Its ALWAYS a Good Time to Buy a House!
I spoke with Damon Darlin of the NYT last week about housing and RE agents. He recalled the “It’s a great time to buy or sell a home” nonsense spouted by Real estate agents and the NAR in 2005.
As it turns out, they were half right.
Darlin put together a good discussion on home prices and the cost of mortgages in the Sunday Business section. Here are my contributions:
“What they are really saying is that it is a good time to be involved in a transaction that generates a commission,” says Barry Ritholtz, C.E.O. and director of equity research at FusionIQ, a quantitative research firm. He’s also author of “The Big Picture,” an irreverent blog on markets.
If agents are always motivated to make a deal, buyers are often asking an impossible question: “Will the price of this house go up?”
Although the National Association of Realtors said for many years that home prices historically don’t fall, actually they do, and sometimes quite sharply. The housing market is complicated, and the future unknowable. Still, for clues to the overall direction of prices, Mr. Ritholtz advises buyers to look at three metrics: the ratio of median income to median home prices, which suggests whether people can afford a house; the cost of ownership versus renting; and the value of the national housing stock as a percentage of gross domestic product.
All those measures were aberrationally inflated during the housing bubble. And they still aren’t back to historical norms. We can get back to the norm in either of two ways, Mr. Ritholtz says: home prices can either drop an additional 15 percent or go sideways for seven years or so, while G.D.P. and income presumably grow.
One small but amusing typo requires mention: In the print edition, that “15 percent” drop actually reads “50 percent” — not 15%. Its been corrected in the online version, but I hope anyone who sees that 50% number realizes the error. I hope we avoid any cardiac events amongst some home owners . . .
>
Previously:
It’s a great time to buy or sell a home! (November 3rd, 2006)
http://www.ritholtz.com/blog/2006/11/its-a-great-time-to-buy-or-sell-a-home/
Analyzing why “It’s a great time to buy or sell a home!” (November 4th, 2006)
http://www.ritholtz.com/blog/2006/11/analyzing-why-its-a-great-time-to-buy-or-sell-a-home/
NAR Housing Affordability Index is Worthless (August 13th, 2008)
http://www.ritholtz.com/blog/2008/08/nar-housing-affordability-index-is-worthless
Source:
Great Time to Buy (Famous Last Words)
DAMON DARLIN
NYT, March 12, 2010
http://www.nytimes.com/2010/03/14/business/14every.html
De.li.cious
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March 14th, 2010 at 9:33 am
Of course it’s a good time to buy a house. It’s ALWAYS a good, if not great time to buy a house.
It’s only a matter of price.
March 14th, 2010 at 9:44 am
An additional 15% drop is optimistic, even wishful, thinking. Has TBP adopted the same policy when forecasting future trends as the federal government, where off-budget debt is not accounted for? Unless the amount of money being printed is multiplied by a factor of 10 and distributed directly to the man in the street, there’s no way the shadow inventory of housing being held off the market by the criminal cartel (in wishful anticipation of better days) will result in a further value reduction of only 15%.
~~~
BR: We are down 33% nationally, and down 15% is merely mean reversion.
Whether we careen past that line or not is the big question . . .
March 14th, 2010 at 9:45 am
Oh, yeah . . .
50% is more like it.
March 14th, 2010 at 10:00 am
The real estate industry needs real reform. The S&L crisis in the 80′s and our current problems all stem from shortcomings in the real estate industry itself. There’s no transparency in the process and the reporting of relevant data, regulation at the state level is non-existent, and the conflicts of interest and under the table dealings are well known.
Securitization of mortgages, like the junk bond industry, can provide benefits to our markets. But letting the real estate industry continue to securitize mortgages without real reform would be a tragic mistake.
Fool me once (the 80′s) shame on you; fool me twice (the 2000′s housing bubble) shame on me. What are we waiting for?
March 14th, 2010 at 10:19 am
How about providing the graph saying that houses are 100% overvalued.
B. Do you have this by state as well?
March 14th, 2010 at 10:44 am
I didn’t like to see you slightly pigeon-holed as an “irreverent” blogger. Yes, you are irreverent, but you are a lot more than that, like insightful, intelligent, independent and prescient. But, then they’d have to admit that the MSM is no longer the most followed source responsible commentary anymore, and that the top bloggers have taken over. For me, anyway….
March 14th, 2010 at 10:55 am
Given how much my real estate agent flat out lied to me about, this article doesn’t surprise me.
March 14th, 2010 at 10:56 am
In your 50% drop equation you’re not taking supply and demand into the equation. In my “equation” (it’s coming from a dark place) we will be flat for a few year, very few new houses will be build and in 3-5 years prices will follow inflation.
March 14th, 2010 at 11:10 am
http://seekingalpha.com/article/193475-shadow-housing-inventory-still-looming?source=email
Tim says, “As someone who is waiting to buy a house later this year, the idea of stretching out the process for years is appalling – not only for how it affects OUR buying plans, but because it virtually assumes a lost decade ahead for the U.S. economy.”
