Philip Greenspun’s Weblog

The housing market remains soft, so we’re told, and the best minds of central economic planning are struggling to understand why and what new government gimmicks can be applied. I’m wondering if former homeowner sentiment has been factored in. This article from Zillow says that approximately 37 percent of home sellers are selling at a loss. Whatever the loss figured by Zillow you also have to add another 5-6 percent in real estate commission, equivalent to more than a year of rent in many markets. Psychologically, a person who just lost enough money to have paid for 5-10 years of rent is not a very likely candidate to go back into the market where he was just burned.

Thus the more houses are sold, the worse the buyer-seller ratio will get. Every sale has a roughly 37% chance of removing a person from the real estate ownership market. More and more Americans will be conditioned to the idea that home ownership is a waste of time and money, not to mention the inflexibility that it imposes on a person who might otherwise have been able to get a better job by moving.

http://www.nytimes.com/2011/05/11/business/economy/11leonhardt.html has some data on the price-to-rent ratio in various markets. In Manhattan it is 30:1. San Francisco and Seattle aren’t far behind. Thus for about 3.3 percent of the cost of buying, a person could rent. A buyer, by contrast, would pay at least 6% in real estate commissions and other transaction costs (the commission might be deferred until the property must be sold, but it will have to be paid eventually; or you could view at least half of the commission as built into the sale price). The buyer will have to pay perhaps 2% every year in property tax and maintenance, plus an additional 5% for mortgage.

In our wealthy suburb of Boston, rents are 3-4% of house prices. That would barely pay for property tax, maintenance (winters are harsh), and landscaping (weeds are aggressive). So the landlord who rents, and there are plenty, is basically giving the house for free to the renter. When it is time to sell, it takes 9-12 months of leaving the house empty, so the cost to sell is 8-10%, even if the market remains flat.

Another advantage for renters is that they can free their minds from the clutter that prevents homeowners from doing or thinking anything interesting. People in Manhattan, even when they own, never do any maintenance or yard work. So they can write novels and build empires. The rest of us go to Home Depot every few days and pull weeds.

Summary: Why would house prices continue to fall then? The longer that house prices fall, the more people will critically assess whether it makes any financial sense to own and conclude “it does not”. They withdraw themselves from the market of potential buyers, at least for 10 years or so until they forget what wounds they suffered and how boring they were when they owned.

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Folks: I drafted a review of the BlackBerry PlayBook and would be grateful for comments/corrections.

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I’ve seen television coverage of big celebrations over the death of Osama bin Laden. I can’t say that I feel motivated to join, however. It isn’t that I will miss bin Laden, but rather that I don’t like the idea of the United States people being at war with a single individual in a suburb of Islamabad. Our concerns as a nation should be larger than any one of us or any one of “them”.

(Related: I wrote a few times about how it upset me that George W. Bush would directly mention Saddam Hussein or angry Iraqis in speeches (example).)

[Separately, people have been asking me about the Black Hawk that was crashed during the raid. I explained that it cost about $20 million and that if I were flying around a leafy hilly suburb at night it wouldn’t be long before I put my tail rotor into a tree or wall. “I heard that they had a mechanical failure,” responded a friend. “That would be my mechanical failure,” I replied. “My tail rotor failed.” (So far the details about what happened to the helicopter have been sketchy, ranging from a random mechanical failure to a grenade.)]

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Folks: I want to buy a luggable/shippable note computer for use in doing some reading of PDF documents, reviewing some source code with standard Unix tools (could use cygwin if Windows-based), and editing documents with Open Office. A large screen will make the machine much more productive, so 17″ is the minimum screen size (1600×900 resolution is fine due to my ancient eyes being unable to read tiny fonts anyway; Dell charges about $100 extra for 1920×1080 resolution and I guess it would be worth $100 but not more). It would also be nice if the laptop had HDMI and DVI outputs (up to 2560×1600 for driving a 30″ monitor) for those situations in which it can be hooked up to an external display.

The budget is not heavily constrained, but as this computer will be used for just a single purpose I don’t want to overspend. Here are a few options that have been suggested:

• Toshiba Satellite L675-S7108 ($600)
• HP Pavilion dv7-4270us ($815)
• Dell Vostro 3750 ($550)

Anyone have experience with these or similar 17″ laptops? Another brand to suggest? I don’t think it needs to run Windows (as long as it can run Adobe Reader, Open Office, etc.), though I also don’t want to take the time to install an operating system so it needs to come with an OS pre-installed. A solid-state drive would be nice, but it seems crazy to spend more on a boot drive than on the computer itself. Where are all of the laptops with the hybrid solid state/hard disk drives that we were promised by now? Why isn’t a hybrid drive, at least, standard or at least available on mainstream laptops?

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How I would write today’s big news story:

Bill Louis, English helicopter pilot marries. The groom has significant time as first officer on the WS-61 Sea King helicopter, a five-bladed design with a maximum gross weight of 21,400 lbs and a cruise speed of 112 knots. The helicopter is powered by two Rolls-Royce turboshaft engines, each with 1660 shp. The bride, Catherine Middleton,has yet to earn a rating.

(What do I love about England, aside from the fact that we’re copying them (October 2008; January 2009)? The really know how to celebrate a helicopter pilot’s marriage!)

 

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http://cfo.dc.gov/cfo/frames.asp?doc=/cfo/lib/cfo/09STUDY.pdf is an interesting report comparing taxes (income, property, sales, auto) across big cities in the U.S. Most interesting to me is the large variation in tax burden across cities that seem to offer fairly comparable levels of service (see page 14, for example). From a group of families at different income levels, for example, New York City and Philadelphia take in $46-49,000/year. Boston, which has more expenses for harsh weather, makes do with $36,330. Seattle is able to run a nice city for $24,145 while Los Angeles needs $41,368 to keep its residents stuck in traffic 24/7.

