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    Default ivy league town housing market

    I recently saw that Dartmouth Collegeís band rating was reduced right at the time that it went to the markets to raise cash. From internal Dartmouth memos, a lot of this money was needed to fund basic expenses. My basic guess is that with a roughly 25% (from roughly $3.6B to $2.7B) haircut in their endowment, they are quite cash-strapped. Various sources have told me that a high percentage of their investments are tied up in private equity investments that tend to be quite illiquid. Like many ivy league institutions, they have been accustomed to using a good chunk of their endowment income to finance general expenses. This is going to get expensive soon. Dartmouth has taken early, unprecedented moves to tighten expenses Ė even layoffs Ė to get its expenses down. In the Hanover region, it (along with Dartmouth Hitchcock Medical Center) is a major employer in the area.

    The Hanover, NH area has a fairly interesting demographic. The town has a very large retirement community (once rated the best place to retire to in the US by Modern Maturity Magazine). It also has quite a few trust-babies raising families. In addition, it also seems to be somewhat of a Wall Street satellite with a whole slew of investment offices of Morgan Stanley, Wachovia, Smith Barney, etc. This concentration probably has a lot to do with the proximity to the Tuck Business School at Dartmouth. My guess is that this interesting concentration has previously been a major engine of the significant real estate bubble in this area (heavily concentrated in Hanover and a few surrounding towns). It seems to me that this dynamic is coming under a lot of pressure right now. I follow the real estate sales in Hanover with data I take directly from the town hall records (the local real estate company reports on the state of the real estate market in a not-to-be-believed monthly newsletter). I donít know if Iíll be able to download this to this posting, but Iíve plotted a rolling 12 month total of single family house sales in Hanover for roughly the last 7 years. This graph allows me to eliminate any seasonal variations but also tends to be a bit of lagging indicator. Basically it shows a large peak around March 2006 which people have earlier attributed to the Tuck student flipping phenomenon where the business school students bought houses when they arrived and sold them 2 years later at large profits. Iíve heard stories of some funding good portions of their tuition with the proceeds. After this there was a pretty good drop off to a low of 93 sales per year (from 120) in Feb 2007 and then came back to a new peak of 111 in October 2007. However, the latest trend is decidedly down. 78 for April 2009 with a definite steep down slope. The associated median housing prices have seemed to stalled at a level just over $500K, but my guess is theyíre headed for a fall.

    My question is whether this dynamic is being played out in similar fashion in other affluent, college-town settings? There have been various platitudes re-assuring college employees that Dartmouthís bond rating is still very high compared to our peers and that the College is in good financial position. My guess is that the bond rating agencies (often late in responding to facts on the ground) know something that the college is not willing to admit. This along with the general recession and dynamic of the local economy is putting some pretty serious pressure on the locals. My personal bet has been to rent a house for the past few years and am more convinced that Hanoverís ability to pretend that the housing crash does not relate to them is purely wishful thinking. I love listening to some of the local real estate agent opine on how some nice local house has a lot of potential, but itís biggest weakness is that the kitchen is so 90ís. My guess is that this means it doesnít have granite counter tops and stainless steel appliances. Iíd be curious to hear stories about similar towns.
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