June 26, 2006

‘Continuing Difficulties’ In Massachusetts

Some reports on Massachusetts. ” Sales of Massachusetts single-family homes and condominiums fell again in May compared to the prior-year period, according to a report released today by The Warren Group of Boston.”

“Single-family home sales fell 5.1 percent, with 5,208 units moving during May 2006 compared to 5,488 in May 2005. The median sale price fell 4.0 percent to $331,000. Condo sales fell 7.75 percent in May, with unit sales dropping to 3,037 from 3,292 the previous year.”

“‘Economic conditions in the Commonwealth remain a concern with no growth in the state’s population,’ said Breimyer, the past president of the New England Economic Partnership. ‘This suggests continuing difficulties in local housing markets.’”

“A provider of foreclosure data said today that May foreclosure filings against Massachusetts homeowners have more than doubled, a trend that is accelerating as the housing market slows and mortgage rates increase.”

“There were 1,613 filings last month, compared with 788 in May 2005. ‘That’s over 50 a day every day of the month,’ said Derek Beckwith, spokesman.”

“‘We expected foreclosure rates to increase again this year, but the levels we are tracking outdistance our earlier predictions,’ said Jeremy Shapiro, president and co-founder. ‘We may be witnessing a ‘perfect storm’ scenario where a flat real estate market, higher interest rates, rising energy costs and specialty loans are causing significant difficulty for thousands of Massachusetts property owner.’”

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Comment by Ben Jones
2006-06-26 08:27:57

The Boston Globe has the same release with some added graphics.

Comment by jp
2006-06-26 08:40:28

The median sale price fell 4.0 percent to $331,000

Let’s see. If I closed last month with no money down, I’m now underwater by 4% of the price (say $500K, shall we?) plus any commission and closing costs. Quite impressive, and it’ll get worse.

Comment by Getstucco
2006-06-26 08:44:04

This sort of price deceleration kinda throws a wet blanket on the real estate investing concept…

Comment by EProbert
2006-06-26 09:26:13

That’s YOY price declines, by the way.

Funny how Boston imploded first. Their prices seem downright cheap compared to LA.

Comment by bostonbubble
2006-06-26 10:02:25

Funny how Boston imploded first. Their prices seem downright cheap compared to LA.

Ah, but Boston (and Massachusetts) has hemorrhaging population for awhile now. My only surprise is that the implosion has taken so long.

Comment by NH_renter
2006-06-26 10:06:31

Not to mention that the Boston economy has been faltering since the dot.com bust.

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Comment by LArenter
2006-06-26 10:09:39

What’s this on the front page of the LA Times today? http://www.latimes.com/news/local/la-me-dream26jun26,0,3958598.story?coll=la-home-headlines I thought California was losing population (other than illegals)??? Is this another broad attempt to prop up the housing prices?? I know of many, many people who are leaving! I only know of 1 person who is moving to CA! What’s up???

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Comment by EProbert
2006-06-26 15:42:53

It’s interesting that the ONLY source cited in that article with a positive native in-migration number is the CA dept. of Finance. You know why? They want to show a greater population so they can get a larger share of fed pop.-propotionate goodies.

Comment by Brittain33
2006-06-26 10:22:41

“hemorrhaging” is the wrong word–that’s for places like Detroit, West Virginia, and North Dakota where people leave and no one new moves in.

Boston’s been churning with natives and people with young children moving out, lots of immigrants and college graduates moving in. Lately the first group is larger than the second group, which means the population has been falling. Things get cheaper, the quality of life is still great, and we’ll be back to where the second group is larger than the first. But no one in their 20s can hope to buy a home here without parental help, so they leave more often than not.

The number of households in the region is probably still increasing because we’re losing families and gaining yuppies.

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Comment by michael
2006-06-26 12:50:12

Boston has education high-tech and biotech and financials. But in the 90s and beyond, companies found that they could open offices in locations that were cheaper than places like Boston because of improving communications technology.

There’s a lot of political stuff that goes on in Boston and I think that this contributes to the high price of just about everything there.

I have to think that raising kids there is a challenge as you have to fight for local aid dollars and life costs a lot so that it makes it harder to provide educational supplementation to your kids and pay for college expenses when they arrive.

The problems in Boston go back a long time but the costs of those old problems seems to be accelerating. I’d guess that it’s similar to many other old-time political cities.

Comment by Chilipepr
2006-06-26 12:55:18

um… now… it is a 4% drop from May of 2005, not a 4% drop in one month.

Comment by Getstucco
2006-06-26 08:42:40

OT, but muy importante nonetheless.

