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December 10, 2007

Comments

Election

"but, no matter what happens to the national economy, we have the tools to keep Somerville moving ahead over the next decade. "

Hmmm, Joe got reelected, right? So, what's with this preelection-sounding propaganda? If there is a depression in the US, partly as a result of the widespread mortgage crisis (which goes well beyond the sub-prime mortgage biz), most likely Somerville is going to go down the toilet like everyone else in the country.

yah

This bull_sh_t is coming from someone who doesn't even own a home. Thanks Joe, but I listen to the federal reserve when it comes to Experience with dealing with interest rates

James Norton

Yah -

Not for nothing, but what the hell does it matter if you actually own a home or not regarding whether someone can understand economics and how it affects our local community, which I would have to say, Mayor Curtatone is more than qualified to do, regardless of homeownership status.

I plan on writing something either this week or next about how overblown the entire situation in the real estate industry is and how comparative today is with 17/18 years ago. I am certainly qualified to formulate an opinion on the subject and would hope that people wouldn't dismiss my intelligent and educated opinions on the matter merely based on whether I own a home or not.

For the time being, if you listened to the FSB regarding interest rates, and you studied the history of the FSB, then you would understand that Greenspan, as intelligent and wise as he was, in retrospect, was too much of a micro-manager. The series of 16 small bump-ups in the prime rate (which should have NEVER been lowered to a target rate of 1% by the way) actually mirror the current trend of sub-prime loan defaults today, in fact, its identical and proves the chronologial theory of cause and effect when it comes to stupid mismanagement of the FSB.

Reality of the situation is that if the FSB tightens up anymore, which is it poised to do, then THAT will be the biggest contributing factor in making the current situation worse than it already is.

Couple that with a media industry that is so rabid and single-minded, thinking that this is an awful time for real estate and the financial marketplace, and you have the beginnings of kaos.

The simple, cold, hard to swallow truth is that 2007, when compared to 1990, is nothing but a tiny little blip on the radar of financial instability. Wow, there are 330 billion dollars worth of mortgage defaults and write-downs - thats NOTHING - when compared to the total of just a hair over 14 Trillion in total real estate/mortgage loans that are in existence - do that math! A grand total of less than 3% of loan defaults or write downs. That certainly isnt the end of the world, is it? Now look at 1990 - where the mortgage related default rate was 28% - yes, thats 28% of all mortgage loans in existence.

I would think even the most single-minded people in the world can see the difference between 3% and 28%. Unsecured personal (non real estate related) debt, which is directly tied more closely to the financial markets, usually runs in the same direction as mortgage/real estate related defaults and write downs, but seems to be accelerating at a higher % rather than running along with its counterpart.

Thats not good, and thats the part that should make people worry. the bottom line is that credit card debt is more of a problem than anything else, period. doesnt matter if you listen to fox news or cnbc - they will all tell you the same thing. If you got an ARM and your mortgage person didn't explain to you about the pros and cons of getting it, why you should or shouldnt do it and/or whether you could afford the payment increase when the rate adjusts and you still went ahead with it - then shame on that mortgage person and shame on the consumer, it sucks saying that and it doesnt seem nice, but thats the cold hard reality.

this is just a short opinion - i will be writing something much more detailed coming up either this week or next.

enjoy

JN

Election

JN, I agree, this is more of a widespread credit crisis than anything restricted to mortgages. NOBODY knows where this is going to lead us. It could lead to a depression. All I'm saying is that NOBODY can say Somerville will be just fine regardless of what happens to the US economy. Not even Curtatone.

SomervilleReader

I do think the mayor is in a better situation to look at the numbers (what's coming in from the state, where expenses are going, etc.) and make a broad call than alot of other people. Look, it may go well, it may not. Facts on the ground are always changing. But, there's nothing inappropriate about him calling it as he sees it right now. I'd ease up a bit if I were you.

Solh Zendeh

The credit/housing/dollar situation could and normally would be solved by the market. That is, we would all pay more for goods and services because people that should not have been given credit were, and they are now defaulting.

The problem at this moment in history is that the global supply of oil appears to have peaked - that is to say: we can expect very little or no growth in the amount of energy we have to expend on making stuff (food, gas, tvs, ipods etc).

What that means is that the idea of "growing our way" out of this situation is not going to be possible. The market will be forced to direct energy towards the stuff that is most valuable, and *away* from the stuff that is least valuable. One thing that is going to suffer horribly is our ability to drive - it's going to cost *a lot* more to build, maintain and use the monumentally wasteful transportation infrastructure we've developed over the 20th century. So much more, that trains, bikes and plain old walking are going to look better and better.

Normally I would advocate waiting for the market to force us towards those things, but if we do that it's going to be messy, difficult, and much more expensive.

