Morning Report – A tale of two housing markets TAX DAY ’14

Last Change Percent
S&P Futures 1827.8 3.3 0.18%
Eurostoxx Index 3128.9 -2.7 -0.09%
Oil (WTI) 103.3 -0.8 -0.72%
LIBOR 0.226 -0.002 -1.01%
US Dollar Index (DXY) 79.84 0.113 0.14%
10 Year Govt Bond Yield 2.65% 0.00%
Current Coupon Ginnie Mae TBA 105.6 -0.1
Current Coupon Fannie Mae TBA 104.4 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.3

 

Markets are up small on no real news. Bonds and MBS are flat
Inflation at the consumer level remains well-behaved, increasing at .2% month-over-month in March. On an annual basis, they rose 1.5%.
The latest CoreLogic Market Pulse is out, and it has some good stuff in it. One of the things we have noted before is that there really is a tale of two markets – the high end, which is doing great, and the low end which is not. If you listen to the builders, you will see that average selling prices for new homes have been increasing at a mid-teens rate. This is not apples-to-apples appreciation, it is that the growth is in the larger segments. Apparently the average square footage of a new home has increased 200 square feet since 2008.
The first time homebuyer has had a most difficult time, graduating college with a mountain of student loan debt and dismal job prospects. That may be changing, however as Barclay’s has pointed out. College graduates are beginning to have a little more success on the jobs front, and this should usher in the return of the first time homebuyer, who really has been dormant since the bubble burst six years ago.
Mortgage lending is hitting a 17 year low, as rates increase. According to the MBA, here are the dynamics at work: Mortgage rates jumped in mid-2013 as the Fed signalled tapering was at an end. This pushed up cash purchases to 40%, which helped fuel price increases, but also squeezed more Americans out of the market. This is the foundation for lower lending for the rest of the year.

85 Responses

  1. I GET MY WIFE BACK!

    Also, SS backing down on the ridiculous filial responsibility seizures.

    FRIST.

    Like

  2. Was she lost?

    Like

  3. Happy Tax Day. Paid my extra toward the 2013 1040 last week. dropping a check for 2014 quarterly estimates today.

    Like

  4. I had to write a huge check to the IRS. Working two jobs is a killer.

    Like

    • I had to write a huge check to the IRS. Working two jobs is a killer.

      Great news that the band is doing so well. I will be in Mamaroneck around Memorial Day, sooo…
      when you know your gig calendar for then let me know.

      Like

  5. Like

  6. Brent, do you think Reich truly believes it? What era in US history do they cite? Post WWII through the oil embargo?

    Like

  7. Mark, will you be in Austin in October? I may be coming out for the ACL festival.

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  8. Yes, I think Reich believes it. He greatly admires the Scandinavian countries as having cracked the code for economic growth. High taxes, high regulation, low inequality = happy people.

    To take that a step further, I think he views Wall Street (i.e. shareholders) as having too much power relative to labor. I think he would welcome a situation like Germany, where the union has seats on the Board of Directors and companies are forced to take into account the needs of stakeholders instead of only shareholders. He would much rather see companies insulated from activist shareholders in order to focus on “long-term” growth instead of maximizing short term quarterly earnings. In his mind, if companies didn’t have to deal with the Carl Icahns of the world, they would pay their workers more and the economy would be better off.

    His theory is that since the marginal propensity to consume is higher for the poor / milddle class than it is for the rich, redistributing wealth from the top to the bottom increases consumption and therefore the economy. Of course, you lower investment, but in his mind a big chunk of investment is speculative gambling and not productivity-increasing capital expenditures, no one would miss it. In his mind, the rich take their money and send it to Stevie Cohen who insider trades for them, or James Simons who scalps fractions of a penny a gazillion times a day for them. This isn’t allocating capital for investment, it is a zero-sum game. Better to use that money to strengthen the social safety net.

    Finally, I think he honestly believes that too much of our country’s brainpower went to Wall Street and the easiest way to redirect that talent to non-parasitic uses would be to institute a transactions tax to suck the profitability out of speculative trading.

