Feb. 27th, 2009

walkitout: (Default)
Once upon a time, back in the 1980s, people used to call the house I lived in then (as a child) in what is now Shoreline, WA, but was then unincorporated King County with a Seattle address. They'd ask us if we wanted to sell the house. Don't get me wrong. We weren't selling the house (my parents still live there, and the house will presumably eventually be sold by my older sisters when my parents die). But boy people wanted to buy in our neighborhood and they were willing to offer what we regarded as completely ridiculous prices -- like, $200,000!!! My parents had paid something like $30K in 1968 before I was born and never refinanced their 30 year fixed mortgage which had 6% interest. You can sort of see where some of my ideas about finance might come from.

In any event, a lot of people were moving in to the suburbs north of us. Malls were being built where once there were fields and -- oh, you know how this goes and you so do not care.

A lot of the people were specifically moving up from Southern California. They had sold an even more expensive, smaller, crappier and in every way worse house down there and were shopping in the Seattle market with what was basically funny money, driving our prices up. This has happened in waves a few times since then. Basically, SoCal goes up, some people move to the Beautiful Pacific Northwest (having visited once when the sun was out and not realizing the suicide risk induced by the extremely northern latitude combined with near constant cloud cover) with their inflated equity, pay too much for houses around Puget Sound, the bubble collapses in SoCal, but takes longer to deflate in Seattle, inducing much speculation about how Seattle is Immune to Real Estate collapses, blah, blah, bleeping blah.

Why does Southern California tend to generate funny money? (We understand how money can move from California to Washington. Everybody likes the folding green stuff and electronic representations thereof.) Because Southern California is prone to hordes of people moving in (and moving out). When hordes move in, too many people are trying to buy too few houses. This begets building booms (hence the crapitude of much of the housing), "affordability" products from the mortgage industry, etc. But more specifically, too many people chasing too few stuff = price increases.

Normally, prices cannot go up forever: people run out of money. And that's where the "affordability" products come in. You know them now as subprime, alt-a, jumbos, seller-financing, blah, blah, bleeping blah. But all of them are designed to keep the bidding wars going. And _that_ is the real problem. If, when too many people moved to SoCal, instead of there being endlessly more houses for endlessly more money, there was a limit to the money and a limit to the houses, there would be a limit to the money on offer.

You might say, well, before there were affordability products from the mortgage industry, there were companies willing to pay larger amounts of money so their employees could afford to live in the area. And that's kind of annoying too, for several reasons including the general increase in "luxury culture" -- if you pay someone enough to buy a 1.n million dollar crappy 3 bedroom house, it should not surprise anyone that paying for a Subzero and Granite Countertops starts to feel like noise. There's a hard limit on how much companies can increase their employees pay, and that basically amounts to, can we move the company somewhere else where it's cheaper to live and still function, vs. if we pay the employees any more money, no one (not even our employees) will be able to afford our products. One of these two things kicks in pretty quick. (Usually.) If neither one kicks in, the ultimate affordability factor eventually will: the wage slaves the rich folk desire are unavailable in the area because _they_ can't afford to live there.

"Affordability" products, in their simplest form, rely upon the idea that the lender is taking crazy risk, but it is okay because that house is worth a lot. This is just another version of as-long-as-there-is-another-sucker, and we know how that ends: badly, except for the people who get out early and move to Seattle. Better informed and more experienced people than me have shown how this kind of thinking ratchets housing prices higher and higher and higher, until instead of a few people needing affordability products to participate in the market (which is really what they were for, before they became Southern California's Bitch, and a source of endless whining in the Pacific Northwest about immigrants from California -- and we _meant_ the white people. While I personally did not key the beamers they drove up from Land of Ridiculously Expensive and Too-Shiny Cars, I could certainly understand why other people did.), _everyone_ needed affordability products to participate in the market. Shortly after that, the seemingly endless supply of suckers dried up.

Pop.

So whenever you heard someone justify "affordability" products, whether jumbos, alt-a, subprime, ARMS, etc. as necessary in expensive housing markets, you should immediately think: Get 'Em! Because that person is the scout for Teh Evil.

If you want to blow bubbles, the dollar store has 'em cheap. Target has 'em in quantity. Do not do this with real estate any more. Please.
walkitout: (Default)
There's hella lot riding on the answer to this question. Competing ideas include: what it cost some number of years ago, some formula based on current interest rates and local median income, blah, blah, bleeping blah. I've been shopping for homeowner's insurance for the house we are buying, and needless to say, insurance companies kinda want to have a bead on what it costs to replace the house in case they have to do so.