I advocate:
- better and more trains for commuters and commercial shipping
- better and more bike paths
- stop investing in new mega-road projects: the retail/business/employment sector that requires them (I'm thinking of Ikea) is going to be absolutely destroyed in the next 10 years

At the very, very least it's time to absolutely stop subsidizing the car and airline industries with our tax dollars. Let the roads be toll roads, let real market competition decide how we get to work and deliver stuff.

James Norton

Election -

I am glad you see it the way I do - that its a credit issue more than a real estate issue. I do disagree that there will be a "depression" as someone might think of one (historically speaking). I think the way the economy is structured right now, that there will be a period of instability, but it won't collapse. I also somewhat agree with Mayor Joe that whatever happens, as far as local homeownership and the local real estate industry is concerned, we as a community won't be affected like other communities (like Revere, Brockton, Lynn, etc.), so while other parts of our individual lives might suffer (read this as "non-real estate" and mortgage related), Somerville will be fine, regardless of what happens.

The expanded argument over personal debt, financial infrastructure of the community and Solh's very responsible argument about not subsizing the auto and airline industries with our tax dollars (I would like to ignore the possible investment of money into bike paths however - lol) will surely take this in another direction - I only posted to give a preview of what I will be writing about and to say that just because someone owns a house or not, doesn't mean he or she doesn't understand whats happening around us.

Enjoy

JN

Election

SomervilleReader, if the Mayor writes on a public blog that allows public comments from users, it seems that he should be open to people disagreeing with him. Which I think he is.

Tricky

JN - is it possible to determine what percentage of mortgages in Somerville are sub-prime compared to other localities? I'd like to share your view of this as a credit issue (vs. a real estate issue) but if there's a glut of condos being auctioned off by banks at some point, wouldn't that impact the real estate market to some extent?

(I'll defer to the economists on this one.)

James Norton

Tricky -

It would be next to impossible to determine the relative % of sub-prime mortgages in one community vs another one. It would be nice, but the industry doesn't share that much specific data - although I wish it would. There are a number is things that would affect the local real estate market related to auctions, foreclosures and "short sales", but nothing that should cause mass hysteria, that's for sure.

Aside from the banking industry changes that have taken place since 1990 (read - the different types of financing), the local real estate marketplace has changed dramatically, and I don't mean just average sales prices or even volume of sales. I refer to the composition of properties specifically, which has seen a tremendous surge in the areas of condo conversions and new construction condos (ignoring the creation of specialty, "high end" townhouse and even single family new constructions, as they don't represent the regular marketplace at ALL).

The reality is, relative to surrounding communities, Somerville isn't seeing the same amount of auctions, foreclosures and "short-sales", so that's a good sign. A three or four hour analysis of raw sales data and some digging can back that statement up all day and night.

At the end of the day, I agree that Somerville is in a much better standpoint than other communities in the general area. I also completely agree with Election and Solh in that its a credit problem far more than a regular "real estate" or "financial" crisis.

Enjoy.

JN

Election

I like threads where things can be settled with numbers, at least in principle!

Imux

Joe, does this mean our property taxes will go be going down?

The properties I have here in Somerville have not dropped as much as the properties I have in the Merrimack valley. Out there I would say the average price dropped close to 30% in the last 2 years. I am thinking the drop out in that area is over. Well... hoping. I guess this proves that the moonbats are good for something. Those imbeciles will buy any property near the People's Republic of Cambridge!

J

So the mayor seems rather bearish on the US economy, but I don't think I'd ever confuse him with an economist.

The US economy is widely projected to grow somewhere between 2-2.5% in 2008 and to pick up a bit in 2009, so economic "instability" is not in the cards (but economic growth will certainly be slower because of the housing market and other factors). If we were really facing economic instability, I seriously doubt the Mayor's SomerStat analytical system (while a good thing) would save us or would be "one of the biggest factors in our favor", not to mention our City already runs massive deficits every year excluding our annual bail-out by the State.

The Mayor is correct that the Assembly Square development will add new revenues (potentially lots of it). We have private citizens' lobbies like the Mystic View Task Force (and their endless lawsuits) to thank for the land swap deal that cleared the way for revenue-rich office and research space in Assembly Square. Think of how Assembly Square real estate would have been devalued if IKEA were built on our riverfront where the Mayor originally wanted it.

Moving forward, I think a lot of us want to see a shrewder and more business savvy Mayor and BOA attract the kinds of businesses that can generate big tax revenues in Assembly Square particularly (without costing us more in infrastructure) and at the same time negotiate with the developers to get the best deal possible, rather than force private citizens' groups to pick up the slack and to come up with the leverage through endless lawsuits.

Generally weak (or absent) challengers this past election cycle did not bring enough attention to the issue and the huge missteps by our incumbent officeholders. Hopefully, moving forward, everyone will have learned from their mistakes and start putting this City back into the black.