The Fed has repeatedly stated they do not target asset prices (in particular, housing). But it is beginning to look as though high housing prices are spilling over into rental market inflation. Will this force their hand?
Renters face tight apartment market
Easing real-estate market, condo conversions crimp apartment stock
By Amy Hoak, MarketWatch
Last Update: 12:24 PM ET Jun 26, 2006


Comment by wirefly
2006-06-26 09:01:32

This is too convenient of a story for the real estate industry. Rents are already at the ceiling - wages are not rising, there’s no room for rents to rise without destroying demand by simply driving people out. This is the story they are trying to spin for their fealty lords. Not gonna happen.

Comment by HARM
2006-06-26 09:46:19

Agreed, though I’ve recently noticed FBs in CA are definitely TRYING to raise rents in a (vain) attempt to cover their underwater a$$es. Asking rents are definitely rising, and I’ve heard many a story about newbie LLs “demanding” far above-CPI rent increases in recent months.

Of course, there is a big difference between asking and GETTING, a lesson many a specuvestor “genius” will be learning in the the hard (for them) months ahead. It’s not uncommon for working class families in CA to already pay 50% or more of their net incomes on rent. Unlike your typical FB, renters cannot “liberate” any phantom equity via HELOC/refi ATM. They must pay the rent the old-fashioned way: earning money and paying cash. Good luck getting more blood out of that turnip.

Comment by stever
2006-06-26 11:16:14

I was noticing upward pressure on rents in Napa the last few months. It caused us to be more creative in our attempts to increase living space where we currently rent. Upshot is, we ain’t movin’; and, many of the places we looked at for too much $ are still being advertised. More recently, the market has become flooded with 3 bedroom homes for rent, which has pulled the rug out of the ‘cartel’ (PM’s and the local paper) that was trying to set the standard at 1600-1700/mo. Now plenty of 3 bd’s are being offered at 1400- 1500. Still too high IMHO! Incidentally, inventory on MLS up over 100% since Feb! Plus small YoY decrease in prices.

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Comment by Moopheus
2006-06-26 10:00:57

Won’t stop landlords from trying, though.

Comment by sm_landlord
2006-06-26 10:04:56

I have posted about this before. Rental price inflation is happening whether we like it or not. What you are seeing is due to a number of factors:

1. Rental prices are sticky up, because landlords are reluctant to raise rent to market on good tenants. OTOH, a vacant unit will go straight up to market. So the tenancy turnover rate (among other things) drives the rate and timing of rent increases.
2. The tenancy turnover rate is up, at least partially because of the churn caused by the housing bubble. When I last had vacancies, I had several applicants who had sold their houses and were downsizing to apartments.
3. Expenses are up. Way up. The “hidden” inflation is no secret to anyone who owns and operates rental property. Just because the govt cooks it out of the numbers doesn’t mean it doesn’t exist.
4. Supply is falling as apartments convert to condos.
5. The price of multi-family properties has been bid up because of the very low interest rates and the monetary pumping that we have all seen. Anyone who used a mortgage to buy multi-family properties recently has to either get the rents up or lose the property.
6. In many areas, apartment construction has been dead for some time because of rent control laws and the price of land and construction. It generally doesn’t make sense to build apartments if you can build condos instead. Especially if the lenders oblige by providing 105% financing to anyone can fog a mirror.
7. Renters are no longer buying condos and leaving the rental market, because the price of condos is currently in orbit somewhere around Pluto.

To GetStucco’s question, I don’t know if this will force the Fed’s hand. What’s to stop them from cooking the price of rent out of the inflation numbers? (just kidding). It is partly that high housing prices are spilling over into rental market inflation, perhaps. But there’s a lot more to it than that. Apartment rents will stabilize or perhaps even start falling if some serious supply comes back on the market *and* demand falls. The most likely source of supply is thousands of F’ed condo owners mailing their keys to bank. Of course, then they’ll need to rent apartments :-)

Which is why I didn’t sell out last summer when the Realtors were slobbering all over me to do so.

Comment by HARM
2006-06-26 10:50:02

One of the reasons why I’m not convinced that rental hikes will “stick” is the number of vacant properties that have been bought purely for speculation. Even the NAR admits it’s now as high as 40% of total purchases last year (so you can bet the real % is even higher than that).

Once a vacant specuvestor-bought condo gets repo’d by the bank, the “occupant” is NOT forced back into the rental market –because there never WAS an occupant to begin with. If a specuvestor with 10 over-leveraged investment properties loses them all to foreclosure, the net rise in (potential) new housing and/or rental SUPPLY is 10. The increase in net rental DEMAND is (at most) 1 –and that’s assuming Mr. Specuvestor ends up losing the house he actually LIVES in. He may even get to keep that under bankruptcy law.

Comment by Mort
2006-06-26 09:10:34

Here in much of New England, we bid up real estate while our competitors build-up real estate,” said Frederick Breimyer, Boston area economist for the Federal Deposit Insurance Corporation and the president of NEEP.

