The value of your home

Anyone who’s ever bought something only to see it advertised for less elsewhere can understand the feeling some Gen-X’ers have. They purchased houses only to find them “worth less than they owe,” MPR reporter Laura Yuen’s story today says.

Even when there was a housing bubble, it never made sense to buy a house based on its potential resale value. The proper role of a house is to provide shelter, and anything beyond that is a bonus.

My generation has done a poor job of teaching our children that you buy a house because you love the way the house fits your family, you’ll stick around for awhile, the schools are good, and the neighbors seem like people worth knowing.

It’s true, people in their late twenties and thirties are more mobile, and that’s a good reason to rent, except that — again — my generation taught its children that renting was equivalent to throwing good money away.

“Thirty-somethings just happen to be unlucky enough to come of home-buying age before the market came apart,” Twin Cities mortgage banker Alex Stenback told Yuen.

But it’s more than luck; it’s the the result of a societal change in how we live. We’ve chosen not to “settle down” the way previous generations did. We’ve chosen to stay mobile to reap the rewards of that mobility.

Yes, sometimes that backfires, but in the end, it’s because we made a choice and the challenge is to understand ahead of time what the consequences — good and bad — are. In a sense, we are redefining “home-buying age.”

In April 2008, I created this piece, which talked about the bonds that are created in our hearts about the places we live. I invited people to submit essays on the subject. No one ever did. (Sorry, iPeople, it’s in Flash and you won’t see this).

I bought my home for about $100,000. It peaked in value at about $230,000 and is worth about $160,000 now. Am I $60,000 ahead of the game or $70,000 behind? Neither. I’m five years away from paying off the mortgage. I’ll end up having paid a total of about $250,000-$300,000 in interest and principal.

What did I get for my money if not a house that’s worth that much?

  • Jim B.

    Bob,

    Thanks for saying what few others seem willing to. I bought my house in Saint Paul, close enough to the peak to be a little underwater now, but I never quite bought the idea that buying a house made financial sense over renting. Our mortgage payments were greater than what we had been paying in rent, and that’s before you include utilities, property taxes, homeowners insurance, and of course maintenance. And when you include the interest you’re paying, your home has to increase in value A LOT before you ever really break even. But my wife and I didn’t buy a house as an investment, we bought a house to live in, have a dog, plant a garden, and to have a place that we could make into the home we wanted. I do feel sorry for those who are underwater and want to sell, but you’re absolutely right that in making these decisions we need to think about all the possible consequences.

  • Patrick S.

    I’m a young professional (man, do I hate that term) that’s looking at houses. A house makes absolutely no financial sense for me – renting is way cheaper when it’s broken down – but I like having a place to tinker and lawn to mow. It’s a good time to buy, but the people who say buy buy buy are not looking at the big picture. In the near term, the second wave of foreclosures is just starting now that the robosigning business is all settled. Additionally, demographics are working against home prices. Soon enough, Boomers will be looking to get rid of their single-family residences and will flood the market. They’d like to sell them to folks like me, but my generation is rightfully disenchanted with the idea of home ownership. We’ve seen our slightly older friends who bought houses a few years ago who are deeply underwater and stuck in a bad situation. We spend a lot of time on the internet and rarely go a week without seeing some intriguing job posting in another city. We’re not as likely to get married, not as likely to have kids, and not as likely to buy into the idea of needing a third-acre lot and a three bedroom castle like our parents did. We’re seeing some people enter the real estate market, but considering the low interest rates and very attractive prices it does not seem to be the watershed round two of home ownership moment that it could be. The concerns of future demographic-driven dips in prices is well documented:

    http://www.npr.org/2011/06/21/137303327/will-housing-take-another-hit-as-boomers-sell

    Ultimately, the allure of home ownership is too much for many of us to resist. I know I’m about to give in. The value for me, however, is having my own four walls that I can paint, cut, or drill without any concern for the neighbors or what the landlord might say. You can’t monetize these things and I wouldn’t try, because I know financially I am looking to undertake a very expensive hobby.

  • John P.

