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Robert Shiller Has A Chiller For Housing Recovery Hopes

Tyler Durden's picture





 

Recent research by Robert Shiller indicates sounding the all-clear for a housing recovery is premature since the home-price rebound, if that's what it is, doesn't yet have momentum - which is the most powerful driver of home prices. As he notes in today's WSJ, momentum is a modestly weak force in the stock market but the most important driver of the 'feedback loop' in home-price increases (followed by unemployment). "It could be a bottom, I just don't know", he adds pointing to the large overhang of homes that are either in foreclosure of near it - which would push prices down further if they were ever released to the market (wanting to see momentum carry into the Spring to be convinced). Critically, he sees bubbles once again forming in some areas, commenting that investors have been "primed to think speculatively" adding that "There was a change in our mindset. Now we start thinking about the housing market as like the stock market." Our question is, if the increasingly speculative housing market is part of the CPI basket, why then is the stock market not also part of what is now an inflationary basket chock full of QE-sensitive assets.

 


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Tue, 08/07/2012 - 09:06 | Link to Comment Watauga
Watauga's picture

What did so many posters on ZH used to say?  Oh, right: "Gold bitchez!"

Tue, 08/07/2012 - 09:13 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

I think I saw that on a Westboro Baptist protest sign. I thought to myself....those people are clearly crazy.

 

Tue, 08/07/2012 - 09:42 | Link to Comment Eireann go Brach
Eireann go Brach's picture

Shiller you Shill! At the beginning of this year you called for another 20% reduction in prices! This is an artificial bottom driven by manipulated interest rates! If rates rise by just 1%, buyers lose 10% in purchasing power, just imagine if rates rise by 2%! Then prices need to plummet again to be affordable and in line with rates! So once again we have the Fed ruining housing!

You sold out and joined team Obimaboma's election economic recovery propaganda campaign! Fuck you

Sincerely

Your students and mom

Tue, 08/07/2012 - 15:29 | Link to Comment mkkby
mkkby's picture

Correct.  Housing (and stocks) depend on zero interest rates FOREVER.  If they ever normalize, it's plunge time.

Tue, 08/07/2012 - 09:19 | Link to Comment MillionDollarBonus_
MillionDollarBonus_'s picture

If the housing recovery does not pick up, then we simply have to introduce a HARP2. This will consist of a modified version of the original program. The two main modifications will be as follows:

1. Loans will have negative interest rates, making them more attractive to home buyers 

2. The loans will be conditional on paying an additional premium on the value of the house, putting upward pressure on house prices

I fully realize that HARP2 will not be popular with libertarians, right-wingers and lunatic conspiracy theorists, but then again, these people were even against the emergency financing of AIG in 2008, so they don't have much credibility in my opinion.  

Tue, 08/07/2012 - 09:24 | Link to Comment CharlieSDT
CharlieSDT's picture

Good one today.

Tue, 08/07/2012 - 09:24 | Link to Comment azzhatter
azzhatter's picture

Great report Barney....er....I mean....MDB

Tue, 08/07/2012 - 09:33 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

It's a dead tie between upticks and junks......the suspense is killing me.

 

I can't look.

 

Tue, 08/07/2012 - 14:22 | Link to Comment Bananamerican
Bananamerican's picture

so many red down-ticking dullards on MDB's posts....sad

(gotta be right-wingers....ALL of 'em. RW's don't get "nuance" or subtelty very often.... They get confused by satire and consider it to be a sign of "LIBERALLLL intellectuality". 

 

Lefties, at their worst, are rules-fascists....picture a bitchy, medicinal, lesbian scold.

Righties, at their worst, are like dogs, woofing at the wind....

Tue, 08/07/2012 - 09:26 | Link to Comment duo
duo's picture

HARP was a shadow program to speed foreclosures, disguised as trying to "help" homeowners.  A kind of legalized theft.

