Boston Real Estate Blog

John Ford Realty
137 Charles Street, Boston
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151 Tremont Street

Shiller: losing your investment should make you happy

From the wire:

Don’t Fear Falling Prices – By Lynn Adler, Reuters, by way of

Yale Professor Robert Shiller, whose Case-Shiller 20-city home price index has become an industry standard, says people shouldn’t fear gradually falling home prices …

“There’s nothing troubling about a gradual correction of home prices. If we keep our incomes at the current level and home prices go down we are richer, we can buy more housing,” Shiller says …

… “You either have high home prices or lower home prices. And lower home prices are what we want, and people shouldn’t be afraid of that … why would we want high home prices? We want economic growth, we don’t want high home prices.”

Lawrence Yun is fed up with you


There are few people with less credibility than the National Association of Realtor’s Chief Economist, Lawrence Yun. (Or, anyone at NAR, for that matter.) Too many times, he, and before him, David Lereah, have been cheerleaders, even when faced with data that seemingly flew in the face of what they were saying (sorry, writing not so good, right now).

I’m not telling you anything you don’t already know, I’m sure.

Having said that, I am impressed with two columns he has written, over the past couple of days.

In one, he lays out the history of the real estate market, from the turn of the century (this one) up until today.

(While reading this, I got the feeling that maybe he was just figuring this out for the first time, like by writing it all down on a restaurant napkin, last night …)

He spreads the blame for some of the “market’s” excesses. Rightfully so?

Source: Refueling the Housing Bubble? – By Lawrence Yun, National Association of Realtors’ Chief Economist

Moody’s, Standard & Poor’s, and other ratings agency raked in revenue by giving out top Triple-A ratings (an inherent conflict of interest exists when ratings agencies get their revenue from mortgage underwriters/securitizers… rather like a professor who gives out a lot of “A” grades will draw more tuition paying students to his class).

… I believe there is plenty of blame to go around due to other factors. Global capital providers misunderstood and were simply not careful about purchasing securities composed on little income documentation and of risky-borrowers. Mortgage originators just originated loans to anyone including to suspicious borrowers because they had no skin in the game …

And, again:

But the biggest blame in my view goes to Moody’s and Standard & Poor’s — the rating agencies. If they had properly assessed the risk as is their job, then global capital would have never reached subprime homebuyers and flippers. The housing boom would have stopped dead in its tracks. We do not yet know how much of the ratings firms’ assessment were clouded by their financial interest in giving out easy Triple-A grades. Many workers at Moody’s and Standard & Poor’s took home hefty bonus checks when revenue skyrocketed from providing high ratings.


Most shocking, is this paragraph:

It is also fine for people to point the finger at me.

Wait, what?

It is also fine for people to point the finger at me.

Yeah, you got that right!

In a fast changing market conditions, I too have been off on my forecast. I knew that the boom was clearly unsustainable and I made the forecast in early 2007 that home prices were likely to experience a price decline on a national level for the first time since the Great Depression. The national median home price indeed fell by 1.4%. I believe I downgraded my forecast for ten or so straight months in 2007 as it was strongly pointed out to me.


That’s a sure way to gather sympathy.

Suddenly, I feel like giving the guy a break.

This time, at least.

(** Yes, I changed the name of the post …)

Housing stocks recover; economy next?

From the wire:

Housing Stocks Become Hot Item – By Colin Barr, Fortune, by way of

Investors who bought housing stocks at the beginning of the year after two and a half years of steep declines are being rewarded for their prescience.

As the Federal Reserve started cutting interest rates, the stocks of home builders Toll Brothers, Lennar, and Hovnanian rose 40 percent, 52 percent, and 96 percent respectively.

… “Stocks are predictive of the industry about six to nine months ahead of time,” adds Justin Walters of Bespoke Investment Group in Harrison, N.Y. He says he is bullish on the sector, noting that house-price futures at the Chicago Mercantile Exchange have been forecasting a bottom in house prices in many U.S. markets toward the end of 2008 …

While it’s true that some housing-related stocks have gone up this year, it only looks impressive because of how far they had fallen.

Toll Brothers, for example, reached over $35 a share, twice in the past two years, but hit a low of $15.49 in December, 2007.

Everything is relative, I guess. (And, I’m not sure I’d call investors’ actions “prescience”.)

What do you think? Is there reason to be optimistic that the housing market will stabilize and (more importantly) that the US economy will avoid a recession?

