Hey Reality,

Now that the financial sector is near full capitulation, with numerous bailouts in record time, I think the future of American R&D will be joining it in oblivion.

I think it's safe to say that much of science and engineering will be done in east Asia for much of the next century.

The USA will be looking more like a downtrodden post-Empire Britain but w/o a financial sector to buffer the losses since capital won't be flowing here just to prop up some socialized banking sector and coddle the stock of a Google or Apple.

The Boston area, like many other high cost regions, will have a softer, white collar rust belt hue in the years ahead. Realize, after the 90s, even Credit Suisse dropped the name, *First Boston*, since it didn't have any real brand name value in the long haul.

You most definitely didn't rebut any of the blogs you mentioned. You set up a straw man and then knocked it down. You're arguing that prices in the nice parts of Boston are stable. None of the "crash" blogs deny that condos in the South End are expensive. What they do argue is that when you look at the available data, it's clear that prices and sales are down statewide (and in the Boston MSA). Further, the data (months supply, YOY changes, etc) point to further downward price pressure.

If you want to rebut these sites, you need to counter the arguments they are actually making. And you need to provide evidence and not rely on anecdotes.

"very nuanced differences"

We also seem to use similar vocabulary in describing phenomena. The one thing that I'd never really considered was actually being a tech employer vs employee/subcontractor in town.

The companies that I'd work with appear to want to leave Mass. There isn't this "oh, there's lot of talent here, let's stay in Boston" mentality like ten years ago. It's more the getting out of Taxachusetts and seeking, at most, a sales/post-sales consulting liaison in town because for some reason, international clients tend to feel comfortable working with a Boston-based enterprise. I guess Yankee ingenuity still exists in myths and collective memories. The concern I have is how long can that fantasy continue?

No, I'm not Bill . . . but he and I seem to agree a lot on the subject of the job-market/economic decline of Boston area, with perhaps some very nuanced differences regarding the reasons behind it, if you read the lines carefully; or we could just be emphasizing difference sides of the same coin.

Is this person having a (long-winded) conversation ... with himself?

"the most brilliant minds among the youths in America have not been going into science and engineering over the past decade"

Well, my observation of this is that even during the 70s and 80s, the student group was always split between the premed, pre-MBA, prelaw (IP/patent) crowd and those who went into technology as a career. Today, anyone with the proper grades is preMed, prelaw, pre-Google [ yeah, I know ridiculous ], or financial engineering (quant -> trading desk). Anything else isn't really viable, as a blue chip type of career, and that's pretty much the rule of the game. So whereas in the past, getting a starting offer from DEC would be great demarcation point for one's career, today, an offer from a Silicon Graphics would be a *dead end* time waster until one attends law school, at a Columbia or Georgetown, for that IP legal job at Hale & Dorr with some so-called *tech background*.

Bill,

I entirely agree with your projection. The trade deficit that brings about the transformation that you are predicting is yet another sympatom of the government intervention in the market place in favor of the financial industry. As government taxes all companies but only bails out the financial companies (while bankrupting others in the process as resources has to come from other participants in the economy to do the bailing), regular manufacturing companies simply can not compete against financial companies for land, buiding, managerial talant or even workers. I'm speaking as the owner of a firm that has lost very talented workers to financial companies in the last couple years simply because my firm could not afford to pay someone fresh out of college $40/hr . . . nobody can, except the mortgage fraudsters originating those worthless mortgage papers for reselling, and calling that profit making! Now the companies folded, but mangers kept millions of dollars of bonuses, for essentially disrupting the economy and misallocating resources.

For the very same reason, the most brilliant minds among the youths in America have not been going into science and engineering over the past decade . . . because the government has tilted the playing field in favor of ponzi scams. Any wonder why manufacturing and engineering are going overseas? Like you said, I too wouldn't be surprised at all when MIT have labs abroad . . . or for that matter being surpassed by insitutions like IIT (India) altogether, just like MIT surpassed Cambridge (England) at the beginning of 20th century.

Well Reality, here's the problem... that intermittent skimping, to bail out the GSEs (Fannie & Freddie), Bulge Bracket (Bear Sterns), or Commercial sector (Indy a/o Countrywide), which is reminiscent of the S&L times is still viable provided that there's some Baby Boomer savings left for the next wave of capitalization. What happens when the next big thing, let's say artificial limbs only has a satellite office at an MIT lab but does all its analysis, fabrication, QA, and enhancements in Singapore or Seoul? Wouldn't that essentially make the last vestige of Boston's former greatness the R&D breeder lab for other nations? I mean will the targeted R&D defense budget get back to its cold war levels anytime soon?