    Here’s something that I rarely see as part of the discussion. People stop comparing total cost at the point where the mortgage is paid.

    With my paid-for house, I can see myself retiring with a very low cost of housing. If I was paying rent it would probably still be possible to retire, but not nearly in the same comfort.

    Sure, I paid more in P & I than I will probably ever get out in resale value, but I got to live in a place where I was in control and now can live in very cheaply for the rest of my life.

  • James

    I’ve been in my house now for 24 years. After subtracting all expenses going into the house from what rent would have cost me for those 24 years I’m down about $50k. Thats decreasing about 4k every year at this point. So in the end when I do sell my house I’ll be up what ever the house is worth less the 50k. If I stay here another 10 years I could well be ahead the entire value of the house.

  • Alison

    \\We’ve chosen not to “settle down” the way previous generations did. We’ve chosen to stay mobile to reap the rewards of that mobility.

    Could it be that some employers have chosen to see their employees as expendable? An increasing number of people are hired as contract staff and fired with any little bump in the business or when they could save a few bucks by sending the job overseas? Walking away from a good paying job isn’t a choice a lot of people have made for themselves. It’s a choice that has been made for them. When that happened a decade ago you could sell your house to go where the work is. Now you’re trapped in that house.

    There are plenty of other good reasons people want to sell of houses other than the freedom to move on a whim. Divorce is another one of those reasons. There are a lot of people who bought houses as places to live, not as investments, who are now trapped by their mortgages in marriages that no longer work.

  • http://simplemindedinvestor.com Ross Williams

    “My generation has done a poor job of teaching our children…”

    This is complete cr*p coming from someone in the news media. Every major media source spent years channeling propaganda from the housing and finance industries that encouraged people both to take on as large a mortgage as a lender would give them and to consider their house an “investment”. This was not a “poor job of teaching”, it was a misleading marketing campaign.

    You can, even today, find the media telling people that the first step for buying a home is to get pre-approved by a lender so they will “know how much you can afford.”

    In truth, lenders don’t care what you can afford because they can foreclose if you don’t make payments. They care whether there will be enough equity to cover the remainder of your mortgage and their costs of foreclosing. A lot of people got into trouble because they believed the media and trusted the lender wouldn’t loan them more than they could afford. They believed that because the media told them it over and over, despite the fact that lenders would almost always loan more than someone should reasonably spend.

    The media also promoted the idea that refinancing with a larger mortgage was “taking your money out” when it was just additional debt secured by the same house. That’s what left a lot of people under water. When the price of the house fell, they discovered the “money they had taken out” wasn’t really there.

    The problem for most people now who bought at the height of the bubble was not that they couldn’t afford the payments. Those people have long since lost their homes. The problem people have now is that they paid way more than the house was worth and owe more than they can now sell it for.

    That bubble was driven by lenders whose business was manufacturing mortgages to sell to investment banks. Those bankers had a very profitable market for bonds backed by those real estate mortgages. The money pouring into real estate, drove housing prices up. And when it stopped, the market for bonds collapsed, the mortage business collapsed and the economy collapsed. Real estate values are only now getting back to being determined by the market for people who want a home to live in.

    It was a very sophisticated case of “pump and dump”, which made the investment bankers and mortgage brokers a LOT of money. The money people paid for those homes didn’t just disappear, it mostly ended up in the pockets of the folks who ran the scam.

    In short, its time for the media to take its share of the responsibility for this industrial scale fraud. They were the marketing arm. It wasn’t a “poor job of education”, it was a lousy job of reporting with catastrophic results.

  • bsimon

    ” it never made sense to buy a house based on its potential resale value. The proper role of a house is to provide shelter, and anything beyond that is a bonus.”

    Yup. Unfortunately we collectively forgot that for a few years there…

    People who are now skittish at buying are potentially missing out on locking in a low monthly cost of living.

  • Chris N.

    @Ross: Well said. However, I disagree with your gripe about Bob’s comment. From his language, he was speaking for his “generation”, i.e. the parents of the generation of recent homebuyers. You’re talking as though he was representing his profession, which is a horse of a different color.