    Like

  9. Mark, it isn’t the band that is making the money, it is the writing gig I do on the side. I wish it was the band, but there is no money in music.

    Like

    • but there is no money in music.

      FWIW, I know that and was joking about the music gigs. I wasn’t joking about trying to get to see you play, however.

      Like

  10. Thanks Brent. The assumptions a presumably smart guy like Reich has to make to believe what he does makes it hard to believe he, er, actually believes what he, uh, believes.

    I know that the dirty Scandi’s get cited a lot for being the ideal. To my way of thinking though one has to willfully ignore a couple of things: 1. A massive, dynamic economy that is (relatively)low reg and (relatively) low tax with massive domestic resources, a growing, diverse population and exceedingly cheap transportation available to it driving the global economy. 2. A homogeneous population.

    Like

  11. There’s other stuff to but I ran out of ways to use “believe.”

    Like

  12. The Scandi argument illustrates Brent’s Macroeconomic Maxim #1: Behind every country that seems to have “cracked the code” economically lurks a real estate bubble.

    Denmark’s burst recently, and Norway’s is stratospheric.

    Like

  13. passed my EVOC — emergency vehicle operators course. Let’s run some red lights!

    oh, can’t, cause i’m not allowed to use the roads or something. In conclusion, Somalia.

    Like

  14. I like being a hater.

    Like

  15. Then there’s Krugman’s arguments about how high frequency trading prevents a new tunnel from NJ to NY because “we” are giving too much money to the financial sector instead of spending it on infrastructure.

    http://www.nytimes.com/2014/04/14/opinion/krugman-three-expensive-milliseconds.html?ref=paulkrugman

    Edit: The full Scandinavia argument plays out here:

    http://www.newrepublic.com/article/117365/tax-day-2014-more-new-taxes-would-make-better-society

    http://douthat.blogs.nytimes.com/2014/04/15/the-case-against-higher-taxes/

    Like

  16. Krugman acts as if the Great Depression banking regulations were undone out of some sort of free-market catechism, when in fact they were scrapped because they failed when interest rates rose in the high inflation 1970s..

    Like

  17. “if you’re lucky and can afford it, a Camaro in your driveway.”

    That’s it in a nutshell, isn’t it. It was luck* that put that Camaro in the driveway.

    *who “lucks” into a Camaro? What a lame choice for an aspirational car example.

    Like

  18. I’m curious what those who wish the tax rate was higher think the revenue generate should be spent on?

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  19. It was hard work that got my wife a 2014 Mustang GT (premium).

    Like

  20. Anything that makes the rich less so.

    Like

  21. I’m curious what those who wish the tax rate was higher think the revenue generate should be spent on?

    – infrastructure spending
    – green WPA. green “Manhattan Project”
    – universal pre-school
    – more teachers and teacher’s aides

    are the usual wishlist items…

    Like

  22. Confirmed, he’s a fellow bagger.

    The neo-Nazi and former Ku Klux Klan leader in custody for a murder spree at two Kansas Jewish community centers has frequently cited the work of anti-Israel activist Max Blumenthal, the son of Hillary Clinton adviser Sidney Blumenthal.

    http://freebeacon.com/national-security/kansas-kkk-shooter-cited-max-blumenthal/

    Like

  23. So, no deficit/debt reduction you think?

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  24. So, no deficit/debt reduction you think?

    These are investments, bagger…Take your austerity and stick it where the sun don’t shine. Haven’t you learned anything from Europe?

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  25. Knock me over with a feather.

    WASHINGTON — The Census Bureau, the authoritative source of health insurance data for more than three decades, is changing its annual survey so thoroughly that it will be difficult to measure the effects of President Obama’s health care law in the next report, due this fall, census officials said.

    http://mobile.nytimes.com/2014/04/16/us/politics/census-survey-revisions-mask-health-law-effects.html?referrer=

    Like

  26. We need to spend more money on our decaying roads and bridges!

    but you can’t drive on them, cause that hurts the Earth.

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  27. I forget, what exactly is austerity as defined bt Progressives?

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  28. Every time I start my 5.0 a devil gets it’s horns.

    In Somalia.

