widespread.”
“Douglas Duncan, chief economist for the Mortgage Bankers Association, predicted delinquency rates will continue to rise. US mortgages had a record volume in 2003, and most loans become delinquent in their first three to five years, he said. ‘You’re going to continue to see delinquencies rise in Massachusetts for the same reason as the rest of the country,’ he said.”
Thanks to the readers that sent in these links.
Zandi said it is especially troublesome to see foreclosures on the rise ‘at a time when the job market is very strong,’ he said.”
What does a “Strong Job Market” have to do with people taking out loans they don’t understand nor can afford in the long term ? People are living beyond their means and that isn’t a long term plan for success.
These guys have been saying that RE crashes only happen with unemployment driven recessions. So the surge in defaults without big job losses is a surprise for them; at least publicly.
Don’t worry, Ben — the coming contraction of employment in the RE sector ought to be enough to deliver an “unemployment-driven recession,” especially when compounded by feedback effects from the empty housing ATM machine into consumption-dependent sectors. (Today’s Wall Street Journal’s Money and Investing page has an article where the journalist coined the term “Zombie Consumers,” analogous to Japan’s “Zombie Companies,” to describe the status of the USA’s broke homedebtors.)
The future historical retrospective will conveniently downplay the fact that the RE crash led to the recession, and not the other way around.
They compare apples to oranges. They see the numbers and scratch their heads. The ability to think analytically in this country is sorely lacking.
Faulty loan underwriting was a big factor in this market run-up .
It’s not very easy to loan underwrite in a falling market because you have to be concerned about where it will level out at . In spite of this I got an ad in the mail yesterday by a mortgage company offering me a 125% loan to value ratio loan .
Also , I got a credit application put on my front door . I get about 2 calls a day from companies offering loans and a dozen a week in the mail . The real estate equity of the Nation is in serious trouble and these madhatter won’t stop . You have to be even more careful in a falling market because of the potential for fraud .
Good point. We seem to think it is the houses themselves at fault. The Dutch might as well have blamed the tulips or the British the tea. The problem is in the financial markets and so will be the disaster. Neutron loans; the houses will stand empty, only the equity will be killed.
In spite of this I got an ad in the mail yesterday by a mortgage company offering me a 125% loan to value ratio loan .
Not only will you get the 25% over fair market value, but you’ll also get a bonus of 18%-20% from the newbie appraiser working’ for a rubber stamp hack shop for a $100 fee split who doesn’t know shite about what he or her is doing.
The “overappraisal” keeps the homeowner happy and the work coming in (snicker).
125% loan I have had people ask for that. I don’t quite get that and folks always get a strange look from me when thats requested and it’s probably why I have never closed one. I don’t understand the logic
They were around in the early 90’s (probably before that, too but I have no firsthand knowledge). You had to have great credit (720 FICO and above), full doc, assets/reserves for days, and so on…. you know, the way it should always be.
I guess the “logic” behind it was, with that good a record of borrowing, you were worth the risk of lending to, even if the loan was more than the property in question. Might have made some degree of sense in a (potentially) rising market. No way nowadays.
I have to say I disagree. I think it’s been the huge growth of the secondary market that has fed this one. Everybody gets to pass the buck. The banks have to do something with the low-cost, free-flowing money and so they lend. It’s the fact that they can sell the loans on the secondary market, making someone else the bagholder, that injected the fuel.
Above post directed at Housingwizard’s top post.
Loonofficer, Faulty loan underwriting is the net result . Yes I agree with you that the secondary market fueled this , but did the secondary market say “give me high risk loans “. Or better said , it apparent the secondary market
did not think they would become high risk loans .
It was a dice roll from top to bottom. From the lender/broker all the way to Wall Street. Everyone had a hand in it and there were no complaints while the bling was blinging.
Now that the tide has turned we’ll all see the finger pointing escalate.
Exactly, people have to be paid 2 to 5 times of what they are earning now to really afford the homes they bought in the past 3 years.
Just “strong job market” alone is not enough to support the RE market.
“‘We’ve got to stop having these mortgage companies give these loans out for people who shouldn’t get loans,’ Menino said.”
Thanks Mr. Obvious!!! Those of us who think rationally have known all along this was adding fuel to the fire and would eventually become a big problem. Like clockwork, these guys are late too the party.
All I can say is it’s way late to be acknowledging this problem now. The damage is done! If this problem had been addressed prior to ‘04 we may have held off disaster. These guys should be focusing now on what to do in the aftermath.
As usual - the oversight is always asleep at the wheel. Greed and blindness take over and then the politicians try to clean up the mess afterwords.
Not true, the politicians try to profit from the mess that they promise to “do something about”. Seldom does political action actually acomplish anything useful. It nearly always benefits the politicians and their friends, though.
WWII showed that if you kill off your competition and a lot of your unemployed you can have an economic recovery. To this day most people deny that the rampant financial maina of the 20’s helped lead to the mess that ended in WWII. It’s too bad that financial mismanagement and inflation are not considered moral issues. Too many people would rather risk global depression and war than live within their means. And the politicians are the ones leading the way.
I second that emotion.
I have always thought that there is much more to WW2 that what is currently available for mass publication, and no I am not talking about “revisionist” history. Just that we get the watered down version of what, and why it happened. Economics have a lot to do with WW2 as the good old USA was still reeling from the great depression, and had not recovered. We also slowly strangled Japan with access to oil, and of course Weymar Germany needed a whole lot of capital destruction in order to restart their economy. I wonder how much of it was preplanned by our illustrious economists, and how much of it just got way out of hand!
WW2 and almost all other wars before and after (with a few exceptions) are all about accessing and controlling resources.
