Here is Professor Shiller dwelling on the reasons to be cautious – you never hear him talk about how today’s market is being driven by big money (the all-cash purchases, or big down payments blowing out the low-down-payment buyers) and it’s long-term impact:
I need to get a job as a professor. This guy is so behind the times. He is saying the recovery didn’t begin till 2012?
The smart money was buying in 2009-2010. That is where the real money was made.
They were basically giving away homes in phx and vegas at one point. Of course these areas are going to rebound fast. They were undervalued when you consider the costs to rebuild them. They are so much more affordable compared to other areas. You deal with some heat in the summer but winters are pretty nice. I happen to like the desert.
It always seems the prices start to rise in s cal first. when they reach a certain point people go elsewhere looking.
I was in home depot yesterday and the price of a sheet of 15/16″ OSB was close to 20.00 with tax and the new lumber tax. A 4×8 1/2″ thick piece of sheetrock was almost 9.00 with tax. Building materials have went up a lot.
In Phoenix, A 30 year old 3/2 home, never upgraded or remodeled, no pool selling for $150 per square foot, higher than the 2006 price points. This home needs at least $50k in upgrades. Most recent model match sold at $110 sq foot.
Yeah, ain’t it grand
So as I understand it, “artificial” is defined by using the past’s definition of “normal”?
Who’s to say we’re not experiencing a new normal? Or that there really isn’t any “normal”. Rather, each point in history has its own unique global economic characteristics?
Agreed, it is what it is, and it doesn’t have to look like the past.
Government support is part of the landscape, and they will probably jump in and save us every time now.
Avgjoe,
And that my friend is why I was saying on this blog years ago that house prices will go up, because cement, stones, bricks, sticks and labour have!
I believe that it’s just a matter of time until the exponential growth in debt will blow up in our face. It could blow up in our face as a deflationary depression, it could blow up in our face as hyper inflation, and it might take longer than I think to materialize but it’s bound to happen. It will probably be clear in hindsight that the current policies of postponing the problem are going to make the unwind that much worse, but that fact doesn’t make people feel good.
Housing is a highly leveraged asset that is currently relying on low servicing costs and super high leverage ratios. Since there isn’t much room to increase the leverage (0 down is back are we really going to 125% LTV again), or lower the servicing costs (Japan got down to 2.5% mortgage rates, so there’s a little room there) there’s not much juicing you can do unless you figure out a way to spike incomes. Of course since you are at record low servicing costs and almost record high levels of leverage you could certainly see things going wrong in the blink of an eye. I don’t think it will happen in the short term and I certainly think San Diego will do better than the average. The government is giving you a chance to cash out your equity while they can but I don’t expect that option to be there forever.
I think part of the real estate attraction is that people have really lost faith and trust in the stock market. The volume on the exchanges is just pathetic.
When people own real estate that don’t worry about someone cooking the books or going bankrupt to wipe out shareholders.
Real estate is tangible and the avg person can understand it. There are no P/E rations or other BS to confuse people.
I think corrections are healthy and part of the game.
The notion of infinite and ongoing “government support” is the flawed premise upon which real estate fantasies are built.
But we aren’t willing to elect anybody to shake up the status quo. All we need is more ink for the printing press!
Not just about the gov’t, tho’.
There was roughly a 10-year span not so long ago – JtR remembers 😉 – where we were exiting a war, experiencing double-digit inflation, double-digit unemployment, an impeached president, an Arab-Israeli war, and longs lines at the gas pump.
(Can you just imagine if all that happened now how the blogosphere would light up with proclamations that the USA is done for? Obviously, we survived. BTW, me-thinks folks like Warren Buffet viewed our recent global credit implosion with this historic perspective. But I digress…)
Was that economic environment “artificial” for the time? What about the 10 years after that? Or after that? No, me-thinks at any point in time, “it is what is is”, as Jim said.
The difference is sustainability, and in that regards government spending is a bubble that’ll burst as surely as stocks in 2000 and housing in 2006.
“THE DIFFERENCE IS … government spending…”
As a percentage of GDP, public debt was higher during World War II than now.
http://www.usgovernmentspending.com/spending_chart_1940_2017USp_13s1li0181085_613cs_H0f