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  29. “Brent Nyitray, on April 15, 2014 at 12:50 pm said:

    I’m curious what those who wish the tax rate was higher think the revenue generate should be spent on?”

    The mere idea that taxes should be based in spending needs indicates that you don’t really understand the mindset here.

    The goal of taxation is to raise the maximum amount of revenue for the government as an end in itself. As Krugman says here “Full Stop”.

    “In the first part of the paper, D&S analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners — full stop.”

    http://krugman.blogs.nytimes.com/2011/11/22/taxing-job-creators/

    It’s not about coming up with a list of needs and figuring out how to equitably finance them. It’s because “fuck you, that’s why”.

    Like

  30. How do we know we haven’t taxed the rich enough? They are still rich.

    Like

  31. I forget, what exactly is austerity as defined bt Progressives?

    Reducing the deficit. So if the deficit goes from 10% of GDP to 9% of GDP, that is austerity…

    I got that from PL

    Like

  32. That’s … I don’t know what that is.

    Like

  33. I feel like the straight man here.

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  34. ^^^ H8er

    Like

  35. From investopedia: Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.

    So if you cut spending to reduce the deficit, that is austerity. Of course raising taxes is not austerity.

    Like

  36. I LOVE TAX DAY!!!!!!

    Just kidding. With the exception of Mark’s wife getting a break from tax preparation drudgery I can’t really think of anything nice to say other than I managed to get my payments made for another year. Now all I have to do is raid the piggy bank to buy the stamps to mail them.

    Like

  37. lmsinca, every day you don’t have to evict a tenant for non-payment is probably a good day.

    Like

  38. Very true jnc……we’ve got a great tenant right now and his rent goes directly to our bank the night before the first. God that was an awful year! Right now I’m trying to convince my husband that we need to retire in CO in a couple of years. Our son just got a job about an hour away from our daughter…………………bummer for us, fantastic for him! I need to convince Walter how great snow is………………lol!

    Like

  39. Wow!

    Er, musta calmed down.

    http://www.vox.com/2014/4/15/5617084/obamacare-new-census-insurance

    (BTW, it only took 42 minutes.)

    Like

  40. “We’re losing our best data source on Obamacare.”

    it’s an absolute mystery on why this is happening.

    Like

  41. Hi LMS!

    Like

  42. Hi Nova!

    Like

  43. Whenever you need a sympathetic ear for landlord issues, this is probably the forum to post on.

    Like

  44. Lol, jnc! I still think we should just sell the place but I’m not getting anywhere with that either. I’m not as persuasive as I thought I was!

    When we bought this place I put a photo of a pool on our refrigerator because I wanted to buy a house with a pool. I guess I need to put a tiny “For Sale” sign and a postcard of a beautiful snowy landscape up on the fridge now!

    Like

  45. You guys are on a roll. If only every day could be Tax Day, right??

    I saw a bumper sticker the other day that made me laugh:

    Maryland: If you dream it
    We can tax it

    Got no problem with that; everything that I pay taxes for (other than potholes) is done far, far FAR better here than in Utah.

    Like

  46. Especially the Obamacare website!

    #AmIRight?

    Like

  47. McWing: they finally pulled their heads out and went with (if I’m remembering right) Connecticut’s. We aren’t Oregon, ya know!

    Like

  48. And if the Obamacare website is the deciding difference (and it was better in UT than in MD), Maryland still wins. Hands down.

    We get what we pay for.

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  49. supposed to be recess. and i’ve got 8. 8! meetings scheduled for next Tuesday.

    Like

  50. NoVA, I presume you saw this already on how the administration is going to address the risk corridors = bailout argument?

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/04/15/remember-the-obamacare-bailout-the-administration-has-a-plan-to-avoid-that/

    Edit: Also for you:

    ““Although [the Centers for Medicare and Medicaid Services] decided not to implement this proposal in 2015, it indicated that it may reconsider the reduction for 2016,” Moody’s writes.

    Let the lobbying begin.”

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/04/14/medicare-reversed-payment-cuts-and-not-many-are-happy-about-it/

    Like

  51. Yeah . . budget neutral way. that just means they try to cut it from somewhere else. it’s just cost-shifting all the way down.