Tue, 08/07/2012 - 09:33 | Link to Comment _ConanTheLibert...
_ConanTheLibertarian_'s picture

how did HARP1 work out? Will you post this message again and again during HARP n

If AIG was left to fail we actually would have a recovery by now you little evil motherfucking scumbag


Tue, 08/07/2012 - 09:58 | Link to Comment Bansters-in-my-...
Bansters-in-my- feces's picture

Not a lot to say other than ,fuck off you piece of shit MDB.

I see your green button pushers are on payroll this morning.

Fuck off and die.

Tue, 08/07/2012 - 10:57 | Link to Comment Overfed
Overfed's picture

Someone doesn't understand sarcasm. In all fairness, his deadpan delivery does tend to throw people off.

Tue, 08/07/2012 - 14:05 | Link to Comment Fukushima Sam
Fukushima Sam's picture

I would call MDB satire rather than sarcasm.  They are closely related, but satire is art.  And MDB is indeed an excellent satirist.

Tue, 08/07/2012 - 10:24 | Link to Comment JawsMusic
JawsMusic's picture

Its rare that one finds such a pitch perfect Troll. One has to admire the skill involved, kudos to the writer behind MDB.

Tue, 08/07/2012 - 10:36 | Link to Comment GoingLoonie
GoingLoonie's picture

I will assume this post was made in jest.

Tue, 08/07/2012 - 14:30 | Link to Comment Bananamerican
Bananamerican's picture

wow. you might need a nap after that intellectual leap

Tue, 08/07/2012 - 13:45 | Link to Comment savagegoose
savagegoose's picture

whats that, you buy house for $1mill, and they make monthly mortgage payments to you for the next 20 years, in thanks for buying?

Tue, 08/07/2012 - 14:16 | Link to Comment silverserfer
silverserfer's picture

if you downvote mdb, you are not competent enought to be on this site and should be demoted to Yahoo finance for 1 year.

Tue, 08/07/2012 - 09:08 | Link to Comment _ConanTheLibert...
_ConanTheLibertarian_'s picture

Oh, there will be momentum again. To the downside that is.

Nice picture BTW

Tue, 08/07/2012 - 09:08 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"It could be a bottom, I just don't know", he adds pointing to the large overhang of homes that are either in foreclosure of near it."

I suspect the "overhang" of homes is at least three times larger than the current "supply" and growing. Plus when and if the market stabilizes, that alone will bring an entirely new wave of homes onto the market as people who waited for prices to firm now pop to the surface.

The housing market under these conditions is buried for the next decade.

Tue, 08/07/2012 - 09:09 | Link to Comment rguptatx
rguptatx's picture

CPI is ex-food, housing, energy, transportation and taxes - meaning iPads and mobile data plans are the only contributor t oCPI.

Tue, 08/07/2012 - 09:22 | Link to Comment scatterbrains
scatterbrains's picture

I think the CPI is too sensitive to inflation.  The bernank needs to add a gauge of "happyness" as an offset.  If gas is $6 bucks but your standing inline with a basket of snacks and cigs with your ebt card in hand are you happy ? Why shouldnt that be part of the equation ?

Tue, 08/07/2012 - 22:45 | Link to Comment jerry_theking_lawler
jerry_theking_lawler's picture

on top of that, lets add unicorn farts and rainbow skittles into the cpi calc......there seems to be alot of that going around......

Tue, 08/07/2012 - 11:31 | Link to Comment Lord Blankcheck
Lord Blankcheck's picture

I though they change housing prices in the CPI to housing rents in the early 1980's.Most rentals are under rent control thus keeping the CPI lower.What would the CPI have been from  2002-2006 in housing prices were used?

Tue, 08/07/2012 - 09:09 | Link to Comment Christoph830
Christoph830's picture

From the WSJ article:  "Momentum is the tendency for prices to keep moving in the same direction. It exists, but is a relatively weak force, in the stock market. "

Is this a joke?

Tue, 08/07/2012 - 09:29 | Link to Comment odatruf
odatruf's picture

It sure is.  The study of psychology is a better endeavor for understanding today's markets than the study of economics and business.

 

Tue, 08/07/2012 - 09:09 | Link to Comment Lohn Jocke
Lohn Jocke's picture

We kids don't need to saddle ourselves with debt. We have college for that.