Econ 101. Control resources=Control your competitors.
This is not a housing bubble - Its WAR!
This is not a Housing Bubble- Its suicide!
Actually, you could look on the whole business of going into debt for the purchase of the “trappings of affluence” as acts of aggression. Consider the competitive nature of the act- the family on the hill wears designer labels, drives a hummer, but won’t let your kids over to play. You decide to go into debt to aquire social equality. You know you cannot pay off the debt - so the act of taking out the loan is akin to a suicide bomber that will weaken the debtor and any ‘collateral’ social and economic surroundings at default. Funny thing is, except for the fact that HUMMERS LOOK REALLY STUPID, it seems justifiable in the sense that no one should suffer social ostracism because they do not sport the right utility vehicles or flash the right colors and labels.
“Funny thing is, except for the fact that HUMMERS LOOK REALLY STUPID, it seems justifiable in the sense that no one should suffer social ostracism because they do not sport the right utility vehicles or flash the right colors and labels.”
It’s justifiable to take on suicide loans to be part of a social circle that values you based on the car you drive and the clothes you wear??
why would anyone with a sense of self-worth want to even be seen with idiots who drive Hummers and pay gazillions of dollars for their wardrobe?
What do you expect, he is a politician. They are the biggest bunch of knuckleheads!
LOL
Just a short time ago the politicians were trying to solve the ‘problem’ of banks refusing to loan money to people. The banks said they were unqualified and the banks would lose money on the loans. Anyone remember that!
“‘We’ve got to stop having these mortgage companies give these loans out for people who shouldn’t get loans,’ Menino said.”
Looks like the mayor have been reading this blog……
“assachusetts’ delinquency rates are below those in other parts of the country, such as Florida, where real estate speculation is widespread.”
How many different ways can you spin “but it’s different here?”
Everyone relax. These notices are nothing. Defaults aren’t even close to normal yet. We’ve merely risen from historically unheard of to historically extremely low. Defaults aren’t even going to be bargains for years. Let the suckers buy pets.com in April of 2000 not you.
Man, this is going to eviscerate the rust belt. Delphi, GM, NYC/BOS/PHL financial businesses, demographics, HVAC costs. If we are gonna start seeing the Okies of the new millenia wandering the highways they aren’t gonna shiver in Charleston MA or Framingham, they’ll sweat it out in a trailer park in Charlotte or Birmingham.
that’s a very interesting point…there was an article on the sociology of the baby boom covering how their families are less close because of all the divorce and such. So, if you’re on the third marriage anyway, don’t see the kids or the new grandkids, and get kicked outta work, why hang out in trailer parks where it’s cold 2/3 of the year and try to scrounge up money for heating?
strong jobs ?
30 was HIC
and I figure military/gov was over 10% since 2001
J6P will get bored w the War on terror soon
“‘We’ve got to stop having these mortgage companies give these loans out for people who shouldn’t get loans,’ Menino said.”
If they do that, prices will plunge. A speculative market needs bagholders to avoid collapse.
But the market may have run out of bagholders, esp. with mortgage interest rates spiking up as quickly as gold prices…
OT, but here’s a consequence of the housing bubble that hasn’t been blogged here very much — the impact of bubble-induced rising taxes on average taxpayers who aren’t moving anywhere (from the Norfolk Virginian-Pilot, http://www.pilotonline.com):
VIRGINIA BEACH - The City Council on Tuesday approved a $1.6 billion spending plan and a real estate tax rate that many homeowners decried as an assault on the financial health of Beach families. The council, unable to deliver on budget cuts, voted 9-2 to endorse City Manager Jim Spore’s recommendation to reduce the tax rate by 3.39 cents. While the tax rate will drop by just more than 3 percent - to 99 cents from slightly more than $1.02 - most homeowners will pay more in taxes because of steeply rising home values. This year, the average value of Beach homes jumped by nearly 23 percent.
The typical homeowner will pay about $418 more in real-estate taxes than last year. “I’m moving to North Carolina,” John McMullen, a 23-year Beach resident said after the vote. McMullen said the city real estate assessment on his Larkspur home has jumped 114 percent in the past three years.
Other home owners criticized the council for approving a plan that will increase overall city spending by 9 percent, well above inflation and increases in family income. “This is a house of cards - sooner or later it comes tumbling down,” said John Fenter of Haygood. “You can’t keep raising taxes on people.”….
Council members, reacting to public criticism of Spore’s proposed budget, had been telling residents since late March that they would try to provide deeper tax relief. Members acknowledged Tuesday, though, that they ran out of time. “There was no consensus on what to cut,” Councilman Jim Wood said.….
Last week, at the council’s request, city staff delivered a 17-page list of possible spending cuts totaling $30 million. The cuts would have enabled the council to knock an additional 6.6 cents off the tax rate. Those suggestions … sparked such an outcry, however, that council members moved quickly Tuesday to distance themselves from such cuts. “Every time we try to find the money, we find out we’re tromping on something that certain segments of the community feel is important,” Oberndorf said. .
Spore has maintained that the city could not offer further tax relief because of rising costs for such things as fuel and construction. The city also has to contribute $12.7 million more than expected in employee retirement and health care costs, he said.
Municipalities raising taxes because they want more money? There’s an answer for that; Prop 13.
Yes, for residential property, but hold the tax loophole for commerical property.
Does this mean that the MassHoles will finally capitulate and sell their teepees here in VT and head home?
One can only hope. Now if we could only get these NJ slimers out of here.
No, it means they’ll sell their Masshomes and infest your bucolic communities. They’ll overwhelm the town meeting and insist on shopping malls, Starbucks and condos.
Now that is a very depressing thought. Frankly, the thought disgusts me.
