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The notion that home prices always go up is very strong, and very wrong.

Started by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008
Discussion about
Sage advice from Robert Shiller in January 2005, BEFORE IT ALL STARTED: http://money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/index.htm It is true that, for the United States as a whole, real home prices were 66 percent higher in 2004 than in 1890, according to the index my research assistants and I have put together. But all of that increase occurred in two brief periods: the time... [more]
Response by ca12ny
about 16 years ago
Posts: 26
Member since: May 2008

there is medication available for this type of OCD

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Response by JuiceMan
about 16 years ago
Posts: 3578
Member since: Aug 2007

Here is another article from 2005. steve, what happened to the market in 2005 after all of these "economists" predicted the end of the earth? LMAO

http://www.nytimes.com/2005/10/04/realestate/04reals.html

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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008

And that article, JM, is correct about everything, including the NYC suburbs, but not Manhattan. As you know, 2006 was a banner year for Wall Street bonuses, based on repackaging junk mortgages that have all gone sour.

Where, pray tell, are Wall Street bonuses going to be this year?

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Response by zorter
about 16 years ago
Posts: 110
Member since: Apr 2008

Steve Around 11:00pm please go on another diatribe thats when I have my milk and get ready to go to sleep

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Response by jrd
about 16 years ago
Posts: 130
Member since: Jun 2008

Shiller has certainly been a bear on housing for years, but it is easy to stand on the sidelines and point at something you call a housing bubble and quite another thing to call the peak, especially when you are in the business of selling economic data on housing. Predicting the future is a difficult business in the short term, but much easier in the longer term.

I also think that housing is best viewed as an "income" producing asset, not as a "growth" asset. When you own a house, it throws off the "dividend" of you being able to live there. The value of the investment has to take into account the "dividends" that allowed you to live there all those years. Would you be impressed if Morningstar didn't take into account the dividends thrown off by a mutual fund?

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Response by Popomobile
about 16 years ago
Posts: 15
Member since: Apr 2008

Wow, housing returned 12x from 1948 (16,000) to 2004 (190,000), that is very impressive.

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Response by faustus
about 16 years ago
Posts: 230
Member since: Nov 2007

Only if you consider a 4.5% CAGR impressive, Popomobile.

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Response by VVerain
about 16 years ago
Posts: 172
Member since: May 2008

I doubt Popomobile did the annual growth math, but in fact what it highlights is that the return over this period exceeded average passbook savings rates. Bank savings aren't impressive either, but it is a product for the average American ... so housing over this period '48-'04 was actually a better investment for the average Joe, if purchased with cash, vs. putting the money in a savings account. That's how the average American should look at an investment in personal housing as an asset class and substitute for renting.

Of course this is in hindsight and past performance is no indication of future performance; savings bank investment can't lose principal so there is no timing risk like that that might be associated with potential anomalous periods in housing pricing; housing may require a bigger downpayment than available at the outset; and, liquidity (ability to buy and sell and cost to do so) of the housing investment is also a factor. Nonetheless, all those caveats built in, over a relatively long period, a person who bought a house did fairly compared to one of his or her other reasonable savings alternatives and rental housing substitutes.

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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008

"in fact what it highlights is that the return over this period exceeded average passbook savings rates."

As usual, a specious argument from vverain. You (somewhat) mention, yet (completely) discount, that passbook savings rates a) were regulated for most of that time; b) produces income, which housing doesn't (it's purely an expense); and c) are guaranteed by the government and so are risk-free.

Owning real estate is a risky venture: it is expensive, and highly illiquid, and completely unlike passbooks savings accounts. It's like comparing apples to horses.

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Response by lorenzonyc
about 16 years ago
Posts: 83
Member since: Mar 2008

Housing does produce income in the context of not having to pay rent. The growth CAGRs Shiller uses are only for the entry and exit values but ignore the annual cash flow savings of not paying rent. Since his calculations are unlevered (ie don't take into account financing), there is no need to include the financing cost (mortgage), but you do need to give credit for the saved rent, offset by operating costs of a house (real estate taxes).

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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008

That 4.5% rate of growth is nominal; compound inflation from 1948 through 2005 was 3.75%, so the real rate of growth was .75%.

Do the S&P 500 with reinvested dividends from 1948 through 2005 (moving average) and get back to me.

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Response by VVerain
about 16 years ago
Posts: 172
Member since: May 2008

I like this justaposition of arguments:

stevejhx: Owning real estate is a risky venture: it is expensive, and highly illiquid, and completely unlike passbooks savings accounts. It's like comparing apples to horses.

stevejhx: Do the S&P 500 with reinvested dividends from 1948 through 2005 (moving average) and get back to me.

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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008

11% vverain.

What's your point?

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Response by will
about 16 years ago
Posts: 480
Member since: Dec 2007

Debate has not changed much the past year...

But in fact, so far, so good for those of us living in a reality based world.

http://www.nytimes.com/2008/06/08/realestate/08deal1.html?_r=1&ref=realestate&oref=slogin

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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008

That article is about right, except that things are going to continue sideways.

I trust streeteasy's inventory figures more - Miller Samuel is paid by Elliman.

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Response by aboutready
about 16 years ago
Posts: 16354
Member since: Oct 2007

Miller Samuel is, as far as I can discern, as honest as they come. I'm a total bear when it comes to this market.

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Response by VVerain
about 16 years ago
Posts: 172
Member since: May 2008

As restated below, for the average American, according to Steve, the wise course is to invest in the S&P, not in home ownership which has done well over time (even according to Steve's own cited external research) and provides a mechanism for safety and disciplined wealth building. And whereas for the average American, a comparison of saving in a bank and saving in a home is comparing apples and horses, but home ownership is apples to apples with investing in the S&P.

Of course, Steve gets 60% _annual_ returns in his investment portfolio.

VVerain
about 23 hours ago

I like this justaposition of arguments:

stevejhx: Owning real estate is a risky venture: it is expensive, and highly illiquid, and completely unlike passbooks savings accounts. It's like comparing apples to horses.

stevejhx: Do the S&P 500 with reinvested dividends from 1948 through 2005 (moving average) and get back to me.

stevejhx
about 22 hours ago

11% vverain.

What's your point?

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Response by stevejhx
about 16 years ago
Posts: 12656
Member since: Feb 2008

"home ownership which has done well over time"

No it hasn't. Read the article.

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Response by Oberon
about 16 years ago
Posts: 77
Member since: Sep 2007

Steve - "Miller Samuel is paid by Elliman.", what's your source on this ?

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Response by aboutready
about 16 years ago
Posts: 16354
Member since: Oct 2007

Miller Samuel provides raw data to Elliman. How Elliman spins that is their own.

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Response by englandspain
about 16 years ago
Posts: 4
Member since: Jun 2008

It is not strong; it is wrong, but over time, they go up.

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