The latest on conforming loan limits

A couple of developments in the race to qualify more borrowers for “conforming loans”, meaning they would benefit from access to lower interest rates.

* Rumor has it that Fannie Mae & Freddie Mac may require 10% down on any new loans; this means that fewer borrowers will have access to lower rates, because many people finance 95% or even 100% of their purchase price (whether or not buyers should, is another question, yes). (We were already likely to have this higher down payment requirement enforced, as we are in a “declining market” in Massachusetts);

* Yesterday, I read a report which estimated that the new conforming loan limit in Massachusetts might be as high as $520,000, up from today’s limit of $417,000.

This is because the new conforming loan limits are set to be 125% of the median sales price in any metropolitan area.

Well, that estimate was based on median third-quarter 2007 sales prices.

Fourth-quarter 2007 sales prices dropped.

Here’s an estimate of the new conforming loan limit:

Boston-Cambridge-Quincy, Mass.
Median price, 3rd-quarter: $414,600
Median price, 4th-quarter: $380,700
Drop: -8.2 percent
New estimated conforming loan limit: $475,875

Meaning, when all is said & done, far fewer borrowers will qualify for the lower rates.

Meaning, the effect on the real estate market and general US economy may be little, or none.

Wait, what was the point of this, to begin with?

Good news: the recession you didn’t know you were in is almost over

Did you know we were in a recession?

Well, we’re not. I mean, even if you go by the commonly accepted definition of such, we’re not. We need to have two quarters of reduced productivity; fourth quarter 2007 was positive, so the earliest we would know would be after June 30.

But, by then, we’ll be out of the recession!

At least, according to several of the economists who were interviewed by the Globe:

For now, many economists forecasting a recession expect it to be short and mild, running through the first half of the year. The Federal Reserve’s deep interest rate cuts and a plan approved last week by Congress to put billions of dollars in rebates in consumers’ pockets should work their way into the economy by the second half of the year. That will fuel a rebound, economists said.

“We’re forecasting the shortest and shallowest recession in post-World War II history,” said Gus Faucher, economist at Moody’s of West Chester, Pa. “The Fed is on the ball and moving aggressively, and the federal stimulus package will be kicking in.”

Mmm, ‘k.

Can everyone just slow down for a second?

Crazy person given space in the Journal

Government bailouts?

Sure, give money to the poor or middle class who bought homes they can no longer afford. Give money to the rich, to stimulate the economy. Give money to the banks, to help them stay solvent.

Or, give money to the 5 million homeowners who have their properties on the market …

Um, what?

From today’s Journal:

How to Fix The Housing Crisis – By Irwin Kellner, MarketWatch, by way of The Wall Street Journal

… Home prices are falling because there are at least 5 million unsold homes overhanging the market … Their median price is $208,000. That’s 10% below the peak, but still a high 3.2 times median family income.

Housing would be more affordable if the median home cost 2.8 times median family incomes … a drop to $184,000.

Simple arithmetic tells us that this is a difference of $24,000, or about 12%.

If the government were to give sellers half of this, they would be able to lower their asking prices without losing any more money. And giving buyers the other half would enable them to pay more without having to come up with additional funds.

Make this offer good for a limited time only (say, six months) and the economy would get a jolt where it needs it the most. And the cost would be only $120 billion ($24,000 times 5 million unsold homes).

Well, I see absolutely no problem with this idea, at all.

Let’s do a “Manhattan Project” on it!

(** Alright, points to you if you already saw another solution to this problem … a really really REALLY good solution … let’s just give the money to real estate agents, if they agree not to take any commission on the deal. I mean, be serious – you give the money to a buyer or seller, he or she is only going to turn around and pour that money into another home; give it to a real estate agent, and you increase BMW sales (Hybrids, in my case), casino gambling, and polyester suit sales.)

Crazy guy given space in the Globe

Well, you ask a lunatic to write 300 words, what do you expect will be the response?

From yesterday’s Globe:

The root cause of declining home values? 9/11 – By Scott Burns, The Boston Globe

Having just spent five days in the disaster that is Florida real estate, it makes me wonder: Is it possible that the 9/11 terrorist attack is the root cause of declining home values? Is it possible that subprime loans and speculative building/buying were no more than tools, the equivalent of hijacked airliners?

If so, the eventual economic cost of that attack may run in the trillions. It may also help us find the unity to gird our country against the biggest threat since World War II.

