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Old 02-04-2009, 11:24 AM
 
744 posts, read 1,290,803 times
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Quote:
Originally Posted by Jerseyt719 View Post
Sorry, but no, it's not...

I guess that those of us that bought back then should just lose out and still have to pay on these houses when all we want to do is get a bigger one to accomodate our larger families. Never mind all the money we threw at our mortgage companies over all these years. Basically, screw us??? Is that your mentality???

I thought prices were doubled every 10 years?? Is this wrong too??
People who invested in assets which depreciated lose some of their investment, if they leveraged (which essentially all home buyers do) then they lose even more. On the bright side mortgages are tied to the house so you can only lose the money you have put in (and the hit on your credit).

All the people who borrowed to by tech stocks in 1999, lost far more than the money they put it in. As have those who borrowed to buy stocks in 2007. As have those who invested in commodities in the first half of 2008.

But yes, we are all grown ups and we should all pay for our own mistakes. That someone bought an obviously overpriced house shouldn't mean the government should confiscate my money, that I still have because I didn't buy that house at an obviously inflated price, and give it to them.

The price of a stock I own has gone down by 60% from when I bought it, are you going to pay me back that money or am I expected to eat the loss? How is someone's investment in a house any different?

House prices move with inflation. Plus a premium because the houses get better - existing homes don't get that premium without spending on maintenance/upgrades. A house built in 1995 was much better quality/comfort wise than one built in 1985 and hence is worth more. But a house is a depreciating asset, it does not produce income or wealth (if lived in, a rental unit obviously produces income but that's not the topic at hand), and it will go *down* in price over time (adjusted for inflation) unless money is spent on maintenance and upgrades. This is how it has always been - aside from the occasional bubble (usually much smaller than the current one).

If inflation is running around 7 percent then yes house prices should double every 10 years, just like the price of everything else should. Note that those numbers showing house prices doubling in the bubble are already inflation adjusted...
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Old 02-04-2009, 11:24 AM
 
596 posts, read 898,487 times
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Quote:
Originally Posted by mcf17 View Post
Ahh, but it's not impossible to short housing! Housing futures are traded on the Merc. And, at least for now, there are still plenty of publicly-traded stocks (homebuilders, for example) that are tied to the housing industry.

To be sure, certain people can profit from home prices plummeting just as easily as others can from prices escalating.
I think he was saying you can't short a particular house that you were looking at. Not funds related to housing.
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Old 02-04-2009, 11:32 AM
 
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Quote:
Originally Posted by theoakman View Post
I think he was saying you can't short a particular house that you were looking at. Not funds related to housing.
Actually, I'm pretty sure he was speaking on a macro level. We all are, at this point, aren't we?
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Old 02-04-2009, 11:41 AM
 
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Quote:
Originally Posted by mcf17 View Post
Actually, I'm pretty sure he was speaking on a macro level. We all are, at this point, aren't we?

My apologies if I'm beign too technical, but because the subject involves only one segment or one industry it's still a micro level. Therefore, the variables are completely different even when some indexes or indicators dovetail at one point or another. So in terms of economics, the impact of such variables in the way it performs are like peaches and oranges.
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Old 02-04-2009, 11:44 AM
 
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Quote:
Originally Posted by mcf17 View Post
Actually, I'm pretty sure he was speaking on a macro level. We all are, at this point, aren't we?
No. The point being made was that because you can't short houses (and obviously that's a physical law of nature - two people can't occupy the same space...) sales decrease instead of prices decreasing because current owners refuse to sell at a price the market demands.

In something that can be shorted it doesn't matter that the current owners refuse to sell, since other people will short it which has the same effect of providing supply at the lower market demanded price.

In practice this means a plunge in prices is reduced in magnitude but increased in time. So instead of a short sharp drop, you get a long slow decline - which from a market stand point is bad since the market stays out of equilibrium for longer. Foreclosures provide some of the same effect of shorts though, they force current owners to sell at prices the market demands - but it's not as efficient from a market perspective.
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Old 02-04-2009, 11:52 AM
 
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Quote:
Originally Posted by mcf17 View Post
The graph you presented does not demonstrate what you had been telling people previously. Unfortunately, the only clear data points are for 1890 and 2005, but it is clear on the graph that the pre-bubble level was above 100, and the peak was at 185. It doesn't support your assertion that peak prices were twice as much as they should have been.
Here is the same graph magnified for the last 32 years. It is part of the graph I posted earlier so both account for the last 110 years.