You see, capital eventually goes where the hi-end work is and/or the executive decisions about that work. There won't be these behemoths on the Kendall-128-495 axis with a support staff in east Asia. Instead, it'll be the opposite because the wealth simply won't be here anymore. The east Asians will invest locally, MIT professors will comb the globe for funding, and my scenario could easily play out. At some point, even MIT may have labs abroad co-chaired by someone in Cambridge.

Very good points, Bill. The disappearance of diversified industrial and technological companies in our economy and its replacment by a monoculture of financial companies based in NYC and DC is a sign of our times: financial state capitalism. Every bail out of the financial companies have to be carried out by the rest of the economy, which does not routinely get those bailouts. Soon enough, the brains of a generation go off chasing those financial manias, in hopes of taking home billions of bonuses when winning, and knowing that the government will loot others to protect their down side when the gamblers in the financial firms lose their bets. Of course, the government can only take from a overwhelming majority to bail out a few, destroying econmic vitality in the process.

"They lost at the craps table"

I'm glad you'd brought up this point. The fact that housing in a once, highly productive region of the country, turned into a *frontier town's* casino is the crux of the matter.

You see, Massachusetts since the rise of DEC (Ken Olsen era), was the technology center of the nation (along with S.V. and a one or two other sections). The vast wealth in the region was generated through value added export industries (plus adjuncts), which included all types of careers from floor cleaner all the way to technician, R&D designer, and financial operations. Now, that was the basis of the late 80s run up in real estate. Clearly, Mass was the place to buy, back then, and the rationalization was economic fundamentals. Here's a short list of some of those blue chip companies: DEC, Data General, Gillette, Teradyne, Wang, Prime, John Hancock, First Boston, Stone & Webster, Raytheon, Polaroid, MITRE, AT&T, Biogen, Fidelity, Putnam, Arthur D. Little, and so on. This was literally 100s of thousands of jobs and was the reason why the region had added a million plus residents from '65 to the 90s.

The past several years, however, was a dearth of job creation and no matter what, Fidelity and Gillette won't be moving 4-6K middle to upper middle income jobs back into the state. Likewise, when State St finally acknowledges its MBS losses during the decade, there's a good chance that it too will be moving out to Raleigh NC / Dallas TX to skeleton-ize its operations. All and all, the fundamentals point to a long term bear market for real estate in the state. In addition, the real estate geared towards the old money, academically-tied, landed wealthy have already been procured in Beacon Hill and the Holden Green/Brattle regions around Harvard. These regions are insensitive to the actual working populace of the area. What happened, since the Nasdaq 5K crashed, was a credit fueled asset bubble in RE and now, since a lot of people don't understand how the situation manifested to begin with, will be calling *bottoms*, every time a property sells within a standard deviation from its asking price. The problem, however, is that the underlying value of the property isn't worth it when if a person decides to take a 10-15% paycut, for an equivalent job in Austin, can buy that same exact piece of property for half the cost. And nowadays, mobility is the key to keeping oneself employable.

Bill,

I see your point. Now the houses clearing through the market in the "prestige towns" are 20-30% below tax assessment value. The ones asking full tax assessment are just sitting on the market for hundreds of days with no-bid. I was shopping for a house in Lincoln. It was listed in 2006 for $2.3mil; by the time I noticed it in early 2007, the ask price was $1.5mil, just around tax assessment value. I did not make an offer, and the town records show that someone bought the house in early 2008 for $1.05mil, or roughly 30% below tax assessment value. That's before the latest wave of ALT-A and prime defaults and before Indymac going BK. It's a 3000+sqft house sitting on 5 acres and on the lake in Lincoln.

The best thing that can happen to the couples that you mentioned, who are probably seeing themselvs 20-30% upside down if they didn't have money down or have cashed out equities, is walking from the house, entering into voluntary/efficiency foreclosure, just like a wise business owner would treat loans on a failed business venture. Then rent a comparable place for a small fraction of the monthly mortgage payment. They lost at the craps table (actually a ponzi scam similar to chain letters, which are actually illegal). . . Foreclosure and renting a similar place for much much less will be a good thing for the family and the community, because then they will have money to spend instead of being sucked dry by some remote bank every month.