By the way, Imux, the "People's Republic of Cambridge" also has an extensive business tax base and strong economic growth (particularly in high tech) that puts them in a far better position economically than the rest of our state or country (and they sure know it). I don't blame people for wanting to live in or near a city with so many employment opportunities.

nobody

I think the mayor should also focus on developing the Inner Belt area, there is no reason that area couldn't be almost good as East Cambridge in terms of attracting biotech, MIT satellite branches (they're in Charlestown, for pete's sake), hospitals, etc. Real estate is scare in the boston area for all these businesses wishing to expand, its a shame that inner belt sits there underutilized.

Citizen

Dear Mr. Mayor,

Would you please explain exactly what "tax-base enhancing development" is "in the pipeline at Assembly Square?" When you got my vote in 2003, you said that there was development bottled up there that would quickly add millions of dollars to the tax rolls. The only thing I've seen is refurbishing the strip mall. I don't see any construction there.

And the "results-oriented, performance-based budget process" is something else that you promised in 2003. No one seems to understand how this works. Could you please explain?

And would you also share any thoughts that you might have about why Mr. White was removed from the Finance Committee? He seemed to me to understand the most about the budget of all the aldermen, and to be looking out for Somerville taxpayers the most.

Election

He was removed precisely BECAUSE he understood the most about the budget of all the aldermen.

observer

Joe

When will you become a homeowner in Somerville? If your not willing to invest- why should anyone else?

thank you

Joe is Smart... he cashed out in time

SAN FRANCISCO (AP) -- Evoking Depression-era memories, Wells Fargo & Co. President John Stumpf on Thursday became the latest banker to predict continuing difficulties in the U.S. housing market as risky mortgages made to overextended borrowers disintegrate into large loan losses.

Speaking at an investment conference in New York, Stumpf said the current real estate conditions are the worst he has experienced during his 30-year career. He then punctuated his gloomy assessment by harking back to the deepest downturn of the 20th century.

"We have not seen a nationwide decline in housing like this since the Great Depression," he said.

Stumpf, who became Wells Fargo's chief executive 4-1/2 months ago, isn't the first prominent banker to liken the housing market's current slump to the financial despair of the 1930s.

Angelo Mozilo, CEO of Countrywide Financial Corp., (Charts, Fortune 500) made a similar comparison in July as his mortgage company sank deeper into a morass of losses that forced it to raise billions of dollars and lay off thousands of workers to stay afloat.

In afternoon trading, Wells Fargo (Charts, Fortune 500) shares dropped $1.34, or more than 4 percent, to $31.91.

San Francisco-based Wells Fargo, the fifth largest U.S. bank, so far has fared far better than virtually all of its peers.

That's because Wells Fargo sold most of the $2 trillion in home loans that it has originated since 2001 and invested relatively little money in the mortgage-backed securities that have been saddling other big banks with huge losses. In contrast, Wells Fargo ended September wit

Depression in Housing lurking?

Dont count on your home equity to retire.
If you where smart you would have bailed like Joey Cakes.

But I guess he is just smarter than you and me.

Depression in Housing lurking?

Joe

When will you become a homeowner in Somerville? If your not willing to invest- why should anyone else?

thank you

to Tricky from somervillian

Tricky,

I'm sure there are stats exist about the percentage of sub-prime mortgage... since I've seen some published... but I dont know where you find them.

That said the larger issue may be overall decline in value. Somerville was once a very stable market (pre 1998 +/- 2 years) with people who bought and stayed a long time. Houses where often passed along to children or friends of the family at market or below market value.

But with Somerville's recent popularity (last decade), improved image, and general over-value of real estate in the boston area I see another risk.

The risk Somerville faces is probably not sub-prime. The risk is that people who purchased homes in the past 3-5 years may have equity below the water line. And, this frankly is the group I would have the most concern about. At some point, paying $2 to $4 thousand per month plus taxes and upkeep may not make sense if you know your investing in a declining asset.

In addition, with the growth of units in Somerville (thanks to the new found love of condos)- also something that did not happen in a more stable community pre 1995- its really as a strong a buyers market as Somerville have faced in our lifetime.

My advice to my kids who can both afford to buy in most Boston area communities including Somerville- is to either wait- or go in with low ball offers and hope you find someone who just wants out.

No one can predict the future with certainty. But I think its more likely prices continue to fall than we see a rebound any time soon. In the alternative I think best case is that prices stabilize in 2008. I dont see any scenario where property will increase even at the rate of inflation for the next 2-3 years.

Anyway, for those of us who where lucky enough to buy several years ago I dont see anything to be concerned about. But in looking at Somerville- I think we have a larger than average number of newcomers and thats where the risk may lie at the end of the day.

regards

Yorktown Street

As far as I know, Joe Curtatone does live in Somerville. He has an address on Prospect Hill Avenue. "Depression," are you saying he doesn't really live there, or he doesn't own it, or are you simply misinformed?

observer

Its common knowledge that Joe sold his house to his sister a few years ago, and rents and apartment on Prospect Hill. Does that really matter to anyone?

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