patrick.net

I'm a thinkin. Not to mention that the FED is going to be forced to quit their meddling.

You are also buying land.... Sometimes the land is 50% the value of the mortgage.

indigenous says

I'm a thinkin. Not to mention that the FED is going to be forced to quit their meddling.

No, they won't. They have their hands too deep into this mess. Not easy to get out until a President dictates Fed to not intervene in the free market.

bubblesitter says

No, they won't. They have their hands too deep into this mess. Not easy to get out until a President dictates Fed to not intervene in the free market.

They won't be forced by the president. They will be forced by the situation, which is the debt service while potentially battling inflation or....

indigenous says

They won't be forced by the president. They will be forced by the situation, which is the debt service while potentially battling inflation or....

In other words, with shit load of national debt, they have their involvement in all aspects of the free market.

bubblesitter says

In other words, with shit load of national debt, they have their involvement in all aspects of the free market.

It all boils down to the idea that the economy can be controlled by the government so they have meddled in many ways all having to do with preventing recessions and profiting the rich through inflation.

The reality is simply that EVERY country in history that went to a fiat currency collapsed under inflation. It is not a matter of if, from what I read TSHTF in 2030.

Hausmeister T says

The problem is that the alternative to buying (which is renting) is an even worse investment. 60-70 years of renting will cost you more even if your house's value declines down to zero. At least you still have a place to live.

It's really too complicated to make a blanket statement like that. I have lived at 11 different addresses in 20 years. If I had bought every place I lived, it would have been a financial disaster...Now that I am somewhat settled down, owning makes more sense.

Renting comes with a lot of benefits, owning with a lot of responsibilities.

I only know the story of my grandmother who was an original feminist I suppose.

When I was growing up, she lived in a fantastic old stone carriage house, it was awesome. She ran an antique business out of it. She also rented the place I found out later.

She always had money, my grandmother lent my father the cash for the ocean view lot on an island in Massachusetts you may have heard of.

Eventually she passed away after living in another great place in a very quaint town. She left each of her grandchildren a nice chunk of change and this funded my first mutual fund in 1982.

If I told you what that mutual fund was worth today you would not believe me so I won't.

Moral: you can rent and have a pretty good life and have money left over for other things if you 1. make money in the first place 2. watch it 3.rent.

Many people require a mortgage because they cannot save their money any other way. Without a reverse mortgage, they'd be broke in their retirement.

Hausmeister T says

The problem is that the alternative to buying (which is renting) is an even worse investment. 60-70 years of renting will cost you more even if your house's value declines down to zero.

Well, according to his analysis...no!

Say that home prices drop precipitously...say 50% from today to the lifetime of a 15 year mortgage.

You buy at home at $400,000 with a mortgage, and your friend pays rent at the same rate as your monthly payment.

Then the price drops over time to $200,000. But (unless you declare foreclosure) you are still paying a mortgage based on $400,000. Whereas the person who rents will experience declines in rent prices.

At the end of the 15 years, you will have lost $200,000. However, your friend, who has seen his payments decrease, could have saved enough money to buy your (now) $200,000 home for cash...and maybe have some left over.

Folks, here's an idea, buy a home in the countryside for retirement but then, rent in the cities for work. Thus, you'll have a place to settle down in the end but during your prime work years, you won't be tied to a location and thus, have more career flexibility.

So hypothetically, you can contract/consult 3 years in DC, 2 years in Atlanta, 4 years in Houston, etc but then, have that home in rural Pennsylvania all paid off in full so that when it's time to unwind, you don't have either rent or a mortgage.

indigenous says

from what I read TSHTF in 2030.

I see it sooner then that - 2022 to 2025. By 2022 our debt will be so much that system has to collapse for some time so that market forces can correct the economy by itself. It won't be pretty for the middle class. Rich will be better off as usual.

Rin says

Folks, here's an idea, buy a home in the countryside for retirement but then, rent in the cities for work.

I have been seriously considering this!

I can find cabins, with several acres, semi-off grid -- well water, propane heat -- for $50,000. But no communications and some without electricity.

So I would rent in a grid location, put the money away, get my off-grid land equipped for solar/hydrogen off-grid technology, maybe satellite internet (which is still slow and limited but enough for basic communications, ordering stuff from Amazon).

And then instead of wasting money on vacations, put all my weekends and spare time up there instead of mowing a lawn in the suburbs.

I'm bailing to another country when I retire. The last thing I want to be is a senior citizen in a country where one party goes out of their way vilify Old people, and lust to relieve them any perceived wealth that they either may or may NOT have. Place them on a meager fixed income, that Congress want's to use to finance a trip to Vegas, and the Healthcare system, wants to invent new ways to bill them to cash in on some of that fixed stipend.

