We were lucky enough to hear Robert Shiller speak at the Distressed Real Estate Summit a few weeks back. (Read Part 1) We had the opportunity to ask him the following question.
Question: Since we are living in anomalous times, as you noted, based on your background in behavioral studies, how would you characterize the long term impact on people’s perception of home ownership in the US as the “American Dream”?
Answer: It’s truly a sign of our times to buy a house, and it’s a funny idea that doing so will make us money. The idea seems off. If you think about it, inflation adjusted housing prices were the same in 1990 as they were in 1890.
Everyone talks about the scarcity of land in terms of the home purchase rationale. Land is scarce, yes, but it’s only a small component of housing prices; land has NOT been the bottleneck in this country; cities can continue to expand on agricultural land.
The reason housing prices have not dropped is because construction has gotten better, and housing prices have generally tracked construction prices. In addition, the government has been subsidizing homes for the last 70 years and artificially stimulated the industry.
The idea that housing will make you filthy rich is a strange anomaly.
{ 6 comments… read them below or add one }
Nice post! Shiller’s words have never rang more true.
Just found your site – good stuff. Looking forward to tracking you.
Shiller brings up a good point in places like Florida and nearly anywhere in the U.S. However, Manhattan is still an island with limited space, so one cannot expand an island. Therefore, per my studies, the prices will continue to escalate at a more accelerated rate than elsewhere.
Thanks, Anonymous. Looking forward to your comments.
Jamal … I would just love to see those studies; they would help squash the bear voice in me when it rears its growling head. I have kept hearing about the limited space in Manhattan yet see many many ghost towers throughout, even though the space card has been played for many years now.
Please see the entire message “at a more accelerated rate than elsewhere”. The decline in Manhattan is not as great as in other areas.
I have another post about pricing showing that while the named price point has not come down, owners and leasers are giving one or two month’s free rent in order to fill vacancies.
Agreed – the decline hasn’t been as great. I believe the question is how much further will prices decrease in Manhattan before they turn and begin increasing. And although the argument can be made that the rate of increase may well be higher, that may mean little if the national rate of increase is 0.01% a year (slight exaggeration of course; just referring to the expected stagnancy over the next few years)
I think most people see the mistake of “Hope and Change” as more and more fraud is being exposed (especially on global warming, etc…) Once we get clear guidance of where we as a country are moving, hopefully there will be a return to some semblance of normal.
Since more and more are becoming unemployed, no one has the credit or money to sustain price increases. Hopefully, the owners can at least pay their mortgages and keep their heads above water.