Dude, read your history books.

It’s called a recession.

We’ve had … how many, 20? 40? 50? since our nation was founded, over 200 years ago.

The Fed acted a bit differently this past go-around than it did in the past. It made easy money its primary (only?) goal.

Obviously, we’re seeing the downside of that policy, right now.

But, be practical. For many Americans, they are better off today than they were 5 or ten years ago. Much better off. And, for the most part, the equity they built up over that time, in their homes, is going to remain. Only if you bought two-three years ago are you faced with an investment that, as of now, isn’t going up (or down?).

The US economy was entering into a recession prior to September, 2001. It hit its zenith in 2002-2003. We recovered, and had a good run of things, for three-four years.

You could very well make the argument that reckless pending by the current President (and, a complicit Congress) is what brought on the current problems, by basically bankrupting an already bankrupt nation.

9/11? Not even on the top-10 list.

Give money to people out of work? As good an idea as any

What’s the best way to stimulate the US economy?

Your guess is as good as anyone’s, including the President’s, head of the Fed’s, or the guy who mumbles to himself outside the Copley subway stop’s.

Give $15,000 to homebuyers over the next three years? Sure, why not? Encourage irresponsible behavior;

Give every* taxpayer $300- $600 in the form of a rebate? Sure, why not? Let’s get the federal budget deficit as high as possible;

Lower the rate of borrowing by 1.25% in the matter of ten days? Sure, why not? Let’s ignore inflation – who cares if the lower rate encourages consumer spending instead of savings;

Raise the conforming loan rate? Sure, why not? Let’s replace loans to the lower- and middle-income people with ones given to people buying 2-bedroom condos in San Francisco for $750,000;

Or, this new one – extend unemployment benefits for those out of work.

More jobless checks a cure for economy? – By Jesse J Holland, Associated Press

For a bipartisan majority of senators, providing three months or six months of extra unemployment checks to more than 1 million jobless people is a better way to dig the economy out of a recession than just printing tax rebate checks.

Some economists agree, and undoubtedly, so do the nearly 1.3 million unemployed workers who face losing an average $282 a week in benefits before June.

Seems logical, right? You help people who are facing a grim future, especially if companies stop hiring due to a looming recession and jobs become more scarce. And, who are the people most likely to spend money given to them by the government? Those at the lower end of the income scale.

Whether or not it’s the best use of funds, of course, is another question, all together. At least, to some.

Many conservatives and Republicans view jobless benefits as a drain on the economy rather than a potential boost to it. Sen. Judd Gregg, R-N.H., said extending jobless benefits may keep people from working.

“Most people find a job in the last two weeks of their unemployment,” Gregg said. “That’s human nature. They stay on unemployment almost until the end and then they find a job. If you extend it another year, those folks who could be productive, producing a job, creating economic activity by having a job will stay on unemployment even though there may be a job out there that they could take.”

Ahhh. Spoken like a true “compassionate conservative”.

Forecast: sunny skies

I may not be able to forecast the future of the Boston real estate market, but one thing I know for sure, the US economy did not lose 17,000 jobs last month.

It gained jobs.

Upward revision, 3-weeks from now.

To be continued …

What is a recession?

Something worth repeating, seeing as it’s the hot topic, these days.

Simple concept, really.

From Wikipedia (which you can trust, implicitly, right?)


A recession is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. (** A more complete definition, at bottom.)

So, we may not technically be “in” a recession, or heading toward one (I don’t think we are, btw), but that doesn’t mean things aren’t great, overall.

** In the United States, GDP is officially tracked by the Commerce Department’s Bureau of Economic Analysis. An alternative, less accepted definition of recession is a downward trend in the rate of actual GDP growth as promoted by the business-cycle dating committee of the National Bureau of Economic Research.[1] That private organization defines a recession more ambiguously as “a significant decline in economic activity spread across the economy, lasting more than a few months.”

A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. A devastating breakdown of an economy (essentially, a severe depression, or a hyperinflation, depending on the circumstances) is called economic collapse.

Newspaper columnist Sidney J. Harris distinguished terms this way: “a recession is when your neighbor loses his job; a depression is when you lose your job.”

Market-oriented economies are characterized by economic cycles, but actual recessions (declines in economic activity) do not always result. There is much debate, sometimes ideologically motivated, as to whether government intervention smoothes the cycle (see Keynesianism), exaggerates it (see Real business cycle theory), or even creates it (see monetarism).