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Posted by on Feb 7, 2013 in Market Conditions, Real Estate Investing, Same-House Sales | 8 comments | Print Print

“My Wife Wants Them”

Shiller is asked in the video how many houses he owns (two) and why – his answer – “My wife wants them”. (at the 7:50-min mark)

Robert Shiller, the Yale  economist who nailed the housing bubble before it burst, was on Bloomberg  Television with Trish Regan and Adam Johnson on Wednesday afternoon to  discuss the U.S. housing market.

As usual, Shiller was reluctant to declare that home prices had  bottomed.  He explained that the  housing market is a speculative one  and that there’s no telling, which way prices would go tomorrow.  He also  explained that there wasn’t much reason to believe that home prices would  appreciate back to levels seen during the last cycle.

Regan followed up with a question that got Shiller perked up.

“Then why buy a home?” she asked.  “People trap their savings in a  home.  They’re running an opportunity cost of not having that money liquid  to earn a better return in the market.  Why do it?”

“Absolutely!” Shiller exclaimed.  “Housing traditionally is not viewed  as a great investment.  It takes maintenance, it depreciates, it goes out  of style.  All of those are problems. And there’s technical progress in  housing.  So, new ones are better.”

These were some of the issues Shiller addressed in his classic book, Irrational  Exuberance.

He continued.

“So, why was it considered an investment?  That was a fad.  That  was an idea that took hold in the early 2000’s.  And I don’t expect it to  come back.  Not with the same force.  So people might just decide,  “Yeah, I’ll diversify my portfolio.  I’ll live in a rental.”  That is  a very sensible thing for many people to do.”

Adam Johnson also noted that this was in line with Shiller’s assessment that  real U.S. home price appreciation from 1890 to 1990 was just about 0  percent.  This is explained by the falling costs of construction and  labor.

For people who can’t wrap there heads around this, Shiller offers an  analogy.

“If you think investing in housing is such a great idea, why not invest in cars?” he asked.  “Buy a car, mothball it, and sell it in 20 years.   Obviously not a good idea because people won’t want our cars.  It’s the  same with our houses.  So, they’re not really an investment vehicle.”

Any homeowner knows that you can’t sell a home with 30-year-old roofing,  carpet, and kitchen appliances.  Sure, the home price might go up, but you  have to adjust for years of maintenance and renovations.

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  1. I dont think this guy is on top of things. He’s lucky he has a job at a university.


  2. Ha! I got to go with avgjoe, So I can think of about 20 or more people I know who saw the housing bubble as well (some even profited), This guys just knows how to put numbers on a screen and talk like they make sense. I guess that’s what a PHD will do for you.


  3. How many other people are doing the talking?

    If there were real experts being interviewed, Shiller would be back in the classroom, boring his students with his vague banter.

    If the media was willing to interview top-selling realtors, there would be much-improved market awareness.

    Instead, who do we get? Trulia, Zillow and Redfin staff people mixed in with the occasional professor and NAR hack.

    They talk to everybody EXCEPT people on the street.


  4. That’s what you call an EDUCATED DUMBASS


  5. Sorry guys, but Shiller is right on, while we industry folk may not like it, his assessment on investment return on the sfr is spot on.
    That’s not to say I don’t hope everyone else buys a home or two, or in my case as a mortgage guy, I hope they refinance and or buy a second home.

    But for me, unless it was somewhere a stone’s throw from the beach in SD county, there is just too funky a feel in the market to entice commitment. Anywhere else but SD, I love me a lease that can be traded to a newer house every few years.


  6. Obviously a man who has never lived in a mortgage free home.


  7. Schiller is “right on”? Schiller is a product of academia where even a blind squirrel will occasionally find a nut.

    Putting away a car for 20 years? If you did that with a Shelby Cobra it would be worth more than you paid without much more maintenance than parking/proper storage. Look at the price of a pristine Z8. I don’t think you’ve ever been to Barrett-Jackson.

    Of course, homes aren’t investments. Anyone who says they are is a fool. Of course, they require maintenance. Of course they go out of style. Of course things wear out.

    So does your body. Does that mean you should cease to live because of that?

    Placing the concept of home ownership in a purely financial framework are also the ruminations of a fool. Home ownership provides a lot of emotional benefit – to those who use it wisely. That cannot be measured in dollars and cents.

    I’ve lived in rentals. Homes. Apartments. Done them all. I couldn’t wait to get back into my own home. My wife and I did so a mere 10 months after our marriage. My daughter got back into a house after years of rentals. Her joy at being able to plant flowers and paint the walls “her colors” is immeasurable. The cost of ownership for her – even accounting for the maintenance – is still less than a comparable apartment in her area (Bay Area). Add in the tax benefits and she’s able to live a nicer and happier life.

    Her fiance-like person is so excited about moving back into a home he can barely contain himself. He lives near her and pays $600 a month more for a one bedroom apartment that is 2/3 the size than she does for her house on 1/4 acre. He has no garage. No place to store his sporting goods other than in his living room. He cannot ride his cycling trainer inside the apartment because it annoys the other tenants so he has to pay for a gym membership in order to do that… all of which can be done in her garage for free.

    What happens is that the money moves around. Putting anything in a test tube looks ridiculous – including owning a computer or smartphone that is instantly obsolete. But imagine your life without one.


  8. Gee Wiz, sorry for attacking your “religion”.

    A little fyi for ya going forward.

    Usually the ones throwing personals attacks are wrong.



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