Posted on 07/22/2005 11:35:32 AM PDT by ex-Texan
Shakespeare always left it up to the witches to forecast the future, especially when the news was grim. Today we have columnists, bloggers, evangelists and the head of the Democratic party. All have solid reputations for stirring the steaming cauldron of perceptive predilection to prediction, particularly when it involves bad tidings they can pin on the opposition. Whether it's a flat tire in Baghdad or naked protesters in Piccadilly Circus, someone is going to claim credit they saw it coming, and lay blame accordingly.
But the papers in Boston have been very quiet on at least one subject. So quiet, in fact, that one has to read the news from out of town publications like Detroit, Miami, and San Diego to learn about our little problem here in Massachusetts. And while other states worry the same will start happening to them, nary a word from the home town folk.
It's called a "Real Estate Bubble", and for the last 25 years Massachusetts has led the country in home price inflation. Since 1980, the price of the average single family home in this state has risen a whopping 591 percent. In the first quarter of this year alone, home prices rose 12 percent, a number that was reported as "healthy" by one of the slobbering real estate reporters who probably has never questioned anything the industry slings his way. Now I'm sure it has nothing to do with lucrative advertising contracts. After all, everybody loves to read that their largest investment just went up a few more bucks - unless you're a renter, of course.
But newspapers around the country have been talking about us the last few weeks. They wonder how we could be maintaining such high prices, especially when there are no economic fundamentals to support such rises. The Washington Post pointed out that while the rest of the country has roughly a 3 to 1 ratio of home price to median income, our state is more like 7 to 1. In typical California fashion, The Press Democrat reported that Massachusetts had a "53 percent chance of a price decline in the next two years." Sounds like an earthquake prediction to me, but we get your point. The Detroit News, no stranger to layoffs, points out that Massachusetts has lost over 200,000 jobs the last few years, but prices are still rising.
Even the Miami Herald was bemoaning the skyrocketing prices of mobile homes down there in South Florida. But they can attribute that to the population boom they've been experiencing the last few years. Massachusetts, however, was the only state in the union to actually lose population in the last census.
So what is holding up the market? Not income, because we are lagging the rest of the country coming out of the recession. Not population, as we are aging and getting fewer each year. Not taxes, as we are still near the top of the list. Even worse, with the state's own finances in dire straights (unless you talk to a "Romney in '08" supporter), local communities have had to dig deep lately, and that has meant higher property taxes. Not jobs, especially with Gillette, Fleet Boston, and a host of others blowing town. (Word has it that the Massachusetts Welcome Wagon was recently found in South Carolina, sitting on blocks in a redneck trailer park.)
Greenspan doesn't know. He just shrugs his shoulders, gives a few warnings, and raises rates another quarter point. An enterprising economist from UCLA tried to explain the market in terms of a P/E ratio, a yardstick used in valuing stocks. In this case, he examined the ratio of rent vs. buy in various communities. Boston, at 30, was the highest, closely followed by San Diego, another bubble community. In other words, it certainly was not rental prices driving prices up. Compared to everywhere else, renting was cheap by comparison.
Even the Miami Herald was bemoaning the skyrocketing prices of mobile homes down there in South Florida. But they can attribute that to the population boom they've been experiencing the last few years. Massachusetts, however, was the only state in the union to actually lose population in the last census.
History might give us a hint, though. In 1634, much of Europe became engulfed in the great Tulip mania. Prices on Tulip bulbs began rising dramatically, culminating in a speculative market that saw individual tulip bulbs selling for as much as a home. Many books have been written on the phenomena, but the reason for this madness escapes the grasp of most. It was very simple: You could not lose. Buy one for a buck, sell it for two. Buy one for two, sell it for four. Everyone was making money. Holland was having trouble keeping their other industries going, because everyone was in the tulip bulb trade. It all ended a few years later when the Germans lost a battle to the Swedes, an expensive undertaking that forced them to dig up their tulips to sell for cold cash. Suddenly, someone lost money in the trade, an unthinkable proposition. It all unraveled fairly quickly.
So far, not many have lost by investing in real estate. My bet is that this is a popular line the brokers use today in selling homes. Buy now, because the price is only going up. And maybe it will. It certainly has in the long term.
Predicting markets has always been a risky proposition, a vocation probably best left to the witches. But for those who would get their advice from the Real Estate section of the big newspapers around here, I can only hope they read their Shakespeare first:
"Were such things here as we do speak about? Or have we eaten on the insane root that takes reason prisoner?"