They can do for Burlington what they did for Pittsfield. Shudder.
Hate to tell ya, Lingus VT, NH, and ME are dead states walking.
Enormous numbers here in MA are ready to bail as soon as their pensions kick in. And they will be coming with big $$$-housing bust or not. They ain’t gonna spend one minute longer than they have to in this abysmal place.
I attended a housing demographic cont. ed course by a national housing expect a couple years ago who predicted retired boomers would own 2 single levels houses of around 1400 SF each-one in the north-one in the south.
There is much truth in Robert Cote’s comment.
Life in rural northern New England will change for the worse in a decade. Those Starbucks; bad attitudes; exhorbitant levies for healthcare on local biz; and high property taxes for services demanded by expatriate urbanites are comin’ to your neighborhood whether you like it or not.
Well, it’s already happened here. I’m hoping we’ve seen the worst of it. You’re saying we haven’t. Time will tell. But what you described is the 20th century demograph and I’m not all that confident it’s gonna shake out that way based on all the ugliness and chicanery that goes along with “globalization”. Dwindling energy supplies and commodity prices in general will put the brakes on much of the consumeristic consumption embraced by massholes and NJ slime.
As a former Yankee Masshole and current Californicator I bear bad news. Understand my credentials here; born Framingham, raised Western Mass, summered Berkshires & Cape, educated Boston, Cambridge and Worcester. Oldest child of oldest child I have a two digit tracking number in the Framingham heart study. I dropped of my thesis in 1983 and borrowed $200 from my uncle and rode my motorcycle west until there was no more North American continent. My mom lives in Venice, FL and gets a nice pension from the Mass Dept of Ed and siblings live in the panhandle and Australia. I go back east for vacations and funerals. Now the bad news; jerks like me are waiting for the rural depression a’comin. I’m gonna pick me up 1200+ acres and a bulldozer. Build me a golf course and bikin’/hikin’/horsin’ trails. Oh, and an airstrip. I’ll be a good corporate citizen, I promise.
keep dreamin’ robby.
Not a dream, a plan. Sold all my investment real estate in Califonia, sitting on cash. If I can’t get a lake on my property, I’ll build one. My greats owned farms in Cummington. Something like this: http://www.realtor.com/Prop/1055479496?lnksrc=00045 except for $400k.
well then I guess you’d fit right in in Mass. Go for it. Open up an invalid center so we can ship you all these non-native turds.
Ohhh no. I’ll be importing my own. That’s why the airstrip. Fly in for horses and golfing. Luxury efficiency cottages and really high rates. There’s really nothing you can do about it. New England drove away the best and brightest for a half century. This is payback. You want me and my ilk to long for a past youth and restore orchards and cider mills as hobby farmers? Tough, that time was when crushing taxes, decaying infrastructure, liberal strangleholds, urban crime were driving us away. Now you have a choice; mow my fairways and plow my runways or sell corn cob dolls to my guests when they borrow the communal electric vehicles your state will be paying me to own. I know that all sounds arrogant and nasty. Really, nothing personal but the British Empire before you did not take well to the same truths either. Unless you’ve got some offshore oil fields I suggest you snuggle up to we ecotourism type investors.
dream on little man.
Gonna get awfully cold without those weekend dollars to keep your oil tank filled.
Looks like I caught me another fish…… sadly, just another neo-con suffering from angst and buyers remorse.
You haven’t read a thing I’ve written have you? The extent of your replies has been dreamer, little man, caught fish, neo-con, suffering, remoreful. -IF- you had been reading you’d know I’ve sold all my investment real estate. The rest is just trying to pick a fight instead of addressing the future of the New England States.
I agree - there is definitely some truth in your last paragraph.
It strikes me that except for the Starbucks part, you’re talking about an older demographic, along with a level of taxes and demand for services (a certain kind of socialism) that reminds me of France today.
Unfortunately.
My comment just above is replying to hd74man.
SFJack-Having lived in the region all my life, I’m convinced New England is following Europe down the path of socio-economic obsolescence.
Domestic mfg. is gone; the woods are closing; the agricultural sector, aka dairy farms sold off; and the fishing fleets moth-balled. The pension tab for the legions of public sector unionists will be enormous.
The population is aging and demanding services, especially healthcare, that somebody else is suppose to pay for.
The social pact between to generations to pay for education is in a shambles.
Local NIMBY zoning here on the northshore does everything in it’s power to prevent familiies from establishing themselves because the property taxes on a SF house don’t cover the education costs.
As a result your next generation of”bill-payers” are heading elsewhere.
I am now reading stories of foreign residing aging “ex-patriates” who are now returning to the “region” to die.
AKA…we’ll live in Belize for 20 years for the low overhead, but when it comes time, we’ll return to the US healthcare system supported by the suckers who stayed behind.
People who think they are gonna emigrate to bucolic northern New England and have those state’s declining, death-spiral economic business structure pick up the tab for the healthcare billing shortfall of Medicaid got another thing comin’. NH just decided to tax property scenic “views”…for enhanced revenue.
The great Ponzi game of pass the buck is coming to an end.
“NH just decided to tax property scenic “views”…for enhanced revenue.”
NY is doing the same on the VT border. I know you don’t like taxes but in reality, it’s a good thing as most of those who value “views” are the starbucks $hitCoffee drinking maggots from elsewhere. I say hammer these money grubbers from NJ and Mass hard. Real hard.
BeaConst –
How is the market looking around MIT’s neighborhood? Have any of your genius professor friends changed their opinions as of late?
Just curious
GS
Yeah - me, too.
Very interested to see if Cambridge and environs (Back Bay, etc.) are still considered “different” by the Ivory Tower types.