High housing costs work against future economic growth, largely because young families either cannot or choose not to pay for the cost of homeownership,” said Breimyer.


But I thought rising house prices were good for the economy. Damn housing bubble.

Comment by Drop the bubble
2006-06-26 09:55:09

I was born in Massachusetts and currently live in Massachusetts and just finished an MBA program here in Massachusetts. The last time I say the word Massachusetts is when I say, “Good Bye Massachusetts.” Just like Fidelity I’m moving to where the costs of doing business/living is more in touch with reality. Living here leaves most with zero savings/investment and zero disposable income. Paycheck to Paycheck is no way to live for an MBA grad. I’ll take a 10% pay cut any day to live in a city that costs half that of Boston. I’m thinking Raleigh, NC. Any suggestions?

Comment by Davey Jones
2006-06-26 10:15:34

I’ve been through that are several times and have heard it is a nice place to live ( tri-city).

Be prepared for culture shock though. I am originally from Alabama, joined the Army when I graduated from high school, was everywhere but Alabama over the next 22 years.

When I retired we moved back “home”. And what a transistion. Even though that was more than 20 years ag I still think sometimes why, why, why do things work this way here. And then I stop short and remember this IS Alabama.

But if you can get past that you’ll like the South. BTW I’ve been to Boston many times and love that city.

Comment by Mort
2006-06-26 10:30:57

You are asking for suggestions from me on where to live? Well, that takes into account many factors doesn’t it? If you can find work pretty much anywhere you want to live you would still have personal preferences that I don’t know about. However, if I were young and could go anywhere to find work I might move to Denver or Colorado Springs. They are on the leading edge of the crash curve so housing will become more affordable very soon and they also have a decent living standard. I don’t know though, it seems like a lot of people from the NE are starting to bail just because housing costs and taxes are so high, why don’t they just improve on these things? Are they purposely trying to run the young people out?

Comment by MsTerra
2006-06-26 10:34:20

I wish I knew. I was also born in MA, grew up in western MA, lived a good chunk of my adult life in the Boston area, was in the SF Bay area for 2.5 years and have been in NYC for the past six years. Living in those areas has given me a whole new perspective on MA, that’s for sure!

I’m not an MBA, but I’m able to live in the most expensive city in N. America without living paycheck-to-paycheck. It involves compromise and setting priorities. IMHO, this trend of people moving around the country as equity refugees is not a healthy one. Why live in a place you don’t like that much just because it’s “affordable”?

Comment by Upstater
2006-06-26 12:22:12

Also, its not cheap to move unless your company is helping you out. Warren Buffet has lived in the same home for 30 years. Says something doesn’t it? Find a place that can evolve with you and stick with it.

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Comment by buddhaman
2006-06-26 12:50:26

Posted this before …
lived in NYC all my life - bailing out to Tampa (where I like it) - will buy when things are corrected there - it’s happening as we speak. Why leave? Highest taxes & cost of living, metal detectors to get into schools with 40% grad rate, 400K shacks in East New York???!!!, 1 Million for a “townhouse” in Red Hook next to crack projects - who cares if I make 25% or even 50% less down there ? All the broadway shows and museums in the world can’t compensate for the ridiculous welfare ultrarich/ultrapoor state that NY has become. The RE run-up is the last straw - I would have to make 200K/year to buy any home that fits a reasonable definition of a home. I have a degree in info systems so am quite portable. I know many people who are bailing on NY - college educated - and the homes/apartments they are leaving are filling with extended immigrant families who will support the prices for a while but create even more overcrowding of all social systems while voting en masse for the status quo - I love NYC but can’t wait to find a semblance of normalcy somewhere cheaper. I’ll visit & have a great time - but why should I “compromise & set priorities” that are abnormal to live in a place that is determined to enslave its middle class in ridiculously overpriced shoeboxes & make them pay for massive health & education squandering?

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Comment by HHH
2006-06-26 17:50:35

Friends on the coast give me sh*t for choosing to live in an affordable area, but I find the quality of life here overall to be much better. I know about all of the wonderful things there are to do on the coasts, however when I chat with coastal friends about weekend plans, they usually are spending most of their time on MySpace because they can’t afford to do much else.

This year, we have plans to travel to Chicago, Atlanta and Cairo. Last year we too 6 weeks vacation time and went to CA, Disney World and Santa Fe. There is no way we would be able to afford the time and expense of travel if our housing costs were 3X greater. I’m simply not willing to sacrifice free time, savings and vacations so I can live in a trendy area.