    Like

  52. It’s stupefying to me that a seemingly well educated person is surprised to find that her political opponents aren’t evil.

    These aren’t evil people, either, or stupid, or any of the other things that some liberals, in their lowest moments, have suggested. In fact, in many cases, I’ve learned that the ideological labels that feel so firm and unyielding among the professional political class are rather malleable among ordinary Americans.

    Or that idealogical differences aren’t misunderstandings or based on ignorance but instead are, you know based on different world views and philosophies.

    http://news.yahoo.com/learned-liberal-talking-head-fox-news-143013301–politics.html?soc_src=mediacontentstory

    Like

  53. Picketty gems.

    To draw more attention to wealth disparities, Mr. Piketty called for the creation of an international wealth registry that would make it harder for people to shield their assets.

    That really is stunning. Maybe brand an R on their foreheads.

    “When you pay $10 million instead of $1 [million], you don’t have necessarily better performance or much higher productivity… So I think there is really very little evidence that we need to pay people 100 times or 200 times the average wage to get them to work. I think you have people who would accept the work for only 10 or 20 times the average wage.”

    So don’t pay your CEO that way, Tom. Just let other people decide what to pay theirs. It just isn’t your business.

    Plenty of people would do my work for 1/10 of what I make. And they would all suck at it.

    Like

  54. but you can’t drive on them, cause that hurts the Earth.

    Building the bridges and roads hurts it even more. But since government can do no wrong (military and intel excepted), that is okay. Still, the Dem coalition combines the “infrastructure” zealots and the anti-development zealots in an unholy alliance.

    Like

  55. Hmm. It turns out that both men and women can accurately guage a man’s intelligence based on how he looks.

    http://www.realclearscience.com/journal_club/2014/04/11/if_he_looks_stupid_he_probably_is_108592.html

    Not sure how I feel about this. I have always thought I could, but I also think I an judge women fairly well the same way. Apparently science says no as to women.

    Like

  56. It just isn’t your business.

    I will never understand the left’s fixation with executive pay.

    A) it isn’t your money that pays the CEO. It is the shareholders.’ Don’t like the CEO’s pay package? Vote against the Board nominees. Sell your stock. Whatever.
    B) Paying the CEO less won’t make the workers worth more. CEO pay doesn’t come from the workers. If the CEO makes less, the workers will be paid the same.
    C) Why the Left thinks CEO pay is any business of the state (or non-shareholders) is beyond me.
    D) The more the CEO makes, the more taxes the state gets. You should be happy.

    Just like some on the left cannot fathom the right’s fixation with abortion and gay marriage, I cannot fathom the left’s fixation on executive pay. I just don’t get it. It seems all emotional to me and impervious to logic.

    Like

  57. We get what we pay for

    Most assuredly untrue.

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  58. Brent, completely agreed except that I flatter myself that I understand their obsession. It seems a fairly obvious obsession with envy, more specifically inciting and feeding envy, and controlling people and society. They are authoritarian by nature. Government should manage and allocate everything, in their utopia.

    Edit: and then there is the Marxist angle: CEOs don’t really add any value to that produced by “the workers.” They just steal from them. I loved debating that idea with Alethiea. You just ask those people why, if all that is true, everyone isn’t already working in leaderless collectives producing whatever they would have produced instead of iPhones or Google Glass. People like Alethiea can’t even process that.

    Like

    • Spent today at Duke University. Interesting stats.

      Tuition, room and board: $61k
      Students who get a financial aid package: 52%
      Average size of financial aid package: $44k
      Average size of loan portion of fin aid: 6%
      Max amount of loan portion: $5k

      I find these statistics astounding. 48% of students pay $61k per year, while 52% of students pay, on average, roughly 1/3 the price. For the same education. I said this before 2 years ago and it remains true…the economics of college education is Marxist. From each according to his (parent’s) ability, to each according to his (parent’s) needs.

      Like

  59. jnc:

    If I come down to your neck of the woods on Thursday, would you be able to do lunch or dinner? If you can, please e-mail me (the one on the “Users” page works). The address bioscribe@outlook.com also works for me.