______
Bill Rabbitt is a Woburn resident, longtime business owner, USAF Auxiliary Finance Officer and columnist for the Advocate
Not for me to worry, anyway. I'm just a geezer living in Oregon and biding my time. When the bubble pops here, I'm going to move over on the coast. One state higher up on the map.
And on top of all that the earth is warming. We are all doomed I tell you....
While not an expert on the real estate market, I have to wonder.....
Will all the counties and municipalities LET the bubble pop since it will chop their revenue in half?
Is that one of the reasons why it's gotten so big in the first place?
He's right. The price of a house in my home city of Malden, MA is up over $400,000 now. It's ridiculous.
Great time for you to cash out a bunch of blue state $ and transfer them to a nice Red State. You buy same house quality and pocket a couple 000 Gs while you are at it.
PA needs all the help we can get.
400 Grand??? ACK!
There is no bubble, nothing to see here. Move on.
Although state regulations require the tax assessor to include the current market value in his assessments, the assessment does not lead the market and cannot. Only an ignorant buyer would accept the tax assessment as the present market value of the property. Appraisal is not assessment.
By the way, I hear that the Carolinas are a great place to live. Especially in small towns near colleges. They have wonderful teaching hospitals where great medical care is available. Virginia property is cheaper if you are thinking about acreage for your dogs and cats and other critters.
Actually, I'm not moving. I was urging the massgopguy to get out of that "commonwealth." I used to live in Mass and moved to red-county central in PA. Not bad here but I DO miss the ocean. God willing, house will be paid off in 7 years. Not planning to refinance again.
If the bubble pops (likely) and the state shifts back to the right politically (well nigh impossible) I might consider moving back. Lefty loons notwithstanding, it is a very beautiful region of the country.
I love western Massachusetts. My son went to college there. Beautiful houses, people were very friendly and I learned to love the old fashioned diners.
I would like to add a comment on this practice. A lot of folks who refinance to pay off credit cards do not realize (and are NOT told) that transferring your credit card debt, which is UNSECURED (no collateral) to SECURED (home is pledged to cover the debt)can be a "tipping point" if times get rough. For instance, if you don't pay off credit cards, they can harass you and trash your credit, but they can't take your house. If you've refinanced a big chunk of credit card debt onto your house loan, you have made your home loan bigger, increasing your vulnerability to foreclosure, should things get bad.
There is another option for the credit card balance. It will only work if you pay your cards on time ALL the time, and watch those due dates like a hawk.
Call up every one of your card customer service folks. (The number is on the back) Ask them if you have a special balance transfer rate offer going. Most will. DON'T just rely on on-line or mail specials, you'll miss something. (And while you're at it, make sure you're getting an English-speaking customer service rep - fuss 'til they get you one)
After you've checked all of your cards to find out who has the best balance transfer rate at the moment, load as much as possible onto that one. Pay the minimum on this one, and the biggest chunks on the highest interest rate accounts.
Keep track of those dates! DONT use the cards you're doing this on - The reason is that if you do, they will charge the usual rate on these purchases, and pay off the lower rate stuff first, so you're still getting a high rate! DONT USE THESE CARDS FOR PURCHASES.
Now, guess who is giving a good rate for balance transfers right now?
Believe it or not, PROVIDIAN. (if your credits ok) Blew me away.
As the bubble seems, with some exceptions, most bloated in the Blue States, one strategy for such homeowners might be to sell now and move yourself and your equity windfall in a home in the Red States. Maybe lower your taxes and cost of living to boot. Wait until enough others have done this, and the burst they ride could zap the size of your windfall.
There is no bubble, nothing to see here. Move on.>>>>>
I am reminded of an old country style joke, it may have come from Jerry Clower, I am not sure. A farmer buys a broken down plug mule that looks like death warmed over for five dollars just because it is cheap, he takes the mule home, feeds it, curries it and in a few days it looks better. His neighbor passes by and offers him ten dollars, the neighbor takes the mule home and under his care the mule continues to look better, the original buyer comes by and likes the looks of the mule so well he buys it back for fifteen, this goes back and forth until the original buyer has bought the mule back for the umpteenth time and paid one hundred dollars for it. Then the neighbor passes by and sees no sign of the mule, he asks what happened to the mule and the original buyer says, "well, some stranger saw that mule and took a liking to it and he gave me two hundred and fifty dollars for it. The neighbor says, "you damn fool, you went and sold that mule to a stranger, ain't you got sense enough to know we was both a'makin' a damned good livin' offen that there mule?"
Yea, verily, there is no bubble, nothing to see here.
Very helpful post. I'm in the process of doing almost exactly what you said. Thanks for the info about Providian, I'll check 'em out.
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