    Maybe you could argue that he’s always representing his profession on this blog, but I still think that doesn’t make his statement complete crap.

  • Bob T

    Even if you fully own your home, there’s an “opportunity cost” in having your assets tied up in real estate that doesn’t generate income. In other words, if you own a $200,000 home, that’s $200,000 that you could have invested elsewhere. At a return of 4%, that’s over $650 per month that your home investment could be generating. This doesn’t make owning a home a bad idea, but it’s helpful to remember that there’s a trade-off involved.

  • Shannon

    We bought our first house 12 years ago for $130,000 what we could afford on one salary even though we both worked and didn’t plan on having a family. We failed to notify our daughter who arrived two years later at which time my husband quit his job and has been a stay-at-home dad since.

    Our house peaked at $190,000 and is now worth $129,000. However, we are only 9 months away from paying it off as I cannot stand debt of any kind and from day one aggressively paid down our mortgage.

    I am thrilled to be one of the lucky ones.

  • kennedy

    In the long run, buying beats renting.

    Lets say you can afford $1000/month. You can rent a 2 bedroom apartment (1100 ft²) or buy a 3 bedroom home (1600ft²). Assume rent and home value track inflation at 3%.

    After renting for 30 years you will have paid $578k (including renters insurance). You own nothing and are paying $2,300/month in rent.

    After paying a mortgage, taxes, and insurance for 30 years you will have paid $534k. You own a home worth $360k. Your housing expenses (insurance and property tax) are roughly $800/month.

    The key is long term. Signing a mortgage locks in a monthly payment. Rent will go up, especially if more people choose the option and drive up occupancy rates.

  • Bob Collins

    // Could it be that some employers have chosen to see their employees as expendable?

    Oh, there’s no question that the reality of the economy now requires you to have mobility (heck, that’s the reason I’m in Minnesota, and we couldn’t sell our home for eight months when we moved here).

    That reality, though, requires a different calculation in purchasing a home. It’s like overtime work. You can’t — or at least you shouldn’t — factor in overtime work when calculating what you can afford because it might dry up.

    Nowadays, you have to calculate the odds of losing a job. In the cases in these stories, though, that’s not the problem.

    I did like the guy who said, “I’m going to be $50,000 more in debt, on top of whatever I already owe for medical school, and whatever my wife owes for grad school,” he said. “All these things get be significant at some point.”

    At SOME point. Harumph! I stopped sleeping the day i went $1 in debt.

  • Bob Collins

    //Rent will go up, especially if more people choose the option and drive up occupancy rates.

    It only makes sense to buy a home *if* you’re the type that SHOULD be buying a home. If you think you might move in a few years, if you think you might lose a job, if you think you can’t guarantee a reasonable amount of time to invest in the home, you really need to be renting because you’re paying for the flexibility and that’s not an insignificant luxury in those cases.

    I think we did a great disservice looking down at renters as someone less valuable than owners.

  • Kassie

    I received my Notice of Sheriff’s Sale in the mail today. I haven’t paid my mortgage since November.

    When I bought my house I had a great stable job, and so did my husband. It was affordable and in a place we planned to stay for the next 20 years. Or I did, seems he had other plans and left.

    Basically, divorce for anyone who bought near the height of the bubble means foreclosure or short sale. Since my bank absolutely refused to work with me, I chose foreclosure over the stress of a short sale. At the point I stopped paying, my credit couldn’t get much worse than it was, so no real harm was done there.

    So, in the end, I’ll live in my house for 12 months without paying anything except utilities. I’ll have my credit card debt finally paid off and have money in the bank for the first time since the day I was married. My credit will be hurt, but not too badly.

  • Alison

    \\Nowadays, you have to calculate the odds of losing a job.

    So who gets to buy a home? Only those who can pay cash?

  • http://simplemindedinvestor.com Ross Williams

    “From his language, he was speaking for his “generation”, i.e. the parents of the generation of recent homebuyers.”

    Yes he is, he is attributing the sins of his profession to a generation. But there were plenty of people that were talking about predatory lending and encouraging people not to get caught up in the speculation. They weren’t being given a voice in the media.