"If he or she is silly enough to be talked into buying those $750k glorified apartment because he/she can make the monthly for now, he/she is just living paycheck to paycheck, and one skipped paycheck away from foreclosure and bankruptcy"

During '04 and '05, this was happening in all the prestige towns (see Lexington, Winchester, Newton, etc) around Boston. Couples were stretching for that $700K home because the idea was that by '08, it would be worth $850K and that would give them $150K in gained equity for starting a family, home improvements, better lifestyle, you name it.

Asking prices are completely meaningless unless they are acceptedby buyers. Some realtors are obviously playing games with the gullible by asking people who want to sell not to list until the market condition is better, and asking people who have little intention of selling to list and ask for a stratospheric price as a way of puffing up neighborhood value and gaming bank's loan criteria (surrounding asking price). . . soon enough the banks are going to be clued in on the games, just like all those NINJA loans.

No, a 30-something bioengineer or lawyer can not afford a $750k glorified even if he/she has no kids. Does he/she have $150k saved up for downpayment? Does he/she not have student loan to pay? ($200k+ nowadays for a JD or MD). If he or she is silly enough to be talked into buying those $750k glorified apartment because he/she can make the monthly for now, he/she is just living paycheck to paycheck, and one skipped paycheck away from foreclosure and bankruptcy. The sensible ones, even if making $250k a year at 30+ and single, would rent the place for $2500 a month instead of paying those ridiculous prices.

"from 4 year colleges than math and engineering students"

This is one of those chicken/egg footnotes when the only stable career incentive, we give to engineering graduates, is to become a doctor or patent attorney if they have the grades. There's no point in a tech career when one's job could end up in Vietnam by year 4 or 5. Also, tech careers, by design, discriminate based upon age so you'll see the 45+ yr olds doing documentation (or moving into project management, if promoted) while the 27-34 crowd does any of the meaningful tasks. Now, once you're 38, isn't it a bit late to be going back to law school? Wouldn't it be better to have gone earlier and then be scouting for a partnership (group or solo) in one's forties after logging the initial hours?

Folks, here's why there are a lot of complainers in Mass... the jobs, where did they go?

You see, when we first had that big run up in condos, during the mid-to-late 80s, there were jobs as far as the eye could see... Raytheon, Prime, DEC, Gillette, Fidelity, State St, Biogen, you name it. Today, those high power companies are dwindling and the leftovers are the survivors of the tech crash (i.e. Akamai) and a few biotechs who're a part of another PE type of scenario. All and all, the bay state isn't the miracle that it once was (w/ highway-to-highway corporations) but while those blue chips were leaving, the RE reached stratospheric heights. How did that happen, if it weren't for a rampant expansion of credit? This is the question that a lot of crash seekers were asking this whole time.

Wow, thanks for the all the comments, pro and con.

First off, I just want to say I rent. I can't afford to buy in Boston, and I'd love to see prices come down as much as anyone.

However, because the upscale neighborhoods in downtown are so small (c. 70,000 for all of Back Bay, Beacon Hill and the South End) and so compact, demand for living space is very high. 700k is an exorbitant price tag for most people, but for a bioengineer and a corporate lawyer with no kids, it's not a stretch to make payments.

In a free market, price is a function of supply and demand. Until the demand drops (more rich people have kids and move to Concord) or supply increases (more condos increase living space per square foot), prices aren't likely to fall.

As far as my lack of empirical data goes, Redfin has charts for pretty much every neighborhood and municipality in greater Boston. You can see that right through credit crunch, prices on the high end haven't flinched.

There are arguments to be made that the economic downturn will eventually hurt the rich as well, but misfortune doesn't tend to trickle up in a capitalist society. For every worthless share of Bear Sterns, a diversified stock portfolio has shares in First Solar or Apple to make up the gap.

I'm not saying Boston's a can't-miss-market. The days of 9-month-flips for a 30% ROI were almost certainly an anomaly based on rapid gentrification and economic boom. But if you buy within your means here, you'll never need to worry about your investment being gutted by a Stockton, CA or Cleveland, OH style collapse.

This article does not even have a whiff of empirical data - it's conclusions are entirely unsubstantiated by relevant facts.

5 listings of 7-figure homes in the South End is not a large enough statistical sampling to support any meaningful conclusion. Yet the author trots it out as proof positive of the invulnerability of upscale Boston neighbourhoods.

Your time is coming. Keep whistling past that graveyard, we'll see how much good it does you.

