Bob Shiller: 'Decline May Well Continue for Some Time'
Yale econ professor Robert Shiller had an op-ed in the Times this weekend that talked about why there’s not necessarily an end in sight for the decline in the country’s housing market. The piece examines why other declines have dragged out for years: “Despite the uptick last week in pending home sales and recent improvement…
Yale econ professor Robert Shiller had an op-ed in the Times this weekend that talked about why there’s not necessarily an end in sight for the decline in the country’s housing market. The piece examines why other declines have dragged out for years: “Despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline…Several factors can explain the snail-like behavior of the real estate market. An important one is that sales of existing homes are mainly by people who are planning to buy other homes. So even if sellers think that home prices are in decline, most have no reason to hurry because they are not really leaving the market. Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don’t have a speculator’s sense of urgency. And they don’t like shifting from being owners to renters, a process entailing lifestyle changes that can take years to effect.” He concludes: “Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.”
Why Home Prices May Keep Falling [NY Times]
BHO, I’m not preaching, convincing others to do anything. I’m just glad my chicken little approach is panning out big time. suspicious of stk mkt, paid off mortgage instead,… helped me avoid skt mkt collapse, no mortgage, and basically monitoring mkt to make next move.
Correction, joe: “Gains tax [waive] non-applicable.”
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Opportunity cost, M4L. It’s a cost in dollars and cents. You have to add it to the loss column when comparing sell-rent-buy to holding. And NO mortgage does not mean you got the house for free. You (or someone for you) paid money. You have to subtract that from resale. The result is not positive for every outright homeowner.
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“Many of us have carrying costs much less than what a comparable square footage would rent for.”
Please stop insulting my intelligence! Rentals don’t require 20% down, losses between sale and resale, maintenance costs, taxes, insurance, water bills, sewer repairs, boiler replacements, etc. These costs are playing hide and go seek with today’s home shopper.
“dibs — I meant that you don’t pay a capital gains tax on the price appreciation on your first primary residence — that’s still true, right?”
Only if you re-buy within a year, joe. We were discussing sell-rent-buy. Gains tax non-applicable. You’re spot on about rising assessments. The lag does not favor the owner. It favors the future buyer.
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BHO, easy explanation – NO mortgage. I think prices will continue to drip drip drip so selling is probably best decision. but given rent is still so freaking high, the urgency to sell & rent is not as compelling as I was expecting. small silver lining to holding the place is it is a hedge against small odds mkt has stabilize and move up. As a member of team reasonable, I track & consider all the scenarios
dibs, why don’t you put that cash to work? if you’re a hedge fund guy, you must know of something that’s going up, and yet you’re staying under-leveraged and letting your cash rot in your dank brownstone basement. rates are low, lever up!
“BHO, contrary to your line of thinking, not everyone took money out with a refi. I will reiterate: Anyone who bought in the early 2000s or earlier still has a hefty profit.
If you plan on denying that you need to prove why its wrong.”
Didn’t say everybody. Just suggested many. Your statement is too absolute. The proof would be in the pre-foreclosure numbers (bonafide foreclosure numbers already getting worse). I’m still waiting for someone to present that trend. Refi’s have gotten a lot of outright owners in trouble.
“Who is ‘smarter’?”
Don’t take it personally, wasder. I’m talking about asset bubbles. Few get rich (they call them ‘smart’ money) and most lose their shirts (they call them ‘dumb’ money). It’s unfortunate that homes had to get speculated on but that’s what happened.
“…anything decent or comparable to what I have now is around 2.5x or more than my current carrying cost.”
Are you adding/subtracting the loss/gain between sale and resale spread out over the total months of ownership including all maintenance costs, fees, insurance, taxes etc.? Details please? I’m having a difficult time believing that you’d be paying more to rent considering the opportunity cost of not cashing out near peak during an era of falling rents (which by the way intensifies the loss in owning intensifies the gain in renting/waiting).
“Right now, the place is a hedge in case mkt doesn’t tank and moves up.”
But the banks are betting against you. Sell/rent/buy hedges against a market tank, the likely outcome.
“I’m sure I’m about $200k underwater but I don’t really care. I’ve got a beautiful large house with a yard and a deck and I continue to put more money into it. Some of these people don’t understand that.”
We understand it quite clearly. Strictly from a financial perspective, you’re behind and you’re falling even more behind. But who buys a Lamborghini Diablo to make money? Rock out!
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I am going to sell my house. The bottom feeders tell me this is what I should do, so I will do it.
To save money and maximize my gain on the sale of my property, I will live like a homeless person on the street and avoid rent. I will push my worldly belongings around in a cart. My family and I will live together in a cardboard box.
I will spend the next several years making low-ball bids on housing and be out bid by other buyers or ignored by sellers who are not as desperate I think they should be.
Real estate prices always go down.
dibs — I meant that you don’t pay a capital gains tax on the price appreciation on your first primary residence — that’s still true, right?
more4less — I think you have to look forward a few years — if rents and prices are both falling, then pulling the trigger and selling now helps you on both sides of the equation, b/c you pay lower rent later. Plus, depending on your sitch, you might be facing property tax increases because of the lag in applying the higher assessments of the last few years.