    Attributing that failure to his generation is passing the buck, suggesting a non-existent general failure rather than admitting the specific involvement of his profession in causing the problem.

    “You’re talking as though he was representing his profession, which is a horse of a different color.”

    He no more represents his “generation” than he does his profession. But he is engaged here in his profession and given attention only because of his profession. And he is engaged in blaming others for his professions failures.

  • Michele

    I’m not getting the guilt argument that Bob is suggesting re the boomer generation’s supposed responsibility for gen-x-ers who made poor market decisions.

    I recall hearing cautionary messages in many common and reputable financial media sources (NYT, NPR, Bloomberg, WSJ, etc) about the housing market as early as 2005 and possibly even 2004/late 2003. The concerns were regarding (1) how high home prices were particularly with respect to salaries; and (2) how many questionable loans were being issued to clearly unqualified buyers. The problem was that the cautionary messages existed in a slurry of housing related messages including typical media noise/propaganda to “buy, buy, buy” and “location, location, location” etc. As with the previous internet bubble of the late 1990’s the truth was out there, mixed with a lot of untruth, but few people cared to listen and think. We really should be asking ourselves why!

    People failed to listen and think critically and instead accepted marketing messages that worked their emotions–their fears and their dreams, and mostly their greed.

    Sadly, I know several 30 something’s who bought homes they either didn’t need or bought far too much home for their needs. They actually believed the market would continue it’s wild rate of appreciation for another 10-15 years and/or their salaries would increase faster than inflation despite personally lacking the education/skills that would reasonably support this idea. Currently three of these people are hanging on to deeply underwater homes (between 80-150k underwater) and the other two have lost their home to foreclosure. All are deeply resentful of the situation and none accept their own complicity.

    The irony of all this is, and please pardon me for saying it, but this is the generation that looks us old fogies straight in the eye and insists how media savvy their generation is–how they are masters of media. From what I can see this Facebook generation is seriously deluded: they are much closer to media slaves than the media masters they profess to be and many of them are completely clueless about their situation.

    Human vanity–> history repeating itself.

  • Bob Collins

    // That’s what left a lot of people under water. When the price of the house fell, they discovered the “money they had taken out” wasn’t really there.

    The story specifically mentions that the situation described is not about the obvious fraud that took place in the mortgage and finance industry, nor is it about the people who bought “more than they could afford” etc.

    If you bought a house “you can afford,” you’d be in the same situation as these people are if your intent was to flip the home. You’d still owe more on it than it’s worth.

    Several of the people described in the article are not yet in financial peril, they just feel their options are limited. And they’re right. They are. The only solution is to change plans and expectations. That’s just the way it works.

  • jon

    Own, or Rent.

    Buy vs. Lease.

    These are the question that people need to make on their own, and some times they choose wrong.

    Holistically, buying a house you can afford is a good plan, because even if you go underwater your home should never be worth $0. However, the impact of buying a home you can’t afford, or buying a home you aren’t going to stay in, can ruin you financial.

    Buying is better then renting for those who don’t mind taking care of what they own. Renting is better for those who would rather not be concerned with maintenance, because they don’t have to be, they can instead just pick up and move when things start to break often, and the rental company is left to deal with fixing everything.

    Several years ago during the bubble renting made a lot of sense to me, because it was cheaper. After the bubble burst, and all the former home owners moved into apartments and rental properties, I bought a house because my mortgage was much cheaper then ANYTHING I could rent in the same area (1 bedroom apartments monthly rent was more then a 3 bedroom house mortgage).

    I understand the prices have evened out some since.

  • http://simplemindedinvestor.com Ross Williams

    “The story specifically mentions that the situation described is not about the obvious fraud that took place in the mortgage and finance industry”

    And that isn’t true. The situation described is a result of the fraud. The inflated prices people paid for houses during the bubble were driven by the fraud. The person who bought a house to live in was as much a victim of the “pump and dump” of housing prices as the person who borrowed more than they could afford.