Tue, 08/07/2012 - 09:20 | Link to Comment kridkrid
kridkrid's picture

Why not do both... it's the American Dream, don't you know.  Just think of how insidious that is.  Two ideas that become ideals are little more than the cornerstones to debt servitude.  Remarkable.

Tue, 08/07/2012 - 09:12 | Link to Comment Sean7k
Sean7k's picture

A house is like any asset, it depreciates over time relative to it's condition and care. The only reason housing goes up is either: improvenemnts or dollar inflation. Dollar inflation is not value.

The fact housing continues to stay in a small channel reflects one, the huge hidden inventory that continues to add to the market inventory and the rapid dollar inflation being used to offset deflation. 

Anyone betting on the housing market in light of falling production rates and high inemployment is playing with real fire.

Tue, 08/07/2012 - 09:18 | Link to Comment Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

Welp, there is also population migration and growth to take into account.  More people chasing the same amount of land would cause the price of that land to rise.  Also, in theory, overall salary gains in excess of inflation would lead to price rises as average salary increases while the recommended ratio (say 2.5-3x annual salary) remains the same.

Tue, 08/07/2012 - 09:24 | Link to Comment Sean7k
Sean7k's picture

Then you can explain why those factors have not made a bit of difference. There have been no gains in average salaries since the seventies, so that theory is just that. 

When you talk in terms of the general market, you don't use specific demographics to argue against a point. Welp? What a moron.

Tue, 08/07/2012 - 09:37 | Link to Comment crawldaddy
crawldaddy's picture

even worse than that. Median take home pay has been FALLING inthe US for a decade. I agree with your points, only bankers and their games are keeping the housing market propped up right now.  It needs to drop another 30% IMHO.

Tue, 08/07/2012 - 09:29 | Link to Comment kridkrid
kridkrid's picture

Your first part is fine (more people chasing the same amount of land)... though I don't think land is as finite of a resource as the position would suggest.  Of course in the broad sense, land is absolutely a finite resource, but relative to a quarter acre lot within a 400 home community outside any city, minus LA and NY, I think there is room to build.

But your second part about salaries certainly fit into sean's position about the increase in price being little more than inflation... the same is true of salaries.  I'm sure you've seen the graphs, but for a VAST majority of Americans, real income has been completely flat for 40 years.  Not our paychecks, but our purchasing power.  The increase in your paycheck is window dressing... as is the increase in housing prices (minus the bubble, but a lot of that has been eliminated, though not all).


Wed, 08/08/2012 - 21:43 | Link to Comment Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

That's why the 'in theory' qualifier is bolded.

 

To be fair, inflation adjusted, I'm currently netting as much as I ever have in the 25+ years I've been filing tax returns, and looking to buy property at 2.5x my annual, so's I can improve it with things that don't make sense doing to a rental.

Tue, 08/07/2012 - 09:28 | Link to Comment azzhatter
azzhatter's picture

Some guy bought 650 houses in Macomb Mi yesterday for $4.8m.,an average of $7,400 per house.

Tue, 08/07/2012 - 09:36 | Link to Comment kridkrid
kridkrid's picture

Interesting... here's the link..

http://www.nydailynews.com/news/money/millionaire-scoops-650-homes-michigan-county-foreclosure-auction-article-1.1129929

In a way, this just goes to show you that you never really own property.  The government owns it in the form of taxation.  Can't pay your property tax, we will find someone who will.  And while this looks like a good deal for the yacht owner, it will be interesting to see how it all plays out.

Tue, 08/07/2012 - 09:39 | Link to Comment crawldaddy
crawldaddy's picture

its a terrible deal for him unless he is getting some bullshit sweatheart deal from the govt.  YOU COULDNT give those properties away because fo the taxes, upkeep, and all the other cost associated with them.  But then again, there may be the ol insider bullshit game going on here where we the tax payers are somehow going to get stuck with these worthless shacks while he turns and burns.

