The recent upturn in house prices from April to July (3.6%) is the sharpest change in direction professor Robert Shiller has ever seen. And Shiller, the dean of house-price analysis, has seen a lot.
The upturn could signal a v-shaped recovery in house prices. Or it could be the "mother of all head fakes," as one investor has described it.
Unfortunately, Robert Shiller's recent survey of Americans' attitudes about house prices suggests it's probably the latter. The survey also suggests that Americans are still delusional about the long-term trajectory for house prices.
In the survey, Shiller and his partner Karl Case ask Americans what they think home prices will do over the short and long term.
The expectation for long-term price changes hasn't changed much since before the bubble (it's now down to 11% a year appreciation). This outlook is more reasonable than it was at the peak of the bubble, but it's still extraordinarily optimistic. This happy outlook suggests that Americans still regard the last couple of years as a freak anomaly -- even though house prices are just now hitting the range of "normal" on key price ratios like price-to-rent and price-to-income.
The outlook for short-term changes (one year), meanwhile, has changed a lot in the past year. Specifically, it has gone from negative a year ago to 2% this summer. Thus, Americans are expecting a near-term housing recovery -- in part, perhaps, because of the recovery from April to July.
Shiller thinks this change suggests that buyers are now trying to time the housing market by getting in at the bottom. This could be contributing to the surge in prices we've seen over the last few months.
It's always possible that Americans are right, that we've passed the bottom and are on the way up. If so, however, this would mean remarkable foresight on the part of the average buyer.
Around major changes in market direction (the peak of the housing bubble, for example), there is widespread agreement about what future prices will do -- and this consensus is usually 100% wrong. If the consensus is right this time that we've just passed the bottom, therefore, it will be because the average American has suddenly gotten a lot smarter that usual about what the future holds.
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Arianna Huffington: Has Obama's Handling of the Bank Bailout Undermined Health Care Reform?
If we don't learn from the botched bank bailout, we are in danger of getting the same patchwork, reform-in-name-only outcome on health care.
Many TARP borrowers aren't repaying their billions in loans and the FDIC reserve recently went billions in the red because of bank failures & bankruptcies (they are the people insuring your bank deposits - lol - sleep well tonight). Some of the banks weren't even on their watchlist, but had dramatically fast collapses because of the worsening economy. There have been a lot of articles lately about endowments and pension funds that have lost major portions of their investments in the recession (some 30-40%: some of it due to speculation in derivatives that had the meltdown) just like many of us. Many may be unable to meet their obligations to their retirees which will be a long term problem. Tax revenue is down 17%, so expect more government job layoffs. Just like the alcoholic that has another binge to postpone a hangover, we have just delayed the day of reckoning by adding all this stimulus money, bailout money, & borrowing from China to our national debt.
With that math, the average combined household income is $100k in Los Angeles. That means houses for these buyers should be no more than $400k.
Houses in middle class areas are running $600k-$800k in Los Angeles.
The cost of buying a house, and servicing the mortgage payments, are unsustainable in the long run in these areas.
People can only play games with money for so long, eventually they have to buckle under the pressure of not having enough income to pay their mortgage.
No one is talking about reality. Its like the inflated stock market. People think unrealistic economics will persist simply because they cannot face reality about the future.
But thats the American way. Fantasyland.
Read more at: http://www.huffingtonpost.com/henry-blodget/americans-are-still-delus_b_317251.html
Yes, we have wasted trillions on worthless housing in suburbia. This just hasn't sunk in but it will sooner or later.
The Dow will be at 4,000 by 2011.
But without a real estate tax deduction, we were getting killed every April.
This year we finally bought a house down here and are happy with what we thought was a good deal on the property as well as some long-term tax relief.
Our 21-year-old son got a great deal on a foreclosed townhouse back in Minnesota, plus he gets an $8,000 tax credit.
We expect to stay in our home long term, and the terms of our son's tax credit require him to stay a minimum of three years.
So there are plenty of good reasons to buy and plenty of good deals. But if you view your purchase as some sort of road to riches, you're going to be disappointed.
Just try to enjoy your new home sweet home.
So he said we should become home owners again.
Frankly I also like not having to worry about what the landlord will say when I pound a nail in the wall or paint a room.
This isn't to say there aren't lots of perks to renting: My husband's not nearly so keen on home ownership when it comes to repairs or lawn maintenance.
:o)
People, debt is the new slavery. Do like gmundenat. Buy less house and pay off early.
THAT is sustainable.
But now BOTH of us have had to take substantial pay cuts that were totally unforeseen when we moved into the house. On top of that, our health insurance premiums doubled this month. Our property taxes are going up - which we expected- but our house and property are worth LESS. What are we supposed to do about that?
A house is not the biggest investment you'll ever make, it's the biggest expense you will ever have. This just shows the naivety of Americans.
back to the subject, housing, like everything else is what someone will pay for it. After decades of observation and lounging in the shoreline shallows, I see the successful surfers living well as they score big thrills and status with proper timing and judgment of the waves. (Many others call them bubbles.) All low-involvement investing is Ponzi, one just needs to know the how to BLSH. (buy low, sell high) It's not good that workers in the water tend to be shark food, but I have to admit, having only taxes and insurance to pay is a benefit of being old and frugal.