Monday, August 5, 2013

Party House of the Weekend

351 Potwine Lane, Amherst

So let's hope this is not a sign of things to come, as our little college town is only just now starting to stir with returning students.  And that trickle will soon become a deluge.

This relatively minor episode -- two noise complaints over one weekend (although the 2nd Sunday complaint included cars parked all over the lawn) -- perfectly illustrates the problem:  The house rents for $2,000/month, so it's a tad too expensive for a young married couple just starting out, or a low to moderate income town employee. 

Common wisdom dictates rent should be around 25% of total income, thus this house would require a $96,000 annual household income.  A relatively high bar, considering the median income for Amherst households is only about half that.


Anonymous said...

According to your logic housing prices should plunge 40%. Not exactly good for the tax base.

Larry Kelley said...

Yeah, like Detroit for instance.

Anonymous said...

Not a city known for good schools, or anything else

Whatever we want to hear said...

"Not a city known for good schools, or anything else"

Yeah, just like Ponziville.

Dr. Ed said...

Yeah, like Detroit for instance.

Do not forget that John DeLorean published On a clear day you can see General Motors in 1979 -- some 34 years ago, when "The Big Three" were first starting to be decimated by the Japanese cars.

Like Detroit, Amherst will continue to limp along for some time, but I'd get out of Amherst now while the going's good.

UMass is in trouble the same way General Motors was in trouble -- and both are big enough to continue onward via inertia for some time -- Kodak and the Penn Central Railroad were the same way -- and Amherst inevitably will suffer the fate of other municipalities who depended on the largess of a dying behemoth.

What I suspect happened in Detroit is what is happening in Amherst -- a shift from owner-occupied to rented houses.

"Income properties" which have been speculated up in price over the past 30 years with the presumption that you can get a 5%/7% "return" on the "investment" now -- and be able to sell them for more later when you've retired and are in a lower income bracket.

The problem is that the people doing this are highly leveraged -- a fancy way of saying "owe lots and lots of money." Richard Tisei is a good example of this -- during last fall's election it first was claimed he was a successful businessman with references to the value of the properties he "owned" -- and then it came out how much he had in outstanding debt on them, and how little equity he actually had.

These slumlords may have a nice address in a Boston suburb, with shiny cars and the rest, but they owe an incredible amount of money on just that -- not to mention having borrowed more to purchase the Amherst rental(s).

Hence they may need that $2000/month just to pay their bills -- just to service their debt -- and should (a) interest rates rise and (b) Amherst rents decrease -- they are going to simply "walk away" from these properties in large numbers. They'll either do that or go completely bankrupt -- either way, the banks will own them and you can imagine where that will go.

And should a bank "dump" a lot of properties onto the market in Amherst -- which in some situations they'd have to, in other cases, it would be a lot of banks & mortgage companies each "dumping" a couple -- you could see the critical mass that would create...

Unlike owner-occupied and struggling upside-down, a tenant is not going to pay a rent higher than a competitive market will demand -- and AntiTrust laws preclude any setting of minimum rents. So it will be a "chase to the bottom" price war in attempts to get *some* rental income, with people not willing to do this instead having properties vacant.

Just like Detroit.

And that's how you can have properties that are going unsold even at the asking price of $1.

And I will laugh.