    Mortgages were approved based on the inflated value of the house, not the ability of someone to repay it. The bank wasn’t providing unsecured credit based on a person’s financial health. They were making a loan secured by real property. That’s why the bonds tanked. It was not defaults on “sub-prime” mortgages, it was the falling value of the real estate portfolio that backed the bonds.

    The media played a direct role in marketing this scheme and continues to play a role in covering up what really happened. Attributing the problem to the failure of a “generation” to educate properly is a cute way to duck professional accountability for having mislead people.

  • http://simplemindedinvestor.com Ross Williams

    “As with the previous internet bubble of the late 1990’s the truth was out there, mixed with a lot of untruth, but few people cared to listen and think. We really should be asking ourselves why!

    People failed to listen and think critically and instead accepted marketing messages that worked their emotions–their fears and their dreams, and mostly their greed.”

    Michelle –

    The truth is always out there, somewhere. The reason people respond to marketing messages is that they are carefully tested with focus groups to get people to act according to the interests of marketers. The manipulation of people’s emotions is what they get paid to do.

    But, in this case, you will be hard pressed to find a contrarian suggestion in the media during the bubble that housing prices that wasn’t accompanied by someone suggesting they would continue to go up indefinitely. And if, rather than reading the financial news, you were paying attention to advice columns/commentaries you would be hard pressed to find any cautionary advice at all.

    The reason for that is easy to understand. Realtors, mortgage brokers and investment bankers all had huge financial stakes in the bubble continuing. And they had many home owners whose imaginary home values seemed to give them a stake as well. Who stood to make money with a message that said “be careful”? The answer is no one.

  • Bob Collins

    // The answer is no one

    Well, that’s one that’s easy to disprove. Debunking myths is easy because they’re,well, myths.

    The bubble was actually predicted as far back as 2001 when Edward Leamer at UCLA wrote about the need for people to think of homes the way they think of stocks and establish a P/E ratio, while noting that the present (2001) P/E ratio of homes — in 2001! — was way too high. He had no trouble finding an audience for his work, although the people at the highest positions of power in government disagreed.

    I would also refer you to the opening sentence of the National Bureau of Economic Research paper on the subject in 2005:

    “For some time now, there has been much speculation in the media that house prices are unsustainably high, that there is a “bubble” in the housing market, possibly even that house prices may already be on their way down in the East and West Coast regions of the United States. ”

    Say what?

    As far back as 2003, Case & Shiller– nobody gets more coverage on housing prices than Case & Shiller — were warning of a bubble psychology, including the very accurate assessment that people weren’t jumping into housing because they needed housing. They were jumping into housing because they were afraid of getting left behind in an opportunity.

    I would refer you to Bruce Bartlett, who was also warning of a housing bubble, two years before the time period in this latest story of people who bought “at the height of the bubble.”

    Here’s what he said :

    “A key concern is that mortgage lenders now often lend to homebuyers with no money down. Until recently, they have usually demanded a 10 to 20 percent down-payment before one could obtain a mortgage, in order to protect them from housing downturns. Furthermore, many homebuyers now have adjustable-rate mortgages, which rise automatically when interest rates rise, rather than fixed-rate mortgages that remain the same no matter what happens to interest rates.

    A number of economists have warned lately that housing prices have increased far more than economic fundamentals would seem to justify, at least in some important markets. Economists at UCLA have concluded that California’s housing market is in a bubble, and economist Stephen Roach of Morgan Stanley thinks much of the rest of the country is also experiencing a housing bubble.”

    There’s no question there were plenty of economists — hello, Ben Bernanke — who declared there was no bubble, but to suggest the media did not present the possibility there was is simply a convenient falsehood to support a faulty conclusion that would be accepted by the easily duped.

    And, sadly, there are a lot of those people around.

    Nobody knew for sure what was going to happen, but years later to turn around and say “you didn’t warn me” is a non-starter. That phrase is not a synonym for “I didn’t listen.” In any investment large or small, you analyze, you listen, and then you make a choice based on what you learn and who you believe.

    The irony here, by the way, is that in one of your first columns, you noted that one of the reasons housing is (was) in such a mess, is the decision by people to buy as much house as they could afford.