Comment by MsTerra
2006-06-26 19:30:15

First of all, let me just note that I meant to say “economic refugees”, not “equity refugees”. ‘Twas a busy day at the office…

buddhaman, I think moving to Tampa because you like it and you’re fed up with NYC is different from moving simply because the cost of living is “too high”. I’m sure you know as well as I do that there are still lots of people who not only love this city but wouldn’t dream of living anywhere else. For them the compromising and setting priorities aren’t abnormal, they’re just the way one has to live here. Apart from the current housing/credit bubble, the problems you mention aren’t new here. It’s interesting that you say you love NYC, because to a large extent I feel the same way you do about it, and I don’t love it. I like a lot of things about it, but I definitely don’t feel that the compromises are worth it in the long term. This type of life is not to my taste.

The spouse and I are moving back to MA next year due to family obligations, and while we have some trepidations about the financial end (mainly concern about getting jobs) we figure we’ll manage somehow. Money is certainly useful, but it isn’t everything. Hasn’t obsession with money and the trappings of “the good life” been a large part of what’s made the current credit bubble so disastrously huge?

Comment by michael
2006-06-26 13:51:05

Fidelity has an operation in Merrimack, NH which is an
hour out of Boston. I think that you would find things far
more affordable but still be reasonably close to a big city if that’s important to you. There are lots of rentals on Craigslist too. They originally started a bond operation when they moved here. They do some software engineering as well. But I’m not current with the other stuff that they do here now.

Comment by LIrenter
2006-06-26 09:26:00

what do you think? from The Coffee House:

“If you hate the boom, you will loathe the recession”
By Stirling Newberry

That there will be another recession eventually is a metaphysical certainty, we have not repealed the business cycle, and we should not: a bear market is the process of returning money to its rightful owners, when all of the sloptimism of “buy! buy! buy!” goes away. An economy without downturns is like a casino where the roulette wheel never comes to rest.

Well, if you aren’t happy with this expansion, the recession that is brewing will make you apoplectic. Shrill, will be really in. You see the Cut and Run President has been taking a cut of your money, and running with it.

section break

Over a year ago, I wrote that we were going to have a boom that would feel like a bust - I think that the facts have born out that prediction, with high GDP growth, low headline unemployment - and low consumer confidence, high foreclosures and a wrong track number at historical highs.

Under a realistic government, there would be strong protections for those at the bottom of society - who do not reap the rewards - so that they will not bear the risks. This has been the reverse of our policy for the last 30 years which has pushed the rewards up, and the risks down. The resulting lack of moral hazard in our economy is the soil from which has George W Bush as President as its fruit: he takes enormous risks, knowing that he gets the political reward, while others, many of them not yet born, bear the risks of what he does.

In short, I’m in favor of recessions hitting those hardest who are the most responsible for them, and that isn’t the average working person, the average poor person, or even the average upper middle class person. It’s the executive class.

In a business cycle there is a mid-point, that mid-point is one of the tests of economic policy. Those that manage to solve the conundrum of getting rid of inflationary behavior - that is excessive optimism causing people to rush to buy goods and services - without getting rid of expansionary behavior - that is real increases in productivity, productive capacity and production itself - get to have a second phase of expansion. Those that don’t will see a short sharp upward leg, but accompanied with inflation - or an immediate recession as the fed slams on the breaks.

In our case, the bond yield curve cannot be clearer - the Fed is lagging in fighting inflation, and the rest of the economy is not getting out of the need for stimulus and carry trade. There are ways out of this growing monetary policy bind, but Bush and Bernanke don’t seem to be moving on any of them.

The reason the yield curve tells us this is very simple: in a central banking system, where a single entity has a virtual monopoly on the creation of currency, or controls the commanding heights of doing so, recessions don’t happen by accident. They are triggered when the monetary authority decideds that the costs of inflation are worse than the costs of recession, and pushes up short term rates high enough to squeeze borrowers out of the market for money. When the long end of the yield curve is inverted - that is, when the longest commonly sold bond, in our case the 30 year - yields a lower interest rate than bonds in the 6 month to 2 year range, that says the economy is still inflationary, as it is still generating profits that people are dumping into long term projects. These projects require long term financing, and the collateral for that is… long bonds.

To put it bluntly, low long term bond yields means that those with a great deal of money to spend - governments and large financial transactions - are of the belief that things are going to go well for the forseeable future. They buy long bonds to back long term projects, and those long term projects spend money on something. If that something is in short supply, voila, inflation.

The way to stop this is to cut off the spigot of short term money - which is how business, consumers and others manage long term spending and accelerate purchases from the future into the present. If the long end of the curve is inverted, but the very short end is not, it says one thing. Inflation. Inflation. Inflation.

In our present the US Government has gotten around this by deciding not to measure inflation for the rest of us, since we don’t matter, and measure inflation with respect to the countries - and it is, in the main countries - that hold our dollars. What our headline numbers measure now, in effect, is whether large bond holders like the Asian Central Banks are likely to dump our dollars any time soon. If they don’t then we can keep printing those little Bush Bucks, even though it now takes three of them to buy a gallon of gas. If Bernanke had any intellectual honesty, he’d replace the word “dollar” with the word “dime” on every “Federal Reserve Note”, that’s what those pieces of paper are, notes issued by the Federal Reserve.