Housing will not crash if the job market is strong and interest rates are low, regardless of overvaluation. When there is this much liquidity sloshing around there is a buyer for even the most pitiful assets.
That said, interest rates will go up - the question is how fast. The faster the dollar falls, the worse off the housing market will be, because the Fed will have to intervene at some point to stop inflationary pressures.
Then you’ll get your housing crash.
When there is this much liquidity sloshing around there is a buyer for even the most pitiful assets.
Riiight. Just like those 2000-vintage tech stocks.
Riiiggghhht, the Fed cut liquidity off in 2000, hence my point.
Problem is we’re losing jobs that require college or higher education while gaining jobs that do not require that. The average pay for college graduates has actually been falling since 2001. How long can people who make $50K/year afford to pay mortgages for $750K homes?
The faster the dollar falls, the worse off the housing market will be, because the Fed will have to intervene at some point to stop inflationary pressures.
No doubt about it. But I wonder if the housing market will,
despite rising interest rates, exhibit hysteresis
meaning prices will appear to hold for some period of time
and then crash hard?
OR
Will housing prices pretty much decline in lock step linear fashion
with rising rates?
Comments?
Hysteresis shows up in the sale price data due to the growing mountain of unsold inventory. When nothing is selling, the “average sale price” (calculated over from a fixed number of recent sales) does not seem to go down by much, even if the few homes that are selling do so at a steep discount to recent comps.
The best anecdotal evidence for the latter which I have thus far seen has been the articles about the $100K or so super-discounts to new home sale prices offered by the builders. Used home sellers just cannot possibly compete, and so their homes just sit on the market indefinitely, and the falling market values never show up in sales stats, leading to your hysteresis.
The best case scenario for the economy is for a slight reduction in housing prices while the economy stays strong, followed by 10 years of flat prices.
In the future:
Going to Home Depot won’t be a national weekend pasttime
Driving a 4×4 Dodge Ram won’t be cool
Hummer H2s will be burned and junked
Local theme parks and attractions will realize increased business
Reading and the education sector will increase
Camping, RV, state park trips, and boating will all nosedive
Campers and RVs will be sold for pennies on the dollar
Hard work will be rewarded
Yuppiesm will be a joke
sounds like my kind of world! I still want to go camping though…don’t worry: never in an RV!!!
tent camping will come back as a recreational activity, and as a next home for FBs
Moman- I would give anything to see that day in America. It would thrill me beyond belief. How about add a few more:
-Big Box Retailers will be looked down upon enabling a resurgence of Mom & Pop’s.
-Public Transportation soars as light rail takes off (Cutting 30% off the average American’s waist and therefore lowering health costs as well).
-Big Business and Special Interests are tossed out of Washington. Forever.
I like your additions
> Camping, RV, state park trips, and boating will all nosedive
Why would this happen? At least my plans for the future include frequent visits to state parks and also building up our tent occasionally.
I like to camp too. Most state parks I’ve been to are overrun with RV’s being pulled by yuppies with a pickup truck or old retired people. As gas prices rise and cash-out refis decrease, there won’t be money to afford the pickup, camper, or the perepheral stuff. Boats are in the same boat (ha), no money Donzi’s paid for with cash-out refis being pulled by a 4×4 Dodge Ram.
Comment by Moman
2006-05-10 07:11:21
The best case scenario for the economy is for a slight reduction in housing prices while the economy stays strong, followed by 10 years of flat prices.
In the future:
Going to Home Depot won’t be a national weekend pasttime
Driving a 4×4 Dodge Ram won’t be cool
Hummer H2s will be burned and junked
Local theme parks and attractions will realize increased business
Reading and the education sector will increase
Camping, RV, state park trips, and boating will all nosedive
Campers and RVs will be sold for pennies on the dollar
Hard work will be rewarded
Yuppiesm will be a joke
_______________________________________________________
AMEN! Although the yuppyism has been displaced by your average overweight white trash imbecile wielding a fistful of credit cards and a chevy SLOBurban in the driveway.
No….those white-trash imbeciles were driving SUVs and pickup trucks long before the yuppies made it the “cool” thing to do. What a stupid waste of money and natural resources.
Organized sports and other after-school programs for kids will diminish
once families can’t afford to drive their kids everywhere
More kids will walk or bicycle to school as school districts impose stricter distance limits for riding the school bus - better for the kids’ health, saves the taxpayers’ on transportation costs
As discretionary income shrinks, families will return to making their own entertainment - board games, playing/visiting with the neighbors, etc.
Reduced use of recreational vehicles will result in gradual environmental improvements - less pollution of water, less soil erosion
See - there can be good things coming out of this.
Comment by Homoaner
2006-05-10 09:38:48
Organized sports and other after-school programs for kids will diminish
once families can’t afford to drive their kids everywhere
More kids will walk or bicycle to school as school districts impose stricter distance limits for riding the school bus - better for the kids’ health, saves the taxpayers’ on transportation costs
As discretionary income shrinks, families will return to making their own entertainment - board games, playing/visiting with the neighbors, etc.
Reduced use of recreational vehicles will result in gradual environmental improvements - less pollution of water, less soil erosion
See - there can be good things coming out of this.
___________________________________________________
And i thought I was the only one who thought that way.
Buffett: ‘What the wise man does first, the fool does in the end’.
The fools of the housing bubble crawled in the last two years, and now they will be chasing gold. It’s like watching a bunch of cats chasing their tails.