    Like

  60. the economics of college education is Marxist

    Yes it is. At a minimum, harshly redistributionist. It’s the upper middle class that gets hit hardest. All that work and sacrifice of 20-30 years just ends up subsidizing someone who didn’t give it. If you buy in, at least it’s best to understand how you are letting yourself be used.

    Like

  61. “Marxist. From each according to his (parent’s) ability, to each according to his (parent’s) needs”

    I remember sitting in the admissions office and my dad said to the staff “why do you need to know my income. i’m not going here. ask about his income.”

    obviously, we had discussed this before. we had our talking points down.

    Like

  62. “All that work and sacrifice of 20-30 years just ends up subsidizing someone who didn’t give it.”

    continuing. we paid cash. because we started saving before I was born. And my grandfathers made it a priority too. They did not go to college or even finish high school and were steel workers in Pittsburgh. But they contributed a substantial amount to my education. behold the miracle of compound interest and thrift.

    Like

  63. E-mail sent.

    Like

  64. So this is sort of cheesy but I couldn’t help but share it with y’all. Our daughter keeps getting picked for promotional spots for the company she works for in Denver. Last year they used video of her fly fishing in Wyoming on a company trip…………….I think it’s her great laugh they like. Anyway, Anadarko was voted the top company to work for in Denver for the third year in a row and they asked to interview her for the video. She’s the first geologist after the ceo speaks a couple of times……………………..don’t worry it’s really short! 🙂 That’s not her in the frame below…………..hahaha!

    Like

  65. I guess I’m wondering what the income threshold is for getting money from these schools. We never had much money until the last 10 years or so but all of our kids went to college on our dime or in the case of grad school their own. Most of them received some form of academic scholarship but none that were financial aid based on our income. We always made just a little too much money, which wasn’t that much. I think in those days our yearly income was only in the $60-$70 K range.

    None of them went to Ivy League schools though, is that the issue? Hah, I’m still paying off our youngest daughter’s first Bachelors but should be done by the time I actually retire. She was the only one who went to a small private University for undergrad. I always thought it was worth the investment myself and because the kids are all super smart I figured they earned their little scholarships.

    Like

    • lms:

      I guess I’m wondering what the income threshold is for getting money from these schools.

      Duke actually provided a bar chart with the amount of fin aid provided for various income levels. Unfortunately I don’t have it with me at the moment. (Left it in the car…am in a hotel room right now.). But from memory the highest bar was for income $60k or less, while the lowest bar was for $120k plus, and there was a significant amount of aid even for that max income level, although I am sure it cuts out altogether somewhere north of $120k.

      Clemson was an interesting story, though. Significantly less competitive than Duke academically, it’s headline tuition, room and board was “only” about $40k for out of state students. But what really interested me was that it offers automatic tuition breaks, of between $5k and $15k, based on class rank and SAT/ACT scores. Any out of state student that ranks in the top 10% of their class and scores at least 1250 on the SAT gets an automatic $5k scholarship, with the scholarship jumping to $10k for scores greater than 1350, and $15k for greater than 1400. That struck me as the right way to be doling out financial aid, although they offer needs based aid as well.

      Anyway, I am increasingly convinced that tuition inflation is more a function of increasing amounts of aid and grants poring into higher education (lots of it federal money) and the increased demand that results, than it is from any real budget problems that require higher prices.

      Like

  66. Scott, she looks just like I used to look at her age. I’m a lot smaller version though as she’s 6 foot tall! Alas, I don’t look like that anymore and I think I’ve shrunk a little too.

    I’m still processing your response to the college tuition situation. I’ll get back to you in a bit.

    Like

  67. I’d like to see some research on the reasons for tuition inflation. I agree that there should always be financial aid based on test scores, grades and even other factors such as leadership and community service, but I don’t think it’s necessarily out of bounds to offer financial aid that is needs based. I think education is one of the most important benefits we have in this country even though I’m not sure, at least here in CA, that our system is up to the same standards we had 20 or 30 years ago.

    Like

    • lms:

      but I don’t think it’s necessarily out of bounds to offer financial aid that is needs based.