Tue, 08/07/2012 - 09:59 | Link to Comment CheapBastard
CheapBastard's picture
The woes of being a small-time landlord April Rental Advice: Think renting out that second home is the quick-buck solution to a sagging real-estate market? Think again. In landlording, money isn't fast, and the only sure thing is headaches.

 

Mark Kreditor has been managing rental properties for 31 years and has this to say to anyone considering getting into the landlord game: Don't do it.

Monthly costs inevitably creep in. Taxes and association dues only go up. And, in the end, properties aren't even guaranteed to appreciate.

"It's going to be a hardship on your checkbook every month, and every couple years there's going to be a tenant that does something really awful, and you're going to hate it, hate it, hate it," says Kreditor

 

http://realestate.msn.com/april-2012-rental-advice-the-woes-of-being-a-s...

 

I identify with him. Once owned a rental and got swiped $14,000 repair bills and 7 months no rent and it was a b*tch evicting the guy. Court cases are so backlogged now it takes months to throw a non-paying tenant out. Good luck to anyone who wants to try being a landlor din thsi volatile climate.

Tue, 08/07/2012 - 09:37 | Link to Comment Honey Badger
Honey Badger's picture

Over time, your house depeciates and the land under it appreciates.

Tue, 08/07/2012 - 09:57 | Link to Comment paulypaul
paulypaul's picture

Another reason for housing going up, other than the two you mention, is the attraction of capital to that asset class.

Not general inflation but a greater percentage of liquidity being applied to an asset class.

Tue, 08/07/2012 - 09:12 | Link to Comment LoneStarHog
LoneStarHog's picture

Any F__kTard who "invests" in a spec house, today, and expects to be financially rescued when it crashes and burns should be culled from whatever is left of so-called intelligent society.

Tue, 08/07/2012 - 09:14 | Link to Comment MIDTOWN
MIDTOWN's picture

DUH...

Weak Job numbers

Damaged credit scores

Damaged Financial Statements

Banks not lending

40% of realtors have quit the business and another 40% are too broke to advertise. - No Momentum

Jobloss / Foreclosure / Jobloss / Foreclosure / Jobloss / Foreclosure ...

Tue, 08/07/2012 - 09:19 | Link to Comment You Didn't Buil...
You Didn't Build That's picture

"Waiting for Momo," I hear is the new absurdist play by Samuel Beckett...waiting endlessly and in vain for the arrival of someone (or something) named Momo.

Tue, 08/07/2012 - 09:21 | Link to Comment peekcrackers
peekcrackers's picture

The constipated houing market is going to move by slipping a ivestment  stimulant laxative..

Its backed way up in the  bowels of the showdow banking

 

Tue, 08/07/2012 - 09:21 | Link to Comment Hype Alert
Hype Alert's picture

Our question is, if the increasingly speculative housing market is part of the CPI basket, why then is the stock market not also part of what is now an inflationary basket chock full of QE-sensitive assets.

 

Exactly, stock price should represent replacement cost of the company.  Inflation from money printing is evident, but the FED will make sure to look the other way just like they did when housing was doubling in price.

Tue, 08/07/2012 - 09:39 | Link to Comment khakuda
khakuda's picture

Exactly, they already are looking the other way.  Rosengren is on the tape this morning saying there is no inflation and arguing for endless, open ended QE.  Looks like he's the first one sliding down the slippery slope.

Someone should ask him if there is no inflation, why do they keep changing bogeys?  They used CPI until it showed food and energy inflation, so they moved to core CPI to mask inflation.  Recently, that didn't work and surprise, surprise, they've changed to the PCE.

This crap is EXACTLY the reason Jefferson and the Founders didn't want the government to be able to coin money.  They end up taking control of everything and freedom and liberty disappear.

Tue, 08/07/2012 - 09:48 | Link to Comment Sean7k
Sean7k's picture

Just  a helpful reminder. Jefferson was at odds with most of the founders as they were federalists. Also, the FED is a private banking corporation that uses the appearance of ties to the government to maintain credibility. 