    You certainly have the right to try to walk your portrayal of the situation back, but you’re going to be hampered but what you wrote several years ago:

    “What this means is that if you have found your dream home and realistically intend to live in it for 30 years, then buying a house may make sense. Your housing costs are protected from inflation and you get the benefits of owning the home you live in. In fact, current low interest rates make buying attractive for someone planning to hold onto their house and pay off the mortgage over the next 30 years.

    But if you don’t know that you will be staying in the house you buy or are thinking about moving out of one you already own, look for a good rental situation instead. Finding a good landlord may be easier than finding a house worth the price. If you intend to use your house as your primary retirement savings you might want to consider selling it and getting that money invested in something more stable. Your money will be safer in the stock market. If you want to speculate, try pork bellies.”

    If you took your advice in March 2008, your “investment” — assuming no large downpayment — and elected to stay in your house, it is worth 13 percent less today, based on the latest Case Shiller in Minneapolis and, thus, you would be underwater. My original point is if you like the joint, and you can make the payments what does it matter?

    But if you took the advice for those people who only intended to stay in the home for, say, 5 years, that was solid advice. But it wasn’t particularly unique advice.

    So if you didn’t heed it, you weren’t the victim of poor reporting. It was out there. You were likely also the victim of poor listening and a bad decision, that’s an entirely separate issue from the fraud being perpetrated by the mortgage and investment interests, many of whom — as I’ve written previously — deserve to do a perp walk soon.

    Anyway, there’s no substitute for a sound financial education at an early age.

  • http://simplemindedinvestor.com Ross Williams

    The full quote:

    ” Who stood to make money with a message that said “be careful”? The answer is no one.?”

    Here is your proof this is an “urban myth”:

    “The bubble was actually predicted as far back as 2001 when Edward Leamer at UCLA wrote..”

    And how much money did he make off that prediction? Using that to dispute it is a deliberate misrepresentation of the question I asked.

    “As far back as 2003, Case & Shiller– nobody gets more coverage on housing prices than Case & Shiller ”

    Not since the bubble burst. But while the bubble was inflating the media treated Mr. Shiller with about as much respect as global warming deniers. He was portrayed as an eccentric contrarian, while economists from the National Association of Realtors were treated as credible sources of mainstream economic analysis. And you won’t find Mr. Shiller’s warnings in very many advice columns on buying a home.

    “Nobody knew for sure what was going to happen, but years later to turn around and say “you didn’t warn me” is a non-starter.”

    That simply is not true. A lot of people “knew for sure” if you are talking about the level of certainty that most people rely on in living their lives. But they were drowned out by the media’s marketing fiesta.

    I guess if you subscribed to the New York Times and Wall Street Journal and consulted them for advice on the real estate market you might have been “informed” that there were some contrary views. But then, how many people who are looking for a home to live in were reading the financial pages for advice?

    The point was not that there were no lone voices that predicted it, but that there was an avalanche of hype in the media to the contrary. Fed by the people who stood to make money from the bubble.

    What you won’t find anywhere is this story:

    “Many independent economists believe housing is substantially over-priced and that home purchasers may be paying 30% or 40% more for houses than they will be worth in a future stable market. This means, even with a substantial down payment now, you may not be able to recover enough in the future from selling your house to pay off your mortgage.”

    Then there is this:

    “The irony here, by the way, is that in one of your first columns, you noted that one of the reasons housing is (was) in such a mess, is the decision by people to buy as much house as they could afford.”

    The quote you pulled is from and article with this headline:

    “Monday, April 14, 2008

    Don’t buy a house, Sell if you can”

    Do you really think your quote adequately reflects that? It doesn’t even support your claim which seems to be more based on this statement from that same story:

    “People buy houses based on how large a payment they can afford. That is what helped create the current housing mess. And when interest rates go up, the price of the house they can afford goes down.”

    But that is a misinterpretation of the point. Low interest rates helped people take on a bigger mortgage with the same payment. That helped drive up housing prices. It has nothing to do with whether people should buy homes based on whether they can afford the payment.