I second you on the new Gold Rush. It brings to mind what happened in the Panic of 1869. My sincere hope is that the hedge funds that have put all their money on the bet that Ben Bernanke is an inflationist get burned worse than the speculators who tried to corner the market in gold were on Black Friday (September 24, 1869).
http://www.thehistorybox.com/ny_city/panics/panics_article8a.htm
Gold is not going up. The value of the US$ is going down. The minute the fiat dollar looks stable the precious metals bull market will end
I sold in Los Angeles last June and made a significant profit. We had the house for 7 years. Moved to Boston and bought a small condo and then a cheap house way out in the country. Still had money left over. What is amazing is how the real estate agents kept trying to talk us into a bigger condo and an ARM loan. Even when I was very specific about my price range and size they would always take me to see stuff that was much higher. I think the cause of this entire thing is agents in cahoots with lenders. I can’t imagine what it would be like for first time buyers who are trying to get something nice. Manipulation is a nice way to put it.
I also feel that the realtors had a hand in pushing people into more than they could really afford long term ,and of course the lenders allowed it . The lender is suppose to protect the buyer because the lender is really in a partnership will that borrower for years in the future . If the Lender is going to sell the loan they have a duty to protect the final investor . Don’t you want your retirement funds protected ,or your deposits at the bank ?
No offense to good realtors .
Everyone in the Housing Business is against the buyer, even the buyers agent. Hire a good real estate attorney, they will get less expensive than a buyers agent and they will be on your side.
“‘We’ve got to stop having these mortgage companies give these loans out for people who shouldn’t get loans,’ Menino said.”
*********
What is it with the mayors - are they the only ones that can speak the truth?
First we have Mayor Mike saying 10% declines coming in NYC within a year, and now we have Mayor Menino stating the obvious.
“Non-obtuse politicians for everyone!”
I’m thinking that with all these extra condos in FL, CA just maybe affordable housing will kick in in a big way. Then I can leave most assets in my wife’s name, divorce her and move into one with a low income (ergo low monthly payment), then we can live together while investing her assets.Just draw up a legal doc on splitting assets. View it like the old marriage penalty tax.
There was an article about a town in China where nearly everyone divorced to take advantage of a government land for condo deal. The end result was that there weren’t enough government funds to deal with the new divorce rate, and the “divorced” couples mostly ended up splitting up. Even though they thought they didn’t mean it when they divorced they started acting divorced anyhow.
It’s only money. I’d not tinker with my marriage for a scheme like that.
Yeah, that was a sad article.
Since this is another Massachusetts posting, I’ll reiterate my diatribe for those who’ve missed it earlier…
My fellow Bostonians (and outlying 495 residents [incl Lowell] and some ‘burbs up to Worcester/Providence), our homeland is toast.
As stated in an earlier blog, if you guys want to know where Boston prices will land, just look at its sister city in NY State, Buffalo, once the darling of the industrial age, now a rust belt town.
And here are the similarities… in 1970, both Boston and Buffalo had 2 million metro region population. Boston’s hi-tech industry, led by DEC and Wang, was taking off and the city was experiencing a renaissance like no other place in America. In contrast, the industrial age was ending, factories were leaving metro Buffalo for abroad, and young people were leaving town for greener pastures all over the country. Lowell residents, whose families have been there since the 1900s might identify here with the loss of the textile plants in MA. Now, fast forward to today, Boston’s got 3 million persons, Buffalo 1 million. Buffalo’s market had fully reached it bear market bottom and is now slowly picking up, thanks to some extent, the lower costs of living. Boston’s experiencing a silicon “rust” belt effect of hi-tech companies leaving the region for greener pastures. Buffalo’s average home range is $100-200K, Boston’s $300-500K. So, if Buffalo’s a leading indicator then I think we know where housing prices will land in MA.
Also, like Boston, govt employment is the big thing once the private sector stops creating jobs. And believe me, Boston-to-Worcester biotech won’t be hiring in quantity, they’re pretty weak in adding headcount and many of them have had their heyday, gigantic product pipelines during the ‘90-’02 period. In this regard, the two cities really are sister towns and will probably go downhill in a similar manner. I expect when Fidelity Investments and Gilette leave town, the business climate of a once great city will start to look like the rust belt after the 60s/70s. I guess the really sad thing here is that Boston really was one of America’s most innovative regions at par with Silicon Valley for much of its modern history since the 60s.
Final comment… it’s taken a while but the whole notion of RE, as an asset class, vs a depreciating structure on top of a possible inflation hedge (the land itself) has come home to roost. This will be the toughest lesson for the current generation which is in its prime earning years. I just hope that the end result is simply another Buffalo NY for much of the bubble cities (Boston, SF, LA, NYC, etc) than a full blown third worldization of America.
Well, Boston does have the colleges. Huge student population. They have to live somewhere. I think you can count on the extremely wealthy folks in the U.S. who are pretty much bubble proof to continue to send their kids to those schools. Also, lots of venture capitol and old money floating around. I do think the suburbs of Boston will get hit hard.
I know that alot of the Brandeis U. and Bentley College students spend like there is no tomorrow. I assume alot of that is true with the other major institutions. As always, the students on work study and with alot of loans tend to be very conservative with their cash - they have to be (I was). What a concept!!
It will be interesting to see how that changes as the R.E., or more accurately the credit bust, progresses.
In addition to the colleges and universities, we also have a lot of hospitals in Boston. I have heard many doctors have turned down residency in Boston area hospital because of the high cost of housing.
And when Boston and Mazz sneeze-you can take it to the bank the rest of NE catches pneumonia.
Whole northern economy now is nothin’ more than healthcare for the indigent elderly; government; and a 10 week summer tourist trade sellin’ trinkets to flatlanders.
The bastion of American liberty flushed down the toilet of industrial globalism.
