Here are a few recent articles of interest that I thought might be worth discussion.
Calculated Risk: The upward slope of Real House Prices
I don’t think we have to choose between real prices and price-to-rent graphs to ask “how far out of line are house prices?” I think they are both showing that prices are not far above the historical lows. Prices might overshoot to the downside because of supply and demand issues; there is a large overhang of vacant housing units and many distressed properties still coming on the market, plus demand is soft with weak employment, fairly tight financing, negative home buying sentiment and some usual buyers excluded because of credit issues. But I don’t think national real prices are that far out of line.
Note: usually near the end of a housing bust – after nominal prices stop falling – real prices decline slowly for a couple more years, and we will probably see that this time too. Of course, right now, nominal prices are still falling.
Reuters: Is real estate for suckers?
Are you a dope for buying a home in the U.S. right now?
If you need and want one, there’s no harm in that. Yet if you think it’s an investment that will actually appreciate, you’re taking a sucker’s bet.
During the bubble years, the “greater fool” theory prevailed. When you bought a home, you were confident that someone would buy it for a higher price than you paid. “Flippers” prospered from this mass psychology.
Right now, it’s a “lesser fool” market: You’re hoping that you’re not foolish for buying a depreciating asset in a troubled economic climate. Millions stay out of the market just to avoid the feeling of doing a fool’s errand.
Home prices are still dropping in many areas with no real bottom in sight. … The U.S. home market is no longer in triage mode. It’s a train-wreck. Zillow said home prices “are no longer due to bottom out” this year. When will they, then? It may take years, and here’s why.
New York Times: Rent or Buy, a Matter of Lifestyle
As this year’s spring buying season nears its peak, the relative merits of renting and buying are closer than they have been since the housing bubble began inflating almost a decade ago. So the best single piece of advice for most people is to make a decision based mainly on their stage of life, rather than on any complex financial calculations.
If you think you are ready to settle in one place for at least five years, if not more, buying often makes a lot of sense. That’s why I bought my first house, in the Washington area, a few years ago, despite thinking local prices remained high.
But if the chances are good that you will move again in the next few years, renting is usually the better bet. The various closing costs, including real estate agents’ fees, are just too high. Owning a house also makes it much harder to move when you want to because selling a house is complicated.
Within this basic framework, the numbers — specifically, something called rent ratios — are the next place to turn.
Thoughts?