Tue, 08/07/2012 - 09:22 | Link to Comment youngman
youngman's picture

Some guy just bought 350 homes in Michigan..Detroit I think....some he will sell...or try too...others he said he was going to give to chairity....now what they will do with them is a guess....time will tell if this was a good deal or not...

Tue, 08/07/2012 - 09:28 | Link to Comment azzhatter
azzhatter's picture

It was 650 houses and he paid an average of $7,384 per house

Tue, 08/07/2012 - 09:33 | Link to Comment crawldaddy
crawldaddy's picture

he just lost a lot of money. How much does it cost to keep 650 properties up to code, and not a nuissance, and secure?  Have fun paying taxes on your empty lots, your stripped shacks, and your crack dens.

Tue, 08/07/2012 - 09:29 | Link to Comment crawldaddy
crawldaddy's picture

upkeep alone makes that a losing bet.  Have fun keeping vacany homes up to code, have fun having them not stripped of its piping and wiring.  Camden NJ for a long while would sell houses for $1.  Catch was you had to actually live in it.  STill was a money loser.

Tue, 08/07/2012 - 09:37 | Link to Comment peekcrackers
peekcrackers's picture

If not there is all ways devils night .. Detroit was a tinderbox in the 90s

Tue, 08/07/2012 - 09:49 | Link to Comment dwdollar
dwdollar's picture

Unless all those houses were in the same area and he plans on forming a separate community from Detroit he is a fucking moron.

Tue, 08/07/2012 - 09:41 | Link to Comment crawldaddy
crawldaddy's picture

what kid coming out fo college making 30k with 30k debt, can get and afford a 225k mortgage. Answer. NONE.  Now the majority of kids coming up WONT be graduating college so what prospects do they have for buying on house on a pizza delivery or retail job salary?  

For the middle aged, those unemployed or those with jobs that are no longer so secure as they once were, who is gonna go buy a new more expensive house?  yeah, noone is.

Has Housing found bottom?  what a stupid question. Has the good jobs come back yet?  without the good, steady jobs, housing of course can NEVER come back.

 

Fuck these speculators. They'll plant stories etc, but reality is reality, its all about the jobs. ALways is.

Tue, 08/07/2012 - 09:27 | Link to Comment Jlmadyson
Jlmadyson's picture

 

Internal emails reveal Timmy G and friends killed pensions of 20,000 non-union autoworkers during the bailout;

http://dailycaller.com/2012/08/07/emails-geithner-treasury-drove-cutoff-of-non-union-delphi-workers-pensions/

Tue, 08/07/2012 - 09:29 | Link to Comment Tom.the.Bomb
Tom.the.Bomb's picture

I just left the housing business (as in… construction of them) after 30 years.  I could type and share for hours, but out of respect for what I have “learned” here @ ZH (some pretty globally financially educated dudes) I will simply corroborate the unpretentious fact that the Housing Ponzi (notion) has long been cooked.  An actual reset would be impossible, the only way (long time) out is forbearance.  Or as I like to say a moratorium paying for almost everything.  The word (meaning of) retirement has truly evaporated for millions of Americans due to the greedy banker fucks.  It is all a Ponzi now… all of it.  What I don’t understand is, that most of the “sheep are still sheep”.  No rocket science here folks.  The word median the oxymoron of this time.

Tue, 08/07/2012 - 09:49 | Link to Comment kridkrid
kridkrid's picture

It's all been a ponzi scheme for a long time, but it's finally catching up to us.  Ponzi schemes feel fine on the way up... people are getting paid, you can get your investment out, things look legit.  Our monetary system is no different from any other ponzi scheme... it's actually very simple, but nobody bothers to explain it.

Virtually all money is debt loaned into existence.  There is interest connected to the loan, but there is no money in the system to pay both the principle and the interest.  So to keep things moving, more debt must be issued.  There... 3 sentences to explain how our monetary system works.  I would add a 4th sentence about exponential functions, but you start to lose people there.  But it's the steep curve of the exponential function that we are experiencing today.  I would add a 5th sentence to explain that the monetary system doesn't particularly care who takes on the debt... could be consumers (the ponzi scheme that you've been a part of for 30 years is a big vehicle for that) it could be corporations (our business schools preaching leverage and cash flow help there) or government (that last frontier when all else fails).