Randy,
I disagree with your negative opinion about Mass. First of all, we have the Red Sox, the Pats, and really good baked beans! Secondly, Bawsten is so ahwsum so I don’t believe anything bad you say about my city!!! I think the problem with real estate is happening because of Katrina and interest rates. You’ll soon see how things get back on their feet again. Please don’t compare us to Buffalo, Boston is different.
True, the Pats trump the Bills.
Now here’s the flip side, did you ever believe that the world’s greatest basketball franchise (and I don’t care what the LaLa fans say since the George Mikan titles were in Minnesota) would lose the best draft pick of all time (Len Bias) in one freak incident and then subsequently degenerate into the basketcase of the NBA (sans the Clippers before Elton Brand)?
Personally, as a kid, I’d never thought that the Celts would become a 3 pt shooting team with no defense come 2002 AD. In many ways, that was the perennial Boston institution that everyone around the world admired. I always get asked about Larry Bird whenever I travel abroad. At the same time, we have Cooz, Russ, Tommy Gun, Satch, KC, Hondo, Big Red, Silas, JoJo, Cornbread, Chief, Kevin, and DJ, all players whom I admire above all the showboats in the league today. And the problem is that it’s all history. I think you catch my drift.
“Well, Boston does have the colleges. Huge student population. They have to live somewhere. I think you can count on the extremely wealthy folks in the U.S. who are pretty much bubble proof to continue to send their kids to those schools. Also, lots of venture capitol and old money floating around.”
It’s all factored in. Other than Harvard/MIT, which is a constant as far as income stream per student, the other schools are affected by both the lack/slowness of granting international students visas and the national economy, especially in the NY to DC corridor. Many of those dorms and off campus apartments have already been purchased during the prior boom.
As for VC money, any new tech ladden business plan has to have a significant offsourcing component for places like Charles River ventures (and peers) to take seriously. What this means is that the MIT/Harvard/BU/Tufts/NEU startups for the new generation won’t create another DEC, Mitre, or EMC for the region. The bulk of the newer tech companies will have a sales/satelite office in Mass and much of the development work in Ohio/Carolinas, for USA local collaborations and Russia/China for further R&D and production.
The olde NE money lives on the Vineyard, Lincoln/Concord/Weston, Rockport, etc areas and as you know, no new professionals will be affording a place there in the near future so those will be the gated/”walled off” regions for the rich in the state. And speaking with friends in the financial district, the olde Boston Brahmins have moved much of their investments to other locales for better returns.
I hate to say it but nothing I see bodes well for our region. We’re entering a brave new world.
Interesting…at first I didn’t buy the deeply gloomy picture you painted–boston’s future like *buffalo’s*?! But your further arguments…with the points about outsourcing, the VC scene, and the old money…I find compelling. I feel like the very vigorous and wealthily endowed Unis in the area will still provide at least a firewall though(it’s hard to imagine MIT and Harvard and all those big schools operating in a true economic dead zone somehow) but wow the whole scene might change with globalization and movement away from the expensive and frustrating newengland area. even the scary levels of spending daddy’s money done by the brats at places like b-deis (ah, only too well do I know of that…) bentley and elsewhere might not be enough to save the MA malls…it’ll be an interesting coming bunch of decades for the region.
What about that article in the Globe from last week about biotech companies clamoring to have a presence in Cambridge? They were saying globally, it is the place to be for that industry. The commercial vacancy rate has been steadily dropping to 14% recently.
Let’s see, there’s this thingy, what was its’ name? Oh yeah… Amgen in this placy… oh yeah, Thousand Oaks. Well anyway, the commercial vaccancy rate in T.O. is 3.4%. And this Amgen thingy? Where are they going? Not Cambridge that’s fer sure. And is it the “high cost” of housing? Well, T.O.s median is about $740,000. Stop me when you see the problem with Cambridge/Boston and their future in biotech.
Actually, Amgen, the guys to beat Massachusetts-based Genetics Institute/AHP, now Wyeth, for the EPO patent rights, does have a satelite office in Kendall Sq near Genzyme. I suspect it’s a part of the whole Harvard/MIT IP sniffing game as well as stealing a few experienced persons from the Mass companies.
“What about that article in the Globe from last week about biotech companies clamoring to have a presence in Cambridge?”
I have a client in Kendall Sq and to some extent, you’re correct but you have to remember one thing, back in ‘96, nevermind the amazing ‘98/’99 peak, there were wall-to-wall IT companies all over that quadrant from MIT to Somerville (which BTW also included some of the big biotechs like Biogen and Genzyme).
Today, Novartis, Biogen, and Genzyme have really expanded and have sort of re-created that “nucleus idea” back in Kendall Sq but as a biotech breeder than a software plus ancillary services center. The difference again, is that they want to be near MIT/Whitehead whereas earlier, like around ‘95 to ‘99, Genetics Institute/AHP were building huge clinical manufacturing facilities near Andover as well as Cambridge; biopharma was more spreadout and hired a lot more regular persons. Remember, bigger mainstream biosciences employers like Serono have been laying off in the South Shore. So what’s happened is that there’s a need to be near MIT/Harvard, extract the intellectual capital from the brainaics over there, work on the first line of R&D which generates the IP portfolio but then to have the bulk of the development-to-production work done elsewhere cheaper. The problem with this approach is that it makes top professors rich as consultants (or equity holders) and it gets a few PhDs high profile jobs but it doesn’t help the rest of us BS-to-MS holders (and those who’re not in a specialized program like transfection vector analysis) find work.
Earlier booms, like the ones which had produced DEC to Powerbuilder, hired lots of people, in various disciplines, and sort of created a work culture in the region unparalleled by any other city sans Silicon Valley/SF.
I like how you write!