March 14th, 2010 at 11:26 am
Where are all those “Austrian” economists who spouted that “housing must recover for the markets to recover” and ” “there’s no green shoots” nonsense?
Listening to those right-wing, partisan economists – with their touchy-feelie, math-less “analysis” of markets – is fraught with something …something like wallet peril.
March 14th, 2010 at 11:39 am
Marcus,
Obama has brought the Iraq and Afghan conflicts on-budget and much else. This has contributed to the dramatic rise in the headline deficits figures. Notice how the debt grow grows in line with the deficit now.
http://www.treasurydirect.gov/NP/BPDLogin?application=np
And last month the GOP voted as a block against a commission to set a budget to get the deficit under control, a commission which six of them they originally co-sponsored.
So who’s really moving things in the right direction, Obama or the GOP? Easy answer. Obama, who along with Geithner and Bernanke saved America’s economy from depression.
March 14th, 2010 at 11:47 am
Flip has it right. It can be a great time to buy…at a price. The market needs to be allowed to work without hype or bias. Buying a home can be fair and honest. Imagine a marketplace where objective information was provided to prospective buyers before they became emotionally involved. Imagine offers being managed anonymously to take out the influence of those with bias. Imaging a price reducing each day until an offer is systematically matched. Countdown To Buy is proving just that.
March 14th, 2010 at 11:50 am
Housing is a liability not an asset. Prices should be MUCH lower but the sheeple have bought into the misperception that housing is an asset. It is not. It will cost $10,000 – $20,000 (or more) per annum just to heat, power, protect, insure, pay tax on and maintain a house.
It’s kinda like this – you hand someone a shit sandwich and tell them, “Isn’t it just deLICIOUS?!!!” a thousand times until they start to eventually believe it.
March 14th, 2010 at 11:54 am
Regarding condos, 50% drop is about right……..
blog.oregonlive.com/frontporch/2010/03/all_you_wanted_to_know_about_t.html
I know some folks who bought (there) in 05/06 who are so far underwater that they might
not live long enough to recover from their purchase price.
March 14th, 2010 at 12:16 pm
Venn:
It’s not just Obama, and there’s still plenty o’ accounting chicanery at the federal level (mark to fantasy, for example). While I did vote for and have high expectations for Obama, the reality is that he has not been the transformative leader I had “hoped” for. He is simply the lesser of 2 evils. Next time around, I’ll vote for Kucinich, Grayson, or even Ron Paul (although I don’t really care for Paul’s positions on social issues). The dream ticket would be Kucinich/Paul. Let the little dudes kick some ass.
March 14th, 2010 at 12:30 pm
As a renter in Silicon Valley, one of the areas least impacted by the housing bust, I’ve been keeping an eye on the lower end (read: $200K-$300K) of housing prices to make sure renting is still the better option. Since January I am seeing significant drops in the listing prices. For example, condo in South San Francisco going from $290K to $234K:
http://www.redfin.com/CA/South-San-Francisco/1107-Mission-Rd-94080/unit-211/home/17040391
I’d still classify this as overpriced crap but it’s a ~20% reduction nonetheless. Another round like that and I might be buying!
March 14th, 2010 at 12:51 pm
The amount of the drop is certainly going to be geographically specific, but other segments to watch suggest a few things to keep an eye on. First, keep an eye on the overall down-sizing of homeowners migrating downward leaving a glut of McMansions with few buyers to fill them. Following, with that downward pressure on these oversized houses, will we see multiple generations moving into them and sharing the burden –graduating kids without jobs to pay their loans and would be retirees that were relying in their home equity? Is the number of generations per household for the middle class coming to a point of inflection?
March 14th, 2010 at 1:40 pm
“..will we see multiple generations moving into them and sharing the burden –graduating kids without jobs to pay their loans and would be retirees that were relying in their home equity? Is the number of generations per household for the middle class coming to a point of inflection?..”
Jim,
good point, to your Q: (above), A: We are seeing it, now
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=new+housing+trends+multi-generational+living
March 14th, 2010 at 8:10 pm
“It’s always a great time to buy or sell a home…we just don’t know which!”
March 15th, 2010 at 9:43 am
“Mr. Ritholtz advises buyers to look at three metrics: the ratio of median income to median home prices, which suggests whether people can afford a house; the cost of ownership versus renting; and the value of the national housing stock as a percentage of gross domestic product.” Does anyone know where I can find these statistics?
~~~
BR: I post them occasionally, they are available thru data services klike Bloomberg
March 16th, 2010 at 3:17 pm
“We can get back to the norm in either of two ways, Mr. Ritholtz says: home prices can either drop an additional 15 percent or go sideways for seven years or so, while G.D.P. and income presumably grow.”
“GDP and income presumably grow” meaning inflation that raises nominal wages but not real wages?
Or do you see something on the horizon that would raise real wages? America has under-educated a generation of children. America’s immigration policy is heavily tilted towards encouraging blue-collar workers to come here. The past decade has seen a strong discouragement of more highly-educated immigrants. High school diploma jobs aren’t likely to increase in real wages.
Do you see something I don’t? [Probably, and that's why I'm curious.]