It's almost over now... but chances are that the reset will involve WWIII, so buckle up.

Tue, 08/07/2012 - 09:29 | Link to Comment Tom.the.Bomb
Tom.the.Bomb's picture

I just left the housing business (as in… construction of them) after 30 years.  I could type and share for hours, but out of respect for what I have “learned” here @ ZH (some pretty globally financially educated dudes) I will simply corroborate the unpretentious fact that the Housing Ponzi (notion) has long been cooked.  An actual reset would be impossible, the only way (long time) out is forbearance.  Or as I like to say a moratorium paying for almost everything.  The word (meaning of) retirement has truly evaporated for millions of Americans due to the greedy banker fucks.  It is all a Ponzi now… all of it.  What I don’t understand is, that most of the “sheep are still sheep”.  No rocket science here folks.  The word median the oxymoron of this time.

Tue, 08/07/2012 - 09:46 | Link to Comment Sandmann
Sandmann's picture

Rabbits caught in headlights.  People are just afraid of anything that is too big too conceive. Most people have no experience of anything bigger than themselves unless they have been in combat or have quality conceptual skills coupled with experience.

IT is LEADERSHIP that is supposed to give them direction

Tue, 08/07/2012 - 09:35 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Housing recovery?  LOL.  Momentum? ROTFLMAO!! Keep pumping that meme!!!

Tue, 08/07/2012 - 11:15 | Link to Comment FieldingMellish
FieldingMellish's picture

Try reading the article...

Tue, 08/07/2012 - 09:47 | Link to Comment QQQBall
QQQBall's picture

momentum = mass psychology. This guy went to skool where?

Tue, 08/07/2012 - 11:14 | Link to Comment FieldingMellish
FieldingMellish's picture

MIT (Ph.D. in Economics, 1972)

Tue, 08/07/2012 - 09:58 | Link to Comment GrinandBearit
GrinandBearit's picture

Less jobs = less buyers.   Even a moron could understand that.

Tue, 08/07/2012 - 10:03 | Link to Comment CheapBastard
CheapBastard's picture

 I DO believe in ghosts, I DO believe in ghosts, I DO I DO I DO I DO I DO ...

 

http://www.youtube.com/watch?v=4sKzPBu2M8A

 

If you say somehting 1,000 times, does that make it true?

Tue, 08/07/2012 - 10:12 | Link to Comment FieldingMellish
FieldingMellish's picture

Doesn't anyone read the article? He says that he "doesn't know" if its the bottom and sees potential things might might cause prices to fall further. He is deriding the speculative nature of housing, not applauding it.

 

Actual WSJ article title: Is This the End of the Housing Bust? Not So Fast, Says Shiller

Tue, 08/07/2012 - 12:18 | Link to Comment giddy
giddy's picture

...the POINT is that Shiller has long been shilling the "housing bottom"and now he can't quite make up his mind?  This is akin to that pig Sandy (you shoulda' never let me screw you) Weill telling folks that maybe TBTF was a "bad" idea after all.  Who cares where Schiller got his degree?  Only tribal elitist azzholes care about Ivy League pedigree.  It means jack-shit if he's unable to be intellectually HONEST and not shill for this (or any) view.  Screw him and the ship he sailed in on.  Total wanker.  

Tue, 08/07/2012 - 12:33 | Link to Comment FieldingMellish
FieldingMellish's picture

He was one of the lone voices at the top calling for a fall. Now he is considered a shill?

Tue, 08/07/2012 - 12:59 | Link to Comment giddy
giddy's picture

...Don't recall him beating that drum.  But I DO remember seeing him speak (on several occasions) to an industry full of accolades using his research to push bubbles and make themselves incredibly rich.  Doesn't matter if they made the "right" call.  ALL of them were and are being paid and backstopped by taxpayers.  The only "momentum" today is the shrinking of middle class taxpayers.  Where does Shiller see upside momentum coming from?  Maybe in  economic forbearence.  That's the only momentum on the horizon.  