What do you do for your clients?
You just seem to have such a tightly reasoned, knowledgeable and well articulated position here…
Thanks for the compliment.
I’ve run the gambit: tech/financial writing, facilities engineering, and IT consulting. I’ve also worked for various sectors: telcom, biopharma, software, retail, etc which has really helped me in contrasting the work culture of Boston versus many other regions.
Right - I agree with you there. I don’t know much about biotech, but I do know what has happened with the semiconductor industry in MA. Companies like Teradyne, Brooks & PRI Automation, LTX, Varian & Axcelis have all suffered tremendously with more than 50% job losses since their peaks in the late nineties. One company that has been picking up the slack is Raytheon (defense) which is now at over 80k employees. I am not sure how the telecom & optical guys are doing, but Cisco (w/ east coast HQ in Boxborough) seems to be bouncing back a little.
“Interesting…at first I didn’t buy the deeply gloomy picture you painted–boston’s future like *buffalo’s*?! But your further arguments…with the points about outsourcing, the VC scene, and the old money…I find compelling.”
This is why I’m distressed, Boston’s my hometown and although I’ve done stints in NY, LA, SF, Philly, N Carolina, Atlanta, and NJ, I can’t really imagine living anywhere else despite the fact that many of my fellow professional peers have moved on to other states for better work and career opportunities. When I’d first run into Buffalo-ians, many of them have had similar feelings about their town in the sense that they would like to have stayed with old classmates and friends but were compelled to move on to NY/Philly or Pittsburgh because they was no work for them after finishing at SUNY/Buffalo or U Buffalo. I also probed them on the whole college thing and they even said that SUNY and UB had actually expanded their offerings to create the same phenomena as a “Boston by the Lakes” but it didn’t work. Students would graduate and move elsewhere for jobs even though the programs were solid. Unfortunately, I’d assumed that the great Boston could never be a rust belt city like Buffalo or Erie, however, with the sequential demise of John Hancock, DEC, First Boston, Polaroid, Gilette, possibly the four/five best places to work for in America, nevermind the mediocre to above average companies like Putnam/Reebok/EMC, I’m not too sure anymore.
I grew up in Syracuse, NY during the region’s accelerating decline. New England is following the same path as Upstate NY. To their credit some New Englanders see storm clouds on the horizon. Yet they do nothing about it. State and local governments don’t do anything to enhance the competitiveness of this region. They keep piling on taxes and regulations and think that their universities and tourism will save them. Good luck.
I’ve had my fill of New England. It’s a nice place to visit with a lot of natural beauty, but the main street socialism here is making me weary. This is a tough place to get ahead and raise a family. It’s got to be easier elsewhere.
No offense to Buffalo and Syracuse, but there is an immense difference between those cities and Boston. Boston has two of the top universities in the world and is surrounded by a host of internationally well-known schools. Education is one of the largest industries in MA. (I have the breakdown of industries for MA if anyone is interested.) Fidelity may be paring down their high-dollar lease space downtown, but they are not vacating New England. In fact, they have done quite well in setting up offices in Merrimack, NH and Providence, RI. If you want to start a company and you have a VC-fundable plan, you only have to take a drive up Bear Hill to get started. Boston still does the 2nd or 3rd most VC deals in the country (ranked by # deals and/or $ of deals behind the Valley and NYC). I have never heard of any VC deals in those other cities.
The place is far from perfect, but things are still better here today than they were post-crash in 2001. Gee houses are expensive. There is a lot going on - gee go figure.
Your attitude is illustrative of why Boston will face some tough times. People here think that if all else fails universities will always pick up the slack and keep this region strong. But what has Boston done lately to enhance its competitiveness? The cost of doing business here is getting higher and higher.
Exactly - I don’t think all else is going to fail! Do you really think that all of the biotech, telecom, semicon, & defense companies are going to suddenly pack up shop? Nope. Do you think the VC’s are going to suddenly say, gee, this is a terrible place to fund a company? Guess again. Go ask Matrix or Charles River if they intend to move their office. Yeah, that makes a lot of sense when you look at the brain power pouring out of Harvard and MIT onto the streets of Boston looking for cash to fund their idea.
Poo poo, houses are expensive in Boston. There is no compelling reason why they should be cheap. People want to live and work here. Get over it.
I didn’t say that the other industries are going to SUDDENLY pack up shop (nice straw man). As the cost of doing business here incrementally grows (and that’s the trend, unfortunately) more and more businesses will check out. It’s already well under way, in case you’ve been blinded by your provincialism.
“It’s already well under way, in case you’ve been blinded by your provincialism.”
Trust me, when you grow up in Mass, it’s hard not to think of your region as the greatest place in the world. I remember these tourist from Michigan and Iowa who were at awe with the whole Back Bay to Harvard Sq setup and the fact that their regions were so generic in contrast.
And during the early 90s recession, I was completely in sync with Rob’s notions except that back then, you could see the recovery on the horizon with companies like BBN, Powerbuilder, and Novell adding headcount and getting new customers.
“Do you think the VC’s are going to suddenly say, gee, this is a terrible place to fund a company? Guess again. Go ask Matrix or Charles River if they intend to move their office.”
I think I’d already addressed this issue. Before 2003, Charles River and peers would fund companies to grow locally. Today, all new business plans must have an offsourcing component to be financed. I know this from the customers I associate with in both the Boston and NY/NJ regions. VCs are looking to really keep local headcount down while achieving similar results as the past. The future business model is a research center next to MIT/Harvard, some development work in the midwest or south, followed by a bulk of the final development work plus production in Russia/China. This M.O. isn’t changing anytime soon. Remember, the Massachusetts miracle was a result of companies like DEC, Data General, and Prime hiring thousands of technology workers, not a few hundred. We’ve grown too used to our tech giants saving our necks from every recession whether it was the 70s stagflation, 80s Reaganomics, 90s jobless recovery, and 00s IT bust.