      I’ve got no problem with scholarship money going to a select few academically attractive kids in particularly difficult financial situations. But the way the system is set up now, the universities advertise a mostly fictitious headline number and then demand the parents financial information on the basis of which they will decide how much you pay. So in essence there is no actual tuition rate, but rather a sliding scale based solely on parents’ income level, with a cap at the headline rate. You tell us your financial situation, including tax returns, and we’ll tell you what we’ll charge you. That is quite literally how it works.

      Like

  68. Scott

    That is quite literally how it works.

    I don’t remember it being quite that way. We knew what the tuition was, even for the small private university, including room and board, before we even began the application process. I don’t know how they can figure out needs based loans, grants or scholarships without the parents financial information. But, as I said, perhaps the more exclusive Ivy League schools are different.

    Most of our experience is with state colleges and universities. I remember primarily trying to hang on to the academic scholarships for four years and the kids applying for new ones. We never really knew from year to year how much it was going to cost us until the end of the spring semester.

    BTW, I’m not saying that the system isn’t screwed up and that tuitions aren’t too high, I’m just not convinced that tuition is primarily decided by parental incomes. That seems to be what you’re saying.

    Like

    • lms:

      I don’t remember it being quite that way.

      It wasn’t that way for me, either. But it is now. The phrase routinely used is that the university is “committed to meeting 100% of demonstrated need”. They also use the phrase “expected family contribution” when talking about the amount they decide you will have to pay.

      BTW, that chart I was talking about can be found here. The breakdown is a little different from how I described it earlier, but you get the idea.

      BTW, on this trip we visited 3 private universities, including University of Richmond which is hardly Ivy-League exclusive, and they were all basically the same. Even UoR makes a big deal about “meeting 100% of demonstrated need” and the huge percentage of students that receive grants and scholarships. In fact my original post on this topic 2 years ago was based on info provided by UoR.

      State universities do seem to be somewhat different.

      I’m just not convinced that tuition is primarily decided by parental incomes. That seems to be what you’re saying.

      It is what I am saying, and believe it or not it is what is going on.

      Like

  69. It is what I am saying, and believe it or not it is what is going on.

    I thought this was common knowledge. It absolutely is the case. Aside from merit scholarships, which, perversely, many schools are ditching, your price depends soley on family income, or rather on how the school evaluates family income.

    If you worked extra hard and saved to pay for your children’s education, the joke is on you.

    Like

  70. As for general tuition inflation, again, what is the mystery? The average cost of higher education has continued to rise in direct relation to the subsidies in various forms that have been created to make it “affordable for all.” It is Econ 101. Making education affordable through subsidies is another self-defeating exercise in fantasy economics.

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  71. A last note on tuition: the price discrimination practices by institutions with the resources to do so has an effect of increasing demand similar to other subsidies like federal grants, since in theory they make cost not a barrier to enrollment. If you sell your product to everyone for whatever they can pay, the sticker price and the prices paid by those who have resources must rise. Fully to carry out the logic of the scheme would be to eliminate the sticker price entirely and charge whatever a customer can pay. Bill Gates could pay billions.

    Like

  72. I realize I’m old compared to you guys and my kids are thankfully all out of college but it wasn’t that long ago ( just shy of15 years) that the youngest started college. She was accepted everywhere she applied, including USC and Stanford. Even with whatever scholarships, loans, grants etc she would have gotten we still couldn’t afford either one and so she ended up going to a smaller private university (which offered her more) instead. 15 years ago schools still advertised a set tuition price and then parents had to figure out the rest. So you’re in essence saying it’s not that way anymore because subsidies have changed the dynamics that much?

    Like

    • lms:

      So you’re in essence saying it’s not that way anymore because subsidies have changed the dynamics that much?

      Probably not at every single school, but at most of the private schools that I have visited in the last two years, which are mostly a tier down from the Ivy League, yes. They all seem to use the same jargon for the same talking points….”needs blind admission”, “commitment to covering demonstrated need”, “expected family contribution”. And it is all a function of parents tax returns and their submitted FAFSA form. You submit them, and they tell you what they expect your “family contribution” to be.

      Like

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