Hey John Keith:

You don't have anything to do with this in my view. I occasionally read your posts during 06 and 07 and your comments seemed to be in the strike zone. When all the data around some of the luxury condo market in Boston was dropping you were pretty much saying that the specimen doesn't lie and from your perspective it wasn't plunging. I think your comments surrounding the profiles of people buying these places at the time helped lots of us understand that it was the changing income distribution that was creating a mixed market. The wealthy who lived off income generating assets grew while those living off of salaries were mostly falling behind. You had a post one time about some people being caught on the side of the road and others were driving along just fine. Your perspective was right, it was a mixed market, but I think this poster may have thrown your name in because from your vantage point, what you were reporting, although it was accurate and truthful, was not the perspective of lots of other areas in the State. The poster was right to note that it is a mixed market, but was wrong to suggest that you said otherwise. The poster could have been a bit more respectful given that he was offering a person's identity. I never got the impression that you were trying to mislead anyone ever. I think your business approch will bear fruit for the long term; don't sweat this.

What the f- do I have to do with this???

you comments just show how uninformed about overall market conditions you are. Sure shitty markets went up(and are more crash prone) but so did nice markets.

Here's why Mass is not all sunshine
1. Credit crisis
a. Harder to get mortgages
b. Inability for small business to get loans
2. Home price depreciation
a. US will not longer be able to use home as a piggybank
b. Hundreds of billions has been pulled out to help fuel all domestic markets and it is simply not available anymore
3. Disconnected fiscal policy
a. As recent as 2005 bernanke was quote “we have strong fundamentals and have never had a decline in national home prices”
4. Inflation
a. Gas costs $3.50 a gallon—anything dependant upon it will go up and reduce your ability to spend
b. Oil and gas heating are going to price people out of the new England market alone
• I had a $800 heating bill one month this winter and 2 at $600, what is that gonna look like next year?
5. World Economy and global competitiveness
a. China and India have nearly 3millon white collar jobs
• We might not be able to fill them but where is the high placing replacement (Walmart)
b. Speaking of Walmart, if the Yuan is not longer artificially depressed we will see a 15-20% jump in all goods from China (90% of walmart goods)
c. Education: We graduate more personal trainers (anatomy phs, etc)from 4 year colleges than math and engineering students
• We graduate 10k math majors a year and need 50k in teachers alone
6. Changing Demographics and migration
a. Babyboomer retirement
b. Sun belt migration
c. Increase
7. Mass job creation
a. Poor at best
b. Was ranked in the lower quartile for last 7 years
8. Housing hold outs
a. The longer they hold on the longer it will take for the market to adjust. At some point there will be an avalanche of houses on the market
9. Alt-A mortages—The resets there, in 1-3 years are even more significant than the current arm issues we are seeing

There will always be a couple of pockets that do not follow the trends.

I live out in the Western suburbs and I have been in the market for 2 years while renting.

Home prices have gone down and greedy delsuional sellers are getting no love. My wife went to an OH two weeks ago and it was so overpriced that we can not imagine anyone buying it without chopping off at least $100K. It will be like watching a slow motion car crash waiting for this home to sell.

Serious sellers are starting with more reasonable expectations. Its as though the delusional sellers have been living in a vacuum for the past two years. Home prices are down 10%? perhaps I will price mine $85K over assessed?

Who are these listing agents that waste their time on these folks? Must be tough to get listings so they take the scraps.

Maybe they are hoping that prices come down so that they can afford a house? A lot of people in Massachusetts were priced out of the market when things went completely bonkers, whether they were looking in Boston, or Worcester, or Dover. Come on people. Prices got crazy. Some sanity needed to be restored.

Frankly, I find the attitude displayed here and elsewhere that the world revolves around the god damned South End, Back Bay etc. by people like John Keith, Anthony Longo and others to be irritating in the extreme.

Fine. Prices aren't crashing in the South End.

WE. GET. IT.

OK? We get it! Enough! The Back Bay and the South End are extremely miniscule portions of the Massachusetts housing market. To listen to the litany of Boston Real Estate bloggers, you'd think that everything's just ducky out there because of a couple of thousand transactions in the tiny square mile downtown. It's not. Put down the martini, pay your tab at Rocca, and take a drive outside of Boston. You don't even need your passport!

Not everybody is a 30-something white person with a college education working at a downtown law firm lusting to pay $600k for a 750sqft 1 bedroom on Chandler Street.

Enough already!

I'm glad you wrote this post. The constant drum beat about the "crashing market" annoys me when in my neighborhood, from what I can see, prices are far from crashing. Why are the bubble bloggers so gleefully invested in their crash point view? And have they been shopping for houses lately in the Boston neighborhoods that have always commanded a price premium?