I don’t see it. Take Cisco for example: They employed less than 500 people in MA around 2000. Now they have a 500 acre campus with 3 buildings (and the rights to build 15) employing several thousand in Boxborough, MA. They even entertained the idea of moving their corporate HQ there at one time, but decided on using the facility as an east coast HQ.
fwiw, I most definitely do not think MA is the greatest place in the world or the center of the universe. I have plenty of friends who have left for places like Colorado, North Carolina, and even Tennessee with no regrets. I am attempting to explain how housing prices got to where they are and why they remain high. There are people with good jobs and money around here. Some of them have more cash than they know what to do with which explains why houses in the $1mil+ range continue to sell in my town and others. I find it hard to believe myself, but I continue to see these transactions go through and I check the MLS daily.
Cisco needs more people locally because they service a lot of customers in the region. And this is a good thing and I hope it continues. I was actually surprised that they waited so long to grow on the east coast.
On the flip side, I think that in ‘99, Ascend & NEC had a huge headcount around your region but are all gone today. And I’m not too sure if its just a turnover effect of one generation of companies to another. It’s more a case of consolidation and the after shock effect that the MA layoffs of 2002 were so deep that there was a shortage of workers to service existing contracts. A lot of my IT friends have switched jobs locally in the past year, however, even more are relocating for even better jobs in Carolina, Ohio, and other states.
Hey fellows, normally these types of companies would emerge in MA. Notice how globalization is changing the dynamics of job creation even in the bay state.
========
Companies eye big profits in this global field
Xu Zhiqiang (xuzhiqiang)
Published on 2006-05-11 14:59 (KST)
It is a usual Wednesday.
Hundreds of software programmers are typing codes or chatting softly before computer screens on the entire 10th floor of one building in Shenzhen’s hi-tech park. There is one box near the entry door. Occasionally, a young programmer stands up and walks there to “donate” his 5 or 10 Yuan bill (US$0.60-$1.20) into the box blushingly.
That is because Wednesday is “English Speaking Day”for all of the staff. Anyone from managers to programmers who speak Chinese in the office are required to “donate” symbolically and the donation will become the staff’s “mutual fund.”
“In order to encourage our employees to practice English, we create an atmosphere so as they can use English more freely,” says Mike Chen, marketing director of this software company. He tells me that English is a key tool in software programming especially on outsourcing for foreign clients.
Compared with the majority of outsourcing business from Japan, in many software companies in Dalian, a harbor city in Northeast China, key clients of Chen’s company are from the U.S. and Europe.
“Outsourcing business from the U.S. and EU is a market vacancy for Chinese software companies. We want to occupy it. That is a big reason why we encourage the English practice.”
This outsourcing company was established four years ago by a Chinese American graduate from MIT and two American partners from Harvard. There are now already 400 software programmers in Shenzhen.
Chen tells me proudly that the company has achieved CMMI Level 5 Certification from the Software Engineering Institute, a “gold standard” when it comes to software processing excellence. Until now there are only 70 companies in the world with this honor.
Although not everyone has the CMMI certification, similar companies are emerging in China’s big cities such as Beijing, Shanghai and Guangzhou aiming at the outsourcing business.
It is a big leap, but China still has a long way to go compared with India. According to estimates from the software industry, in the latest 2005-2006 financial year, India achieved more that $23 billion from outsourcing, while China not more that $3.5 billion.
Judging from the economic numbers, the gap between China and India is huge, whereas there are still some signs that China is trying its best to grasp every opportunity to catch up with India.
English is often considered a born advantage for India, while China has been popularizing its English education from primary schools to college students for many years and companies such as Chen’s are also paying more attention to language training.
India has recently been experiencing considerable (15-30 percent) wage inflation and staff turnover. China’s wage cost is 20 to 40 percent lower than India and just 1/5 of U.S.
India’s IT talent pool is drying up. Consulting firm McKinsey & Co. says India’s IT industry could face a deficit of 500,000 workers as soon as 2010. No wonder S. Ramadorai, CEO of India’s TCS, recently expressed the need to attract more talent from outside India.
Among India’s $23 billion of outsourcing business, 60 percent is from the U.S. and EU, while a big chunk of China’s $3.5 billion is from Japan. This situation is changing, more and more companies in China are joining the U.S. and EU outsourcing competition. In order to cut into U.S. business, Chen’s company acquired a U.S. financial company which has plenty of U.S. client relations such as Citygroup. “Although we can’t compete with TCS or Infosys right now, they do big deals, so we can chop a small slice,” says Chen.
In April, India’s newspaper The Telegraph cited a survey carried out by global consultancy firm Grant Thornton saying close to 31 percent of the global businessmen have already been transferred or are planning to transfer operations to China. India comes next with 27 percent, followed by Mexico (8 percent) and Malaysia (5 percent). Together with other survey numbers, The Telegraph worries that “China has quietly stolen India’s crown as King of the outsourcing world.”
Vinnie Mirchandani, a former Gartner analyst and PWC (now IBM) consultant, now CEO of Deal Architect Inc., told me in an email that “when it comes to a number of manufactured products, China has done extremely well. When it comes to more ‘white collar’ products and services like software and outsourced services, its track record is less impressive.”
As long as more and more companies like Chen’s appear in China, China will eventually do “white collar” jobs well.
http://english.ohmynews.com/ArticleView/article_view.asp?menu=A11100&no=291274&rel_no=1&back_url=