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I’m watching the sale of Delicious with some interest. Here’s the history of social bookmarking:

• 1997 or earlier?: an unknown hero thought of the idea probably (date is a guess)
• June 1999: I asked a couple of programmers at ArsDigita to develop a module for our free open-source online community toolkit, the software behind the photo.net Web site. The documentation is available at http://philip.greenspun.com/doc/bookmarks (it is conceivable that this was the first time anyone had built such a system, but seems doubtful). At this point the technical problem was solved. Anyone could download the software and have user registration and social bookmarking up and running within a few hours.
• September 2003: Delicious founded (source)
• December 2005: Delicious sold to Yahoo for an estimated $15-30 million.
• April 2011: Delicious more or less given away to a couple of rich guys? (WSJ)

I.e., the idea and implementation went from economically worthless (1999) to very valuable (2005) to nearly worthless again (today).

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Buried in the ocean of news regarding our three wars has been what I think is the biggest U.S. economic story of the year: the federal government’s lawsuit against Boeing, seeking to prevent the opening of its $2 billion factory in South Carolina, for which 1000 workers have reportedly already been hired (in case you missed the news altogether: story, story, story).

Whatever the ultimate decision in the lawsuit, the very existence of the dispute will change the business landscape here in the U.S. for the next decade or two. First, the fact that this happened to Boeing, a company with vastly more political power than average (you might say that it is practically an arm of the federal government itself) is significant. There are hardly any U.S. or foreign companies that can rely on similar influence. For a U.S. company, for example, the prospect that Boeing’s $2 billion investment might be effectively confiscated by the government will be one more reason to build the next factory in a foreign country. The U.S. government won’t be able to sue to prevent the startup of production in Mexico, Canada, China, etc. For a Chinese investor, for example, contemplating investing in the U.S., imagine the impact of the story. The Chinese investor has no political influence in the U.S., a tenuous grasp of American geography and language, and no hope of getting the ear of politicians who take calls every week from Boeing and its lobbyists. Given the vicissitudes of American politics and this unpredictable aggression against investors by government, the Chinese businessman is not going to finance the U.S. project unless it can deliver a rate of return comparable to what would be expected in other countries where there is a lot of risk from capricious governments (historically these have been Third World countries led by dictators or owned by families).

The Chrysler and GM bankruptcies already showed bond investors that the black letter law may not have as much to do with how their investment works out as the sentiments of politicians and bureaucrats in Washington, D.C. (link). Now the federal government is stirring up uncertainty among those who would directly operate factories in the U.S. How to price that uncertainty is going to be a huge challenge, but the price is certainly not going to be $0.

[Loosely related: Folks have been expressing confusion as to why the Federal Reserve’s monkeying with U.S. currency (e.g., printing money to buy Treasury bonds) hasn’t had a bigger effect on business investment and jobs. I think that the answer is that every investor has to get out a checkbook and write a check. Economists and politicians tend to forget that because they’ve never had to make an investment in a business enterprise, so they don’t account for “What happens when a manager is about to write a $2 billion check for a new factory in the U.S. and reads about the Boeing mess?”]

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A friend has a choice of sending a son either to Drexel or Boston University to get a bachelor’s degree in Computer Engineering. Which would be the better choice in terms of academic quality and likely amount of learning to be acquired? How about productive social life? (Partying doesn’t count in favor of a school since the person making the choice is the parent, not the child.) If you say “School X is better”, please quantify how much more you think it would be worth to attend that school over four years, e.g., “Caltech is better than MIT for the following reasons … and I would be willing to pay $34,000 extra over four years for my kid to attend Caltech.”

[I have some of my own opinions, but will save them for a few days so as not to prejudice comments. Comments from alumni with information about the academic experience at either school would be welcome.]

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As the next election season rolls around the public doesn’t seem inspired, it seems like a good time to ask if an American politician today can be as popular as politicians in the old days. Perhaps the practice of borrowing explicitly via bonds or secretly via unfunded pension guarantees meant that older politicians have a stature that will never be matched. Let’s consider FDR and Social Security. He got credit for promising a comfortable old age to every American, a promise that was just as pleasant then as it is now. Yet the pain of taxation for Social Security was just 2 percent in the 1930s (1 percent each for employee and employee) whereas today it is over 12 percent (source). FDR was thus able to achieve far more than any present-day president. Similarly, the enormous expansion of government in the 1960s made JFK and Lyndon Johnson heroes to Big Government enthusiasts. Some adults at the time that Medicare and Medicaid were introduced could remember the days when the federal government’s total revenue was half that of U.S. Steel’s or smaller than the revenue of the railroads. Necessarily, such a government couldn’t have been doing too much for folks. The new Medicare program cost just 0.70 percent of a worker’s pay (compared to nearly 3 percent today).

Similarly at the state level, governments were delivering abundant services with employees whose total compensation included a huge component (defined benefit pension sometimes exceeding 100 percent of working salary and starting as young as 41 or 50) that would be paid for in the future. Voters and taxpayers thus literally got more than they paid for.

The U.S. lacked infrastructure in the 1930s. Politicians from the 1930s through the 1970s were able to deliver public works projects that delivered useful capital items, such as the Interstate highway system, and generated a huge number of jobs. At the same time, these could be funded with bonds that would be paid back in the future. A politician today can’t build the first highway linking two major cities or the first hydroelectric dam on a promising river; most everything that should be built in the U.S. has been built. Increased mechanization means that even if a new highway were to be built, fewer workers would be employed than in previous decades.

So if a politician seems to have less stature than FDR or Lyndon Johnson, for example, it may simply be that it is because the modern politician is forced to charge taxes on present-day voters that are paying for the very things that made FDR or Johnson great.

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