This means that 100 was hit in 1999 and 1890.

It is inflation adjusted.

It is from the New York Times.



The peak in this graph is 185 so I grant you there is a correction of 45% to get back to 100. However, the NY area will suffer most and will not require as a high premium as before. So I think that 50% is a good ballpark number.

As I said 50% guarantees nothing. After bubbles there is usually an overshoot. See what happened from 1990 to 1998 in the above graph.


Quote:
Originally Posted by mcf17 View Post
Have you ever heard Robert Shiller speak? He has made the point that even 50 years ago, the concept of housing as an investment would've been foreign to the vast majority of homeowners. Clearly, that mentality has changed, and trying to tie current or future prices to levels set in 1890, inflation-adjusted or not, seems like a faulty premise in that context.
So? Then base your conclusions on the last 32 years.

Also, you said "if one finds a house one likes". "Likes"? You suggest an emotional choice against Shiller advice that you quote. At this point, price should be first priority.

Shiller recalls a bygone era where the concept of housing was not an investment. However, now it is an investment. Why? Because everyone treats housing as such, including those who created this bubble. Banks and the RE industry made profit on the expense of home owners. So what does it remain for a buyer to do? Treat house as an investment and

BID HALF OFF PEAK

Last edited by halfoffpeak; 02-04-2009 at 12:09 PM..
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Old 02-04-2009, 12:19 PM
 
71 posts, read 255,874 times
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Quote:
Originally Posted by Amazonas View Post
My apologies if I'm beign too technical, but because the subject involves only one segment or one industry it's still a micro level. Therefore, the variables are completely different even when some indexes or indicators dovetail at one point or another. So in terms of economics, the impact of such variables in the way it performs are like peaches and oranges.
Fair enough, but that is a more technical meaning than I intended. I was just making the point that it is, in fact, possible to short the housing market.

I'd agree with your larger point, from which I'd draw the conclusion that pinpointing where the market should be at any point in time is a dubious exercise, or at least an extraordinarily complex one. Which is why I got involved in this conversation in the first place.
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Old 02-04-2009, 12:27 PM
 
71 posts, read 255,874 times
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Quote:
Originally Posted by sholden View Post
No. The point being made was that because you can't short houses (and obviously that's a physical law of nature - two people can't occupy the same space...) sales decrease instead of prices decreasing because current owners refuse to sell at a price the market demands.
You're right. He and I were speaking of different things.
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Old 02-04-2009, 12:32 PM
 
263 posts, read 487,512 times
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Quote:
Originally Posted by mcf17 View Post
I'd agree with your larger point, from which I'd draw the conclusion that pinpointing where the market should be at any point in time is a dubious exercise, or at least an extraordinarily complex one. Which is why I got involved in this conversation in the first place.
Nobody pinpoints markets. There will always be a return to fair valuations though. In free markets. After a bubble. Especially in housing were fair is tied to peoples income. If you want to argue present data.

You are muddying the waters. Anyone who bids less than half off peak runs a high risk of losing his her money both in short or long term.
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Old 02-04-2009, 12:38 PM
 
71 posts, read 255,874 times
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Quote:
Originally Posted by halfoffpeak View Post
Here is the same graph magnified for the last 32 years. It is part of the graph I posted earlier so both account for the last 110 years.

This means that 100 was hit in 1999 and 1890.

It is inflation adjusted.

It is from the New York Times.



The peak in this graph is 185 so I grant you there is a correction of 45% to get back to 100. However, the NY area will suffer most and will not require as a high premium as before. So I think that 50% is a good ballpark number.
This graph is different from your previous one, because it uses 1987 as it's baseline value. The other one used 1890. And it says right on the graph that the peak was at 171 on the index.


Quote:
Originally Posted by halfoffpeak View Post
Also, you said "if one finds a house one likes". "Likes"? You suggest an emotional choice against Shiller advice that you quote. At this point, price should be first priority.
It would be foolish for you or anyone else to take emotion completely out of the decision of where you plan to live with your family. But that's a sidebar.
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