Inflation, to the extent that a government benefits from it, is a kind of tax. Americans have been trained to point the shotgun of their vote squarely at their own foot on the tax issue. They have been trained to hate visible taxes like the income tax, and love stealth taxes. Inflation is a stealth tax, in that you can’t tell who is collecting it, how it falls on people, or what its overall effects are. It simply eats away at your living standard and savings, and the benefits flow to those who have the power to spend that taxed standard of living.

Currently that is George W. Bush. In effect, Bush has borrowed money to pay for the war, and a massive series of bribes to buy support. The people lending the money haven’t taken the hit from their standard of living, instead they have kept prices high or raised them on a variety of goods, even in an era when globalization should have been cutting the costs. Look at it this way, moving to China cuts 30% off of labor costs. Labor costs represent 50% of the final product costs. That means that anything that is off shored to china should drop by 15% in cost. Other than in a few catagories of clothing, apparel in econo speak, that hasn’t happened. The difference between what you should be paying, and what you are paying is, more or less, the tax that you are paying for Bush’s war.

Now think about something, Remember when gasoline was $1.50 a gallon and people hosed John Kerry for having voted for a .50 cent a gallon increase in gasoline taxes? Couldn’t you go for some $2 a gallon gasoline right now? Wouldn’t it feel good not to have to cough up a Franklin to fill up your car? That’s what consistently voting for stealth taxes gets you - higher taxes, not lower taxes, and less control over how the money is spent.

This is why the coming recession is going to feel even worse. Because with visible taxes, when the pain comes, people can vote to stop them. But invisible taxes are privatized - the people who have been collecting them will keep doing so until they are forced to stop. And they won’t do that until they really are hit hard. This is the way it was back under King George of England, or the late French Ancien Regime, the government before their revolution. Kings sold the right to collect taxes to others, who then proceded to do it, and take their cut. And they kept doing it until they were forced to stop. Often by the embrace of Madame LaGuillotine.

In our own time, over and over again, it has been shown that getting inflation out of an economy is alot harder than allowing it in.

So when does the bill for all of this come due? Well, generally borrowers decide to collect, not when times are good, they would rather you keep borrowing, but when times are bad, because they feel you can’t pay things back, and it is time to grab the assets. That’s where foreclosures are coming in. In good times, people in trouble get “credit arrangements”. That is, the bank kicks the can down the road, because they would rather have the money, than have to deal with the house.

So the numbers are screaming at us that we are going to have more inflation, and worse still, inflation which falls heavily on those who borrow, rather than on those who lend. The result will be that the present pattern of people working harder, but keeping less, will continue until the American consumer gives out. Economists like Roach worry that it might happen. This is the wrong way of looking at it, we are caught in a vicious circle that is making it so that this will happen, the question is merely when.

And as the bottom erodes under the building boom - which is what this recovery was about, building houses - the odds are very strongly in favor of it being not long after the mid term elections, when the next round of austerity has to hit.

This is why the last two recessions have taken so long to really “get out of”, because there was huge debt overhang, and thus no money to simply kick start the economy with Keynesian stimulus, because that is when an economy really gets going, when there is a “shot in the arm” to make people willing to take long term chances again, because the buyer of last resort - the government - is buying again.

Since Bush has dramatically increased, not decreased, the level of indebtedness, and because of the stealth inflation tax the consumer is even more indebted than they were before the expansion, the next recession isn’t going to end, but, instead, linger for a couple of years as bad loans are quietly written off, but no new ones issued.

So if you aren’t happy now paying the stealth tax, you are going to be even less happy when you find out that stealth taxes are paid twice - once when they happen, and once when you have to clean up after the mess they leave behind.

Comment by LIrenter
2006-06-26 09:33:07

apologies, should have just left the link - that was too long.

Comment by fred hooper
2006-06-26 10:35:07

This is very poorly written, crap-filled mumbo-jumbo from a Bush hating no-name liberal, and a terrible waste of Ben’s server space.

Comment by HHH
2006-06-26 18:23:02

Thanks. I enjoyed the article.

Comment by glorgau
2006-06-26 09:56:12

No matter what happens, it’s Bush’s fault.

Cloudy out today? Bush’s fault.

Didn’t get a raise last year? Bush’s fault


Me, I’d rather blame Greenspan.

Comment by John Law
2006-06-26 11:49:38

(No matter what happens, it’s Bush’s fault.

Cloudy out today? Bush’s fault.

Didn’t get a raise last year? Bush’s fault


sorry, but bush himself has screwed up a great many things. you can play that card if you want, but bush’s historically low poll numbers have been earned.