Not interested in arguing relative degrees of dishonesty.  He had/has a bully pulpit and he chose (time and time again) to sell the relgion of economic hopium vs. individual salvation.  Opiate of the masses indeed.    

Tue, 08/07/2012 - 13:51 | Link to Comment dvfco
dvfco's picture

Sorry for the duplicate post.  It's my trigger finger.

Tue, 08/07/2012 - 13:41 | Link to Comment dvfco
dvfco's picture

Schiller is a Major League Putz.  He'll cause the housing bottom as it makes a short-term peak and starts heading down again.  I'm still looking for the true 'one-handed economist'.  Enought of this 'well, on the other hand' bullshit.

They're all afraid to make a call, but they'll say someting positive every day so that, when the market finally turns, they can find their daily quote that sounds positive and say, "Look - I called the bottom."  We already know the reverse is true.  These blow-hard a/k/a TV's talking heads always say we could be at a precipice so that, yup, if there is a crash, they called it.

Listen to yourself.  Or, keep reading here!

Tue, 08/07/2012 - 11:57 | Link to Comment odatruf
odatruf's picture

At first I took exception to the premise of Shiller's research, but the more I think about it the more I suspect it is correct.  If momentum is the most important driver of home-price increases, then it follows that it is the most important driver of demand.  Which means that it is what most changes the behavior of the marginal buyer.

Employment is critical, but people who are going to buy a home as a result of employment are likely going to buy a home, even if imperfect, unless one is far out of their reach. They are the base-load buyers and sellers, as it were. Sure, people can get stuck in a home or can be unable to buy as a result of a bad job picture and being underwater, but I think that would affect the margins less because they are a little less price sensitive than the person who is buying on speculation.  Speculators are the momentum buyers.  Either they are buying investment property purely for the hoped for gains or ROI.  Or they are sick of watching their neighbors and slow brother-in-law rack up appreciation despite being entirely ill suited to dress themselves never mind make sophisticated financial decision (think Frank Grimes and Homer). But they are the last dollar in, which means they set the prices.

So like the stock market, the people who are buying on the fundamentals are not the main price mover. Buying an equity for its solid expected PE growth, dividend and management isn't what moves markets.  Neither is buying a home for a place to live, raise a family or join a community.  HF algos and traders move them.  So do home flippers and the real-estate-can't-go-down or we-are-at-bottom crowd; they are the same animal.  I suppose I can't wait to be at a real estate closing to find out that my counter party is Lenovo.

LOL - I remember when you'd get an appliance at a closing, not sit across from one.

 

 

Tue, 08/07/2012 - 12:35 | Link to Comment giddy
giddy's picture

Momentum relys on mob mentality -- based on fear.  The US economy is contracting.  Period.  Those individuals do best who stabilize and recalibrate their lives during periods of contraction -- and not depend on expansion as their only strategy.  Momentum works both ways except the downside is faster. 

Tue, 08/07/2012 - 13:15 | Link to Comment odatruf
odatruf's picture

"Momentum works both ways except the downside is faster."

While I fully agree that those who can adapt to non-growth are the best positioned, I am not sure I agree with the above line.  There is a downside zero bound, which may make it seem like it is faster than the upward momentum. Or maybe I should say that I think the upward movement was more out of place than the downward.

I think greed is more powerful than fear (or maybe it IS the fear that everyone else is making out) so the mob rush to buy and bid up bubbles is stronger and more out of whack way than the downside.  For evidence of this, just think about the underlying fundamentals of housing prices.  During the up swing, the prices reached levels that were mush more out of line with respect to replacement cost, ROI in an a rental situation (even when adjusted for opportunity cost) or multiples of wages relative to the historic averages than they have on the downside.  So while prices have rushed down, they are not even close to being as out of line downward as they were upward during the 2004-2007 period.

Maybe that means there is a lot downside left to run, or maybe it means the market has fundamentally changed as a result of demographics, lifestyles or something else. I don't' know. But I do strongly suspect that people in general are more irrational about gain than loss. For whatever you care to make of that.

 

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