  • Bob Collins

    //Using that to dispute it is a deliberate misrepresentation of the question I asked.

    No, sir. It’s a deliberate rebuttal of your assertion that it’s hard to find any contrarian view that housing prices would do nothing but increase. It’s not hard at all.

    //was inflating the media treated Mr. Shiller with about as much respect as global warming deniers.

    Give a specific example, please. Part of the problem is the Bernanke’s of the world had the highest titles and power of the day. So I would guess that their view held sway with many readers. I’m not sure that’s the same as saying media deliberately disrespected a contrarian view.

    //But that is a misinterpretation of the point.

    I don’t understand You’re saying that a quote from you is a misrepresentation of a point from you?

    But, yes, I understand what you’re saying. I thought it odd that realtors are used as analysts. Similarly, “financial advisors,” who make money from people buying sell and stock, spent much of that period telling people it’s a great time to buy stock. Well, of course, they would think so.

    Thus the need for a knowledgeable and impartial financial education.

  • http://simplemindedinvestor.com Ross Williams

    Just to cut through the obfuscation:

    Find all the advice columns on buying a home that warned people about predatory lending. That explained why it may be profitable for the lender to loan you more than you can afford to pay.

    I am sure you can find one. Maybe. But it will be literally one in thousands.

  • http://simplemindedinvestor.com Ross Williams

    “It’s a deliberate rebuttal of your assertion that it’s hard to find any contrarian view that housing prices would do nothing but increase. It’s not hard at all.”

    That is a misrepresentation of what I “asserted”. In fact, what I said was this:

    “you will be hard pressed to find a contrarian suggestion in the media during the bubble that housing prices that wasn’t accompanied by someone suggesting they would continue to go up indefinitely. And if, rather than reading the financial news, you were paying attention to advice columns/commentaries you would be hard pressed to find any cautionary advice at all.”

    The question you quoted is, in fact, a statement about why the overwhelming amount of information found in the media supported the bubble. There was no money to be made contradicting it.

    “I don’t understand You’re saying that a quote from you is a misrepresentation of a point from you?”

    No, I am saying you are misrepresenting what I said in the column with this claim. “The irony here, by the way, is that in one of your first columns, you noted that one of the reasons housing is (was) in such a mess, is the decision by people to buy as much house as they could afford.” You provide no support for it and that quote is the only thing related to the topic.

    “Give a specific example, please.”

    Here is an article about Robert Shiller in the New York Times in 2005:

    http://www.nytimes.com/2005/08/21/business/yourmoney/21real.html?pagewanted=all

    Conclusion:

    “Mr. Shiller has little company for his radical notion that house prices could fall by 40 percent. Many economists say that interest rates are low enough and demand for housing in big urban areas is high enough to keep from prices from falling very far. ”

  • http://simplemindedinvestor.com Ross Williams

    Here is a quote from CNN:

    “Even so, economists at Fiserv Case Shiller Weiss think they have a pretty good idea what’s in the cards for most metros in 2005.

    Their prediction: Los Angeles will fizzle. Miami will sizzle.”

    Whatever Robert Shiller might have been saying, that is not exactly a call for folks to be wary of the Miami market is it?

    And here is the “fizzle”:

    “Fiserv CSW is predicting that prices in the greater Los Angeles area will increase by only 5.8 percent in 2005…”

    Here is the “sizzle”:

    “Home prices in the Miami-Fort Lauderdale metro have doubled over the last five years, and Fiserv CSW is forecasting that they will appreciate another 16.4 percent this year”

    In short, even Mr. Shiller’s own company was hyping the immediate real estate market in 2005.

  • Bob Collins

    Shiller on Nightline in March 2006:

    Most people think they’re smarter than the average person. Also, they get the sense — they look at some data and they see the data going up and they say, hey, I can see a trend, you know, I know a trend. And, and so people feel very confident of themselves. But there’s also a lot of confidence in a theory. And that’s a theory that real estate always goes up. They say there’s only so much land and the population is growing and the world is becoming richer and richer. It has to be a good investment. There’s very much confidence in that theory, misplaced confidence in that theory.

