Paper Economy - A US Real Estate Bubble Blog

Thursday, September 11, 2008

The Almost Daily 2¢ - As Rhode Island Goes…

Ahh... Massachusetts… There’s nothing quite like it with its ample supply of mostly alien university intellectuals and elite young and highly educated urban professionals, its typical “run of the mill” blue collar average Bobby and Tommy’s (or better yet… Bauby and Taummy’s) and its down and dirty Red Sox/Celtics/Patriots hooligans… add in Aerosmith and what a smarmy cacophony indeed!

Sample the socio-economic distribution of any “inside 128” town and you’ll find a puzzle so perplexing and inexplicable no MIT mathematical savant could make heads or tails of it!

Are we “gritty” and “rough and tumble”? or Bio Engineers? or MBAs? or Nobel Laureates? Or Lobstermen... who can tell? … We all live right next to one another!

Many, of course, do share one thing in common … they paid too dammed much for their house… but such is life… at least they will all suffer together.

Another thing some Mass folks have in common is that they forget that they, along with the rest of New England, are all essentially in the same boat.

No! You say… we’re not like Maine, New Hampshire or Vermont and definitely NOT like Rhode Island! (Maybe a little like Connecticut ... or at least some like to think)

Well I’m sorry to report (not really) that ‘tis true! We are a lot like Rhode Island!

How? you say… simple… Unemployment (along with a host of other typical economic metrics).

Historically, the Mass and Rhode Island unemployment rates have correlated fairly well, not separating more than 1.5% north or south of each other for most of the last 40 years (see chart below).

In fact, there were only a small handful of instances where the two briefly parted ways with only two real significant occasions, early 1976 when the Rhode Island rate precipitously fell as the Mass rate slowly declined and today where the exact opposite is true.

You’ve all probably heard the news by now.

Rhode Island has gotten hit pretty hard by the housing downturn and the recession both working to push its unemployment rate up dramatically from 4.9% in early 2007 to where it stands now at 7.7%.

That’s quite a run but in all the brouhaha Mass seems to have gotten left behind… its unemployment rate has only moved from 4.7% to 5.2% over the same period… What gives?

Well, what’s likely to give is pretty simple… the Mass unemployment rate.

Typically, these discordant episodes last only brief moments with six months being the extent of the longest past event.

Since the two rates have already surpassed the threshold for five months that gives us just one or maybe two more months before we are fully entrenched in a nasty game of catch-up that’s likely to leave no Bay State worker unconcerned.

But alas… as you can see from the chart below, the recent acceleration in the Mass unemployment rate seems to already have begun to signal troubled times ahead.

Of course, Rhode Island’s unemployment rate could also just decline… MWHAAHAHAHAHAHAH!!!!

So, I suppose there is no sense in fighting it… just sit back… bust out a nice tall cool glass of Coffee Time coffee milk and try to relax.

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13 Comments:

  • Ironically, the house prices in towns like Lexington are rising. I'm still seeing bidding wars. There are a lot of reasons for that, and it won't show up in the overall picture of the housing market.

    By Anonymous Anonymous, at 10:39 AM  

  • anon,

    Inventory has been pretty low in Lexington this year (almost 1/2 of the 2006 inventory) but truth be know it has been a pretty solid selling year there.

    As I have noted before, the Boston metro area is essentially seeing a "sellers strike" where if there is no pressing reason to sell your home (divorce, job change, illness, retirement) people are just not selling... it's a bad market... why sell?

    So, as this post points out, a decision like "why sell into a bad market?" is effectively a luxury at this point.

    We are about to experience a fairly dramatic run-up in unemployment.

    Historically, unemployment puts tremendous pressure on homeowners with lots of debt.

    Well, MA (including Lexington) has lots of home-debtors so I would expect that you see a new stage of decline coming... a stage of forced selling somewhat ala. the current conditions seen in the west coast.

    This will put a lot of stress on the area... I think you will be shocked at the breadth of households that will be affected.

    Lots of folks you would never expect... fancy that!

    By Blogger SoldAtTheTop, at 11:07 AM  

  • soldatthetop,
    Majority of the people live in lexington are folks with secure jobs: professors, doctors, etc.., and lots of foreigners who normally save 30%, 40% of their income and put a lot of money down. So, even though I believe the overall housing picture will get worse, the impact on the towns like Lexington will not be significant.