Comment by yogurt
2006-06-26 20:31:09

Ever hear of the sign on Harry Truman’s desk that said, “The buck stops here”?

Bush has more power than any US president since, possibly, FDR. He can damn well take the blame.

Comment by John in VA
2006-06-26 09:27:09

This is not possible. Why, the experts at the National Association of Realtors told us just last year that price declines in Boston were extremely unlikely, in their “anti-bubble report” for Boston:

Price declines in the local market are unlikely according to our stress test.
• The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 9.1% in combination with local job losses totaling 5,000 could lead to a price decline. Also, due to heavy job losses in the recent past, job recovery does not help if rates rise to 10%.

Comment by EProbert
2006-06-26 15:48:09


Comment by John Law
2006-06-26 09:30:56

what a great article that describes the housing bubble, going off the gold standard and the creation of the Federal Reserve.

Without a doubt, the measuring rod of money is broken. Indeed, money is loaned into existence by the Federal Reserve’s banking cartel. Fractional-reserve banking allows it to be created out of thin air. Who needs a gold standard for self-measurement when any adult with a pulse can borrow and spend hundreds of thousands of dollars on McMansions, luxury automobiles, flat screen TVs, country club memberships, and spare-no-expense vacations? What a wonderful life the Federal Reserve has brought to Americans! Easy money and credit bring immediate indulgence. As long as you have absolutely no fear of debt, you too can look extremely successful without ever having had to save a dime. Accordingly, this has given rise to America’s new insolvent class: the two-thousandaires.

Let’s delve a little further into the characteristics of a two-thousandaire. To be sure, they appear successful — with the nice house, great cars, enormous entertainment center, boutique clothes, and most of it purchased on credit. For the most part, two-thousandaires do not have high-paying jobs. They just live beyond their means. Moreover, these debt-ridden adults live from paycheck to paycheck. There are no savings to fall back upon when that rainy day comes. Just imagine having hundreds of thousands of dollars in debt and only $2,000 in cash savings. Not to worry. This is what credit cards and home equity lines of credit are for. The Federal Reserve will always ride to the rescue with more fiat money and credit.

Americans are stepping up to mainline this new kind of drug known as debt. Instant money, after all, is something that provides on-the-spot gratification and pacifies their anxieties about their status in the social order. Indeed, one can have it all, at the drop of a (fiat) coin, and without the standard save-and-wait period which earlier generations experienced.

Comment by Sold at peak
2006-06-26 09:35:55

If the rental market is “tightening,” why are three units in my 13-unit building going empty this month? And why, for the first time in memory, am I seeing “for rent” signs in front of houses in Cambridge?

Comment by Tulkinghorn
2006-06-26 10:12:06

Rental prices are going up… my own apartment (Brookline, MA) is going from $1865 to $1895… 1.6%!

When everything is looking crappy, this is something people are getting excited about. Obviously this is a short term bounce as most of the condos and houses that can not be sold have not gone on the rental market yet.

Comment by waaahoo
2006-06-26 11:32:26

Just talked to a neighbor of a million dollar shore house. Owner bought at the top and has now been reduced to renting it to teens for the summer due to it’s not so close to the water location.

Neighbors tell me it’s getting trashed.

I don’t see rents going up any time soon.

Comment by Upstater
2006-06-26 12:30:41

Pretty soon Mommie and Daddie will have to cut off the teens money too.

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Comment by safe_as_apartments
2006-06-26 10:32:58

I’m seeing the same thing on Mt. Auburn street in west Cambridge. Several “for rent” signs are going up on properties that have seemingly rarely been vacant. (I’ve lived in the area for 7 years.)

Comment by ogivemeahome
2006-06-26 11:05:53

I’m currently scouring craigslist, viewing apts and talking to landlords in Cambridge and a few nearby communities (looking for Aug 1/Sep 1). I’m no veteran of the area by any means, but it seems like there’s some confusion out there — everything from desperation for tenants, to apparent certainty that the music will stop 9/1 and leave many a renter SOL, and I have no idea if conventional wisdom should be carefully heeded or completely disregarded. Any suggestions from the more experienced in the area about whether holding out and playing hardball, or moving quick and securing a spot is a better approach? I daresay we’re model renters — great refs and credit, good profile, etc. Clues for the clueless much appreciated.

Comment by waaahoo
2006-06-26 11:46:42


I think you have to approach it like low-balling. Find places you like and make rent offers with all your refs and +’s made clear. You’ll find someone who understands the value of a good tenant.

Comment by Sold at peak
2006-06-26 16:49:22

I agree. Rents are very negotiable–especially for Sep 1 leases. That’s when turnover happens; your choices are much more limited if you need to move Aug 1. Hit places that have been vacant for a while, and make an offer. Don’t totally lowball–rents are not as overpriced as houses–but try to deal.