    Southern California went through a home price boom in the mid-1880s, and then Florida went through a home price boom in the mid-1920s. And what were people thinking? If you go back and read the newspapers, you know what they were saying? They were saying “the population is growing, the land — we’re running out of land. And you better buy now or it’s going to be too late.” So they were thinking that in 1885 it was getting too late. Well then their boom crashed in California. And, you know, it’s happened again and again. And we always think it’s different this time. But, you know, I don’t think it is.

    The idea that homes are a great investment is just wrong. Stocks have historically been a phenomenally better investment. They’ve gone up historically for the last couple centuries at 7% real a year. Do you know what homes have done? It’s just about zilch. They, they do not go up. This is one of the biggest misconceptions. It’s just wrong. And people — I don’t know how the story got started that homes are such a great investment. It’s just not true.

  • http://simplemindedinvestor.com Ross Williams

    Here is a story in the Brainerd Dispatch today. Do you see any cautions in it?

    “http://brainerddispatch.com/news/2012-04-26/think-you-cant-afford-home-think-again”

    The hype continues. This is not a problem of a “generation” it is a problem of an industry that includes the media as one of its promoters.

  • Bob Collins

    I know there’s a Godwin’s Law for online debates invoking Hitler. Surely there’s got to be one for invoking the Brainerd Dispatch.

  • http://simplemindedinvestor.com Ross Williams

    Bob –

    And here is the conclusion of that Nightline segment:

    “MARTIN BASHIR (ABC NEWS)

    (Off-camera) There are, of course, many economists who believe that real estate is very different from technology stocks and that the market is just cooling, not imploding. Time will tell who’s right.”

    And this from the introduction:

    “The government reports today that sales of new homes dropped more than 10% last month, the steepest decline in almost a decade.”

    http://cowles.econ.yale.edu/news/shiller/rjs_06-03-26_prophet.htm

  • Bob Collins

    Ah, yes, the “time will tell” sentence. Or as we like to call it the “I don’t know how the hell to end this story” ending.

    But you missed the highlight. Natalie Portman was next.

  • Michele

    Ross, you wrote:

    “I guess if you subscribed to the New York Times and Wall Street Journal and consulted them for advice on the real estate market you might have been “informed” that there were some contrary views. But then, how many people who are looking for a home to live in were reading the financial pages for advice?”

    I have to admit I’m feeling pretty stunned that you apparently think NYT or WSJ are some sort of elitist journals. FYI during the timeframe in question all their content was available for free online to anyone who wanted to surf on over and read up. And just to clarify, these are mainstream journals, not academic journals where one would need a background in economics or finance to follow the discussion.

    I’m also stunned that you think reading the financial pages (or actually the front page, as is happened) is unrelated to making what for most people is the single biggest purchase in their lives. Why wouldn’t a person want to understand what is going on in the world of finance, business, etc when they are making so big an investment and they have so much at stake?

    Further, cautionary news about problems in the real estate market was being regularly reported in mainstream print, online, television, and ratio media. This wasn’t hard to find, if you were interested (e.g. if you hadn’t already made up your mind to buy a house before investing the wisdom of such a purchase). I particularly remember discussing some of these reports with friends and family and wondering why people were ignoring this information and continuing to pile into such an overpriced market.

  • http://simplemindedinvestor.com Ross Williams

    “Further, cautionary news about problems in the real estate market was being regularly reported”

    So why can’t you find it? What you have provided is Robert Shiller and always accompanied by a disclaimer that his opinion is out of the mainstream.

    Moreover, the problem was that you had a bunch of apparently reputable people who stood to make money from people’s bad decisions. I think the real problem here may be that you still don’t understand how that market really worked.

    You seem to think the information people lacked was about the direction of the real estate market. But that’s like saying Bernie Maddoff’s victims should have read the finance pages. Many did, it didn’t save them.

    “FYI during the timeframe in question all their content was available for free online to anyone who wanted to surf on over and read up.”

    The Wall Street Journal has had a strict paywall since 1997. But what is absurd is the notion that somehow a mention in the New York Times absolves the media from responsibility.