Insurance agents and companies have "home evaluation forms" which when filled out produce an answer to this question. Included are things like square footage, age, materials used, renovations if any, fixtures, appliances. I was on the phone with a very sweet ex-Digit whose second career involves selling insurance through AAA and he was churning through this stuff and came up with a number which he was convinced had to be wrong. Let's call the first digit N.

R. and I had at various points speculated about cost-to-build, partly because we were contemplating adding on to our current home, partly in a (not too succesful) effort to assess the reality of asking prices.

Oh, btw, did I mention that 76 Hill St in Concord, which we drove by on Father's Day last year, is now asking 749900? I have the printout from last year -- they wanted 849000 back then. Hooooo boy.

In any event, the first digit of the asking price on our house (which we offered), was N+1. Remember, the housing lot doesn't get destroyed -- insurers insure the structure. And one assumes that a nearly one acre buildable lot in Acton, MA is worth _something_.

I'm inclined to think the estimate the guy on the phone came up with was about right. And it makes me feel pretty good about what we're paying. I also thought it was sweet that he was trying to yank the eval around a couple different ways in an effort to get the numbers down to save us a buck or two on the premium (which, I might add, I thought was utterly reasonable).

Oh, and it turns out that auto insurance in Massachusetts is no longer completely insane. At least not if you live in Acton. It looks like we'll be paying _less_ than we do currently in NH.
walkitout: (Default)
The markets, dear reader, the markets!

R. send me this cheerful nugget by Henry Blodget (who I have not very much respect for).
[ETA: And I wrote that having missed the whole barred-from-the-securities-industry-for-life thing. Check him out on wikipedia. Pundits are really amazing people.]

http://finance.yahoo.com/techticker/article/195065/Europe%27s-Crisis:-Much-Bigger-Than-Subprime,-Worse-Than-U.S

I'm an imperfect contrarian. A perfect contrarian would be an amazing thing: always selling at the very tipsy top, always buying at the very bitter bottom. I tend to sell when there's still some run in an up market. I tend to jump the gun a bit and miss the very bottom, partly because I know that once things start to turn, I'll keep talking myself out of buying and miss out entirely.

I know people who are really reliable indicators, too -- they don't buy in until very late in the game, and they sell very close to the very bottom. And while Blodget (whose commentary tends to fall into this latter category) is very paranoid, I can't help but think about that bit of innumeracy on display on CNBC yesterday (no, I am not buying financials, nor am I advising anyone else to do or not do anything at all with respect to any market whatsoever, altho you should probably buy more fruits and vegetables, organics if possible, and eat them frequently).

The current administration is displaying a remarkable capacity to both respond in the short term and plan for the medium -- even long -- term. They are really clearly taking a path that turns the financial sector into a public/private partnership, rather than "nationalizing" or even "preprivatizing". Given the Republicans love in past years of public/private things, I'm a little confused why they are so eager to call what is happening now nationalization, but whatever. Given the previous high regard with which the financial sector's stocks were once held, they must have been and presumably still are in their weakened condition, very widely held (probably loads in things like calpers), so attempts to distinguish between shareholders (who should be wiped out) and taxpayers (who shouldn't have to pick up the tab) seem, um, tricky to make at best.

I don't expect this sucker to come roaring back any time soon. But I'm starting to believe we're through a good bit of the bad part.
walkitout: (Default)
My sister called me up today and told me about Fred (I have yet to watch Fred so I currently have no opinion) and the Zipit.

http://www.zipitwireless.com/default.htm

This is the most disturbingly brilliant idea I've encountered in a while. R. and I are still trying to figure out why you need to pay to text when it's via wi-fi; I assume that's because it occupies the cellular network at some point in its journeys, whereas IM does not.

I'm not really a texter (okay, I don't text ever, except very occasionally in response to a text from B.); if I were, this would be tempting. And I'm _way_ outside the target audience.
walkitout: (Default)
OMG!

OMG!

Okay, I'm good now.

OMG!

I pulled this out of 538's coverage:

"Yesterday, new Dartmouth College research showed substantial variation in health care costs in various parts of the country without corresponding outcome variation."

(http://www.fivethirtyeight.com/2009/02/omb-director-orszag-budget-press.html)

Drilling down, here's what you probably want to look at (my hero, Elliot Fisher):

http://content.nejm.org/cgi/content/full/360/9/849

ETA:

And here:

http://www.dartmouthatlas.org/

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