Must Read piece on real estate market

Link no work.

https://www.gmo.com/America/MyHome/

Between Errors of Optimism and Pessimism – Observations on the Real Estate Cycle in the United States and China

Nope.

http://www.gurufocus.com/news/145544/between-errors-of-optimism-and-pessimism--observations-on-the-real-estate-cycle-in-the-united-states-and-china

Yup.

And this is why thinking of owner-occupied housing as an "investment" is bass-ackwards: "Home prices rise in line with household incomes."

Period.

And that chart is ominous.

So, what I'm reading according to this, is that we are now just entering a very advantageous time to be buying a home in the US. Not at the bottom quite yet, but getting close.

"...we are now just entering a very advantageous time to be buying a home in the US. Not at the bottom quite yet, but getting close."

Probably true for other parts of the country, but not true around here yet.

This section has me thinking that the upside could very much surprise.

Housing glut exaggerated. The supply of houses for sale remains very elevated relative to current demand. But,
then, homes sales have fallen to a 30-year low. If demand were to recover to normal levels, then today’s excess
supply would evaporate to be replaced by a shortage (see Exhibit 11).
• Pent-up demographic demand. The long-term fundamentals for the U.S. housing market are sound. The population
is forecast to grow by around 10% over the current decade, which is only a little below average. Household
formation has fallen to 40-year lows in the aftermath of the global financial crisis (see Exhibit 12). Around half
of recent college graduates are reported to be living with their parents. The homeownership rate has fallen back
from its bubble peak and returned to the level found at the turn of the century. Rents have been increasing. All of
this suggests there is a rising pent-up demand for housing.
• Extreme Pessimism. Last September, a Time magazine cover story suggested it was time to “re-think
homeownership.” There has even been talk of a “new paradigm” for U.S. housing with the claim that household
formation will not regain its long-term trend and that renting will be permanently preferred to homeownership.
The American dream is over.

why don't you buy a bunch for yourself?

"The American dream is over."

It's not over, it's just being redefined.

American Dream is not over. Its just a fact that real estate is prone to manias and crashes, but over the long term tracks employment and income growth with a drop of upside. Somehow during the real estate bubble people thought it could double every few years which of course it cannot.

"...we are now just entering a very advantageous time to be buying a home in the US. Not at the bottom quite yet, but getting close."

"...Probably true for other parts of the country, but not true around here yet..."

But wait. Everyone on these boards go crazy when someone suggests NYC (or more specifically, Manhattan - or even more specific than that, Manhattan below 110th Street) is in any way decoupled from the rest of NYC, or the rest of the country.

So either that report does apply more or less to the whole picture - OR - Manhattan south of 110th is indeed a special case as you suggest, in which case the people who argue that Manhattan won't drop as much as the rest of the country because it is a special case may have a valid opinion.

Can't have it both ways....

The declined started later here, so it will bottom out later and recover later. Not that difficult to understand.

I'm not sure I agree. Another possibility is that the recovery will just be more muted(less v shaped). We never had the huge foreclosure action in Manhattan that the rest of the country did.

and we probably won't have huge number of foreclosures in Manhattan in the near future, but I would not be surprised to see more of it. Additionally, unlike many here, I believe foreclosures in the outer boroughs will effect prices in Manhattan.

Yea, not likely. Buyers in Manhattan bring money from outside the U.S. and wealthy areas of Long Island , New Jersey Connecticut. What occurs in Long Island City and Jersey city is not so relevant. I'd be more concerned about a huge change in the job picture for Manhattan(which actually is a very real risk here).

Tell that to my friends and co-workers who moved out of Manhattan and ended up in Brooklyn and Queens; a few ended up in Westchester.

Agree on jobs and don't forget about decline in wages, especially adjusted for inflation. Come tax day, I will be reporting about a 20% decline in comp this year.

On top of this year's decline, I'm also expecting flat base and lower bonus next year, and higher living/insurance/tax expenses.

>But wait. Everyone on these boards go crazy when someone suggests NYC (or more specifically, Manhattan - or even more specific than that, Manhattan below 110th Street) is in any way decoupled from the rest of NYC, or the rest of the country.

Manhattan = Wayne, NJ

New York-Northern New Jersey-Long Island, NY-NJ-PA Metropolitan Statistical Area (19,069,796)

New York-White Plains-Wayne, NY-NJ Metropolitan Division (11,732,233)
Kings County (Brooklyn), NY
Queens County, NY
New York County (Manhattan), NY
Bronx County, NY
Richmond County (Staten Island), NY
Westchester County, NY
Bergen County, NJ
Hudson County, NJ
Passaic County, NJ
Rockland County, NY
Putnam County, NY

Well. at least its in the same MSA

For the first time in my career, I also see a meaningful possiblity of my job being cut within the next 18 months. I had no such concerns even in 2008/2009. Also, in previous years, if I had a bad bonus, I was confident that the next year would be better. I can't count on that anymore even if the firm does better the following year.

>New York-Northern New Jersey-Long Island, NY-NJ-PA Metropolitan Statistical Area (19,069,796)

>New York-White Plains-Wayne, NY-NJ Metropolitan Division (11,732,233)
...

>Well. at least its in the same MSA

I didn't see Columbia County.

Great article. On a national basis, the article seems to say that we could have a few more percent down - "The U.S. real estate cycle appears to be revolving somewhere between the stages of distress and quiescence". Prime Manhattan is harder to guess due to concerns about double dip and banks making money which is offset by Manhattan being a highly desirable place for rich people in the US to live. Offsetting factors are
1. Chinese money driven by real estate bubble in China and desire for wealthy Chinese to seek safe haven away from communism - but hard to say the exact number of Chinese buyers.
2. Low rates
3. Couple with two incomes and jobs in Manhattan which makes the commute to the burbs costly. Women working in high powered jobs continues to increase.
4. Limited rental stock as evident by firm rents. New rentals are very high in price in general.

My bet will be a few percent down or stagnant prices in Manhattan for 1 year (would have been more bullish without the Eurozone troubles) and after that slow rise.

>>>For the first time in my career, I also see a meaningful possiblity of my job being cut within the next 18 months. I had no such concerns even in 2008/2009. Also, in previous years, if I had a bad bonus, I was confident that the next year would be better. I can't count on that anymore even if the firm does better the following year.

You are not the only one.

It's a recession of your neighbor looses his job. A depression if you loose yours.

Nothing in housing "evaporates." It is a long process.