My LL wanted to raise the rent. He ended up installing dimmer switches and giving us a better parking space instead. Should’ve kept his mouth shut.

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Comment by ogivemeahome
2006-06-27 08:54:08

Thanks much guys, I’ll put this to use.

Comment by John Law
2006-06-26 09:36:04

“So when the bust occurs, watch out for the two-thousandaire — he is going to vote to pick your pocket.”

Comment by Getstucco
2006-06-26 09:44:25

Make that the negative-two-hundred-thousandaire (or “housandaire” for short).

Comment by AnonyRuss
2006-06-26 18:48:44

During the heyday of “Who Wants to Marry a Millionaire” etc., Saturday Night Live had a skit called “Who Wants To Be Groped By An Eleven-Thousandaire.”

Comment by txchick57
2006-06-26 09:38:29

Two thousandaire - lol - that’s most of Dallas’ “upscale” population.

Comment by KIA
2006-06-26 09:45:19

Unfortunately, the Massachusetts Bankruptcy Court doesn’t have its filing statistics displayed on the homepage. It may be available elsewhere. I say this because I’m noticing a trend. In the Eastern District of Virginia, for example, there were approx. 2,800 bankruptcy filings in the first five months of 2006. http://vaeb.uscourts.gov/stats/bkcases/bkstats.html That number is much lower than it was for the same time period last year and for several years prior when the average was some 6,000 to 7,000 per quarter. In fact, there’s an excellent graph here: http://vaeb.uscourts.gov/stats/trend/trend.html

The dramatic decrease in bankruptcy proceedings is justaposed against information which shows that foreclosures are greatly increased as of April 25, 2006:

“RealtyTrac™ (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its 2006 Q1 U.S. Foreclosure Market Report, which showed that 323,102 properties nationwide entered some stage of foreclosure in the first quarter of 2006, a 38 percent increase from the previous quarter and a 72 percent year-over-year increase from the first quarter of 2005.”

Normally, one would expect to see a jump in bankruptcies at the same time, for people will ususally try to save their house or whatever equity is in it unless the battle is hopelessly lost. This does not appear to be the case now. Whether the change is because of the new laws (doubtful, but possible) or because the BR candidates now have no equity to save and see no reason to enter into bankrupcty is the question. Thoughts?

Comment by NoVa Sideliner
2006-06-26 11:01:20

It could maybe be because of the new bankruptcy law. Note that the main thrust (shaft?) of that law is directed at those with incomes above the median. If you are below median, it’s not too different than the old days.

But for the “higher earners”, as many of the McMansion crowd might well be with their two incomes, your bankruptcy filing basically turns into a pay-over-time program supervised by the court. Imagine! Now a lot of these people actually have to pay back their debts (or attempt to do so) if they have substantial income, rather than have the debts struck off. Oh, the unjustness, having to pay back what you borrowed! It just ain’t fair!

Comment by Fred Courtright
2006-06-26 09:52:34

People try to save their primary home but the housing bubble builldup involved a lot of speculative investment home buying. People are a lot more likely to declare on second (and third) homes than their primary.

Comment by John Law
2006-06-26 10:04:13

Private investors’ love for property grows

“As the competition for high quality U.S. real estate becomes more intense, U.S. dollars are going overseas, searching for the higher returns that riskier deals provide.”

I’d hate to have a mortgage in a foreign currency. asian crisis anyone?

Comment by txchick57
2006-06-26 10:16:10

We posted a few months back about Calpers investing in Indian real estate.

Comment by memphis
2006-06-26 10:31:00

The jury is probably still out on the effects of the new bankruptcy legislation, but what is undisputed is that it is now a lot tougher for FBs to just wipe out the debts under Ch 7. (The law is kinder to the rich who can create particular specilized offshore trusts or shelter their $$ in big estates in protected states - truly only the lower and middle class is screwed on that count. And no cries against “class war rhetoric”, please, because yes there is one, and guess who is winning?)

I figure that for a FB with little to lose, it would now make more sense to join the illegal aliens and work “off the books”, try to stay one step ahead of judgements, rather than to try to negotiate 5 or 7 (fuzzy on details here) years of REAL indentured servitude, during which time crushing new liabilities could continue to snowball, particularly if FB is declaring so as to try to “save the house”.

Unlike KIA, I really do suspect that the new bankruptcy laws have everything to do with the seemingly unlikely decrease in filings. Lenders got what they’ve long been lobbying for, now let’s see how they like it when prospective borrowers see the fate of the FBs in their neighborhoods and workplaces, and start to get really scared.

Comment by NoVa Sideliner
2006-06-26 11:10:17

memphis, you’ve been watching too much TV and not reading the text and commentary on the new law. The new bankruptcy law specifically allows someone to precced with relative ease into Chapter 7 if they are below the median income. Uh, that’s “poor people”. So lenders only got half (the upper half?) of what they were lobbying for.