    By Anonymous Anonymous, at 11:43 AM  

  • Tell that to all the San Fran professionals... or San Diego doctors ... or LA lawyers... or Miami etc...

    Point is, these are troubled times.

    There is a convergence of unusually bad economic factors and historically, areas like ours simply don't skip these events.

    We are all in the same boat... eventually it will take us down too.

    And yes Lexington may fare better but believing that it will be remain unaffected is simply unrealistic and not supported by either evidence or reason.

    By Blogger SoldAtTheTop, at 11:57 AM  

  • soldatthetop,
    I hope you are right, I'm waiting to buy at lexington. I have a lot of friends living in Lexington. Looks like you are based in MA?
    By the way, the house prices in towns where high income professionals live in CA didn't drop much at all, I have friends living there and they told me that. It is much like MA here. A lot of towns are getting hammered, but some towns just don't feel any impact. The most likely scenario is houses in those towns will remain stable in a "long" period. As far as I can see, if there is no job loss in those communities, there will be no motivated sellers, thus house prices won't drop that much.
    I hope I'm wrong, though.

    By Anonymous Anonymous, at 12:31 PM  

  • Who are you, by the way? There is not much in the "about me" section. I'd like to make sure I'm reading someone with a serious background.
    Thanks.

    By Anonymous Anonymous, at 12:37 PM  

  • Oh.. I'm Peter Johnson and I live at ... Nice try...

    If your concerned enough about the content of the posts you can always double check the data for yourself... its easy.

    Its all just there for the taking if your inclined to look.

    By Blogger SoldAtTheTop, at 12:51 PM  

  • Folks, it's just the start of the bear market.

    Remember, Fidelity used to be the place to work in town. Now, they're sending 2K+ jobs to cheaper states. Soon, State St will follow once they've accounted for their losses as well.

    By Anonymous Anonymous, at 1:08 PM  

  • Dear Soldatthe Top,

    I enjoy your writings.

    Anon - of Lexington- is correct places like Lexington and Belmont never see price declines. These Town exist in a Parallel Economic Universe and are exempt from the laws of economics/finance!

    **Obviously, Anon hasn't been following the Play by Play of the economy. How many Professor will the World need of there is No Secondary Market for student Loans - Did Anon read about First Marble head or Lehman Bros Student Loan Finance biz that shut down today?

    What will be the impact to the Boston Area Education Industry when Billions in Student loans are no longer available?

    Where will Towns, Cities, and the State make up for the lost revenue from Real Estate and the impact of inflation?

    Nice work! I've done my part trying to keep people who of Real Estate - sadly the fate of Cassandra is the result for any who try.

    By Anonymous Former Owner, at 4:06 PM  

  • Lexington Anon: are you a professor or doctor?

    By Blogger bostonbubble, at 4:43 PM  

  • Bostonbubble, I'm neither. I'm an engineer. Most of the people I know (believe me I know a lot of people in Lexington) have double income and secure jobs, and can do without jobs for a few years, so they don't HAVE to sell their houses in a hurry.
    former owner, you are speaking of your emotion. This country is clearly sick, but it will recover. In terms of the student resources, don't worry, yeah, some American students may have difficulty, but there are plenty, plenty of Chinese students from RICH families are coming to rescue. Yes, US is going to export a lot more from now on, including education services.

    By Anonymous Anonymous, at 8:20 AM  

  • I'm neither. I'm an engineer. Most of the people I know (believe me I know a lot of people in Lexington)...

    How many doctors and professors do you personally know in Lexington?

    By Blogger bostonbubble, at 8:36 AM  

  • Anon,

    I agree I overstated my point.

    1. Don't you think Educational Institutions will be impacted and be forced to change as this Credit Crisis will reduce the amount of Money available for Schooling.
    **Foreign students could/will fill a portion of this gap - but, to what extent.
    Many Colleges have expanded in the last few years to educate the biggest population of students in the history of man kind - the BabyBoomers children - clearly there is an over capacity - that requires lots of CASH injections to keep rolling along.

    2. Credit Crisis will have an impact on Lexington Home Values at some point. I would agree that many Lexington residents tend to be more financial sophisticated than say the average owner in Malden or Medford. But, a massive reduction in available Mortgages will affect housing values.

    If the Feds try to avoid this we'll have higher and higher inflation - leading to very high property taxes or reduction in Services in Lexington.

    Best of luck.
    Former Owner

    By Anonymous Anonymous, at 11:13 AM  

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