Robert Shiller, the Yale economist best known for predicting the housing-market implosion, did an interesting piece in the New York Times yesterday that suggested homebuyers may be reverting to "bubble thinking" when it comes to home prices.
Shiller and Karl Case, a Wellesley economics professor, conduct an annual survey to assess the mood of home buyers. The 2008 survey showed home buyers believed home prices would rebound after the housing market bottomed out, a new president was elected and the recession ended. "What has changed in 2009," Shiller writes, "is that they suddenly see this anticipated scenario as actually playing out."
The latest housing-market data appear to back them up: The Standard & Poor's/Case-Shiller Home Price Index, which tracks prices of single-family homes in 20 metropolitan areas, rose in the second quarter of 2009. Though sales of homes -- particularly existing homes -- continue to remain sluggish, prices appear to have stabilized.
Shiller states that the latest home-buyer survey responses "suggest that people think the price slide is over, so there is no longer such a good reason to wait to buy. And so they cause an upward blip in prices."
So are the housing bubble heads right -- is the boom back? Hold up on that car wash, gentlemen.
Prices have stabilized due to an unprecedented level of government support, including the $8,000 tax credit for first-time homebuyers. That perk is set to expire by Dec. 1, removing one driver of home sales from the market. (Though it may not expire, if the real-estate lobby has anything to say about it.)
Meanwhile, the Federal Reserve has quietly been buying up more than $1 trillion worth of mortgage-backed securities -- investments based on mortgage loans, many of which went bad. If the government ends that program next year, as originally planned, banks may tighten credit even further. As a result, potential home buyers will find it even tougher to get a mortgage.
Meanwhile, the moratorium on foreclosures that big lenders agreed to earlier this year at the behest of the Obama Administration is clearly over. RealtyTrac reported that one in every 357 households received a foreclosure notice in August -- up nearly 18% from the same period a year ago. And few housing experts expect the rate of foreclosures to slow significantly until late next year at the earliest.
Add these foreclosures to the millions of homes already on the market, and demand from home buyers will have to be exceptionally strong to see any sustainable increase in home values. In fact, without the continued government stimulus home prices may start to fall sharply once again.
Bottom line: Trying to "time" the real-estate market is as big a gamble -- and just as futile -- as trying to time the stock market. If you can afford the down payment, the mortgage and maintenance costs, and you intend on living in the home for seven years or more, fretting over the near-term direction of home prices is a waste of time. But if you'll need to sell in few years, or your finances are shaky, risking it all on a hunch that home prices have bottomed is a sucker's bet. Even for a bubble head.
Terri Cullen is an award-winning financial journalist. She was one of the original team of editors who helped to launch The Wall Street Journal Online. Terri is also the author of "The Wall Street Journal. Complete Identity Theft Guidebook." Read her bio to learn more about her.
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Comments
I view Shiller's forgone prediction the same way as the famous "psychics" who make wild predictions so they can take credit for their brilliance when one of them is fulfilled by coincidence. Did he sell all his real estate holdings and borrow money to short sub-prime mortgage market to back up his words? Or at least prevent Yale from taking losses on its endowment funds?
NABE (mentioned on today's NBR) is much the same. If the majority of economists know anything, why did they not move to prevent the credit crisis in the first place? Why should I take their analysis seriously now? I suspect you would have made better returns playing contrarian to the "expert consensus" over the last 50 years than by taking it at face value.
The foreclosure moratoriums by the largest bank in my state have just been extended again through the end of this year. The number of home owners who continue to live in their homes after failing to make mortgage payments at all for more than 18 months is growing rapidly, as banks continue to balk at the idea of realizing loan losses and becoming caretakers of properties.
Here's a wild predication for you: Either home prices in these artificially-supported areas will fall further at some point, or the rest of us will stop making payments for housing as well, creating a defacto permanent nation-wide foreclosure moratorium that essentially passes off all housing costs to the federal government, thus nationalizing most residential real estate.