Unlike the incomplete and shoddy reports on some media outlets, you will find that the new bankruptcy law is specifically targeting higher income people who have used it in the past for a “fresh start”, not lower income people. Do some google searching. If you’re above median income, you are THEN likely to be thrust into the Chapter 13 “indentured servitude”. But then, you are more likely to be able to pay it off than some poor burger flipper who really can’t afford to.

What’s this got to do with houses? Like I mentioned above, a lot of the bigger sized houses (meaning lots of what is being built new) is geared towards above-median income people. These people are the ones who will find the new bankruptcy laws to be very painful.

Comment by KIA
2006-06-26 12:05:41

I’m really trying hard to understand this apparent conundrum. It bothers me because there’s something I can’t quite put my mental fingers on. Posit upper-middle class, DINK couple with $150,000.00 / yr. income who become FBs. Say they’ve overcommitted on an ARM which adjusts next spring and will increase the monthly payments by 45%, which they cannot afford. They’re educated (presumably, to hold such jobs - bear with me, I know it is often not true) so they decide to put the house on the market to salvage whatever equity they can before the crisis becomes acute. Now the market is saturated, however, so it isn’t selling. They also aren’t ready for bankruptcy yet because they are still managing, only they know the writing is on the wall. What can they do? Lower the price? This means that there is less (or no) equity to salvage, so why bother. Anything else they can do? Demand raises. Good luck on that, but we are seeing some minor wage increases on a macro scale, so perhaps this will work for some people. As for the rest? I think they intend to wait for the axe to fall because they have no other option and they are sort of hoping against hope that the situation will change. Who knows. A lot can happen in a year. Maybe they will teach the horse to talk.

Comment by michael
2006-06-26 13:53:20

Macro-scale raises = CEOs and execs. That’s why wages are overall rising but the middle and lower classes are grumbling more.

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Comment by Tulkinghorn
2006-06-26 17:38:56

I’m really trying hard to understand this apparent conundrum. It bothers me because there’s something I can’t quite put my mental fingers on. Posit upper-middle class, DINK couple with $150,000.00 / yr. income who become FBs. Say they’ve overcommitted on an ARM which adjusts next spring and will increase the monthly payments by 45%, which they cannot afford.

This couple you posit must have bought very very far beyond what they can afford (and certainly well beyond what a DINK couple needs)… maybe the crunch has as much to do with all the expensinve toys and vacations also bought on installment plans.

Maybe there are a lot of couples (financially suicidal professionals) like them out there, but I find it hard to believe. Maybe I just do not travel in the right circles.

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Comment by Tulkinghorn
2006-06-26 17:47:20

A more plausible example might be a married couple in their 50s, last of three kids still in college, with the breadwinner getting demoted and pay cut to $85,000.00, or maybe same scenario with dependant spouse needing $300,000 more in medical services after medical plan is dicontinued.

There is such a thing as bad luck, but if you have income at the median pius $1, you will not be getting a fresh start…

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Comment by Peter
2006-06-26 10:31:58

North Carolina’ s economy is not so great currently- lost of disappearing manufacturing. The reader who discussed ‘culture shock’ was right on target in comparing New England and the south. Outside of the ‘Triangle’ a native Bostonian or New Englander might have problems adapting the the culture, and ‘Yankees’ sometimes have problems being accepted by the resident population.

Comment by HHH
2006-06-26 18:52:40

I think the South has come a long way in the last 30 years, but outside of Raleigh/Durham, there’s always Asheville a couple of hours to the east - nicknamed the “Berkely of the South”.

Comment by michael
2006-06-27 03:07:47

We’ve visited NC several times and one thing that you do miss is that there is no really big city nearby. Asheville is a very nice suburb with a really great YMCA in a string of small cities. But it’s still some time away. We can get to Boston in an hour and NYC in about five. If we were in the Triangle area, I don’t know that we’d spend a few hours to get to Asheville. But we think nothing of running into Boston, say, to visit Chinatown for grocery shopping. Or some of the university libraries for research materials.

Comment by mgb43015
2006-06-27 11:31:35

can anyone comment on cape cod?

Comment by Pen
2006-06-27 16:21:31

yes, the Cape goes in and out of style like wall to wall carpet…

I think the Cape is still mostly for second homes, which look great on paper, until all the other bills kick in…they really are a luxury for the wealthy (cash rich, more than just a high FICO)…they are like any other luxury (car, boat, trip, etc.), the purchase is just the beginning, not the end…especially if one’s primary residence is still not paid for.

Comment by Pen
2006-06-27 16:23:00

one other comment, the Cape is a great buy in a down market, if you truly have the means and the time….

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