This country is rapidly growing to be worst country on earth to retire in.

Cept when the SHTF you don't want to be among strangers, when push comes to shove blood counts. When it happens the world is going to be effected.

One other thought when TSHTF the world is not going to come to an end there will still be an economy.

John Bailo says

I can find cabins, with several acres, semi-off grid -- well water, propane heat -- for $50,000. But no communications and some without electricity.

So I would rent in a grid location, put the money away, get my off-grid land equipped for solar/hydrogen off-grid technology, maybe satellite internet (which is still slow and limited but enough for basic communications, ordering stuff from Amazon).

Ok, I was more thinking semi-rural, not rural rural. In essence, the reason why I'd bought in central/western Mass, 1.5 hours from Boston was that my mortgage could easily be paid off, even as an IT contractor, bouncing around the northeast cities.

For course, my sudden increase in pay from the hedge fund work has changed all that, as I'd finished the mortgage in a year's time and I'm now, well on the way to being completely free but the principle still applies. If I leave/sell this place, it'll be for a similarly rural/small town in Vermont or someplace, not the high cost metro areas like Boston or NYC.

John Bailo says

And then instead of wasting money on vacations, put all my weekends and spare time up there instead of mowing a lawn in the suburbs.

Yes, this is a much better way to live.

Rin's plan is done from time to time. I know a couple people who did this.

The man was an MD who lived in an apartment during the week who taught at Harvard's medical school. His actual residence was a house in New Hampshire.

He had another modest house to visit in the summer in Chappaquidick (martha's vineyard).

His friend another MD had a similar arrangement.

It's perhaps an unfair comparison since they both made pretty good dough I am sure. But the concept is the same.

John Bailo, you can get (slow expensive) internet with a satellite service such as Hughes.

It's not the greatest but it does work, I've used it in Quebec up a river miles off the grid in a fishing "camp" (big house).

John Bailo says

Shiller also mentions that certain homes go out of style over time, dragging down prices. "What kind of houses will they be building in 20 years?" he wonders aloud. "They may have lots of new amenities. They will be computerized or something in some way that we can't anticipate now. So people won't want these old homes."

Isn't that always the case? 200 years ago homes did not have electricity. Even a hundred years ago most bathrooms were outside the house. Homes at one point did not have central heating or air conditioning. These are all technological advances that did not result in drops of real estate prices.
Shiller also ignores the value of land. Land is still the same, as it was when dinosaurs ruled the earth.

clambo says

internet with a satellite service

When I looked at the offerings, I am impressed by the cost ($35/mo) and availability. What is not impressive are the ping times (500ms+) and also the data caps which can be as low as 5 Gig. (Easily consumed with a couple of Netflix movies).

Strategist says

Land is still the same, as it was when dinosaurs ruled the earth.

Not really, in the sense that man has "terraformed" places like the Southwest, which previously could support a few thousand individuals, into areas where cities full of millions can now exist, by building dams.

The effect of global warming could also open up millions of acres in the arctic areas to humans.

Rin says

Ok, I was more thinking semi-rural, not rural rural. In essence, the reason why I'd bought in central/western Mass, 1.5 hours from Boston was that my mortgage could easily be paid off, even as an IT contractor, bouncing around the northeast cities.

Retirement to semi rural makes more sense. But even this as one gets older can become a real burden if there are health issues. Rural life sounds great and can be when you are young and healthy not so much as you age and your body begins to fall apart.

indigenous says

Cept when the SHTF you don't want to be among strangers, when push comes to shove blood counts. When it happens the world is going to be effected.

One other thought when TSHTF the world is not going to come to an end there will still be an economy.

The excrement has already hit the turbine, for anyone over 62 in this country. It's grotesque and ugly, I'm surprised that we as American's tolerate the way our country is increasingly treating seniors and the open hostility toward them both economically and politically.

You'd be hard pressed to tell me one single country on the globe that treats Seniors as horrible as the US. With an official open policy supported by the media, reinforced by our education system and regurgitated by our youth, just because one party has a hard on for them because they typically vote for someone else.

Name one other country*, just one! I might change my mind.

*(besides North Korea, but it's not a policy against seniors, everyone is living under the same regime and its blood thirst whims.)

clambo says

The man was an MD who lived in an apartment during the week who taught at Harvard's medical school. His actual residence was a house in New Hampshire.

The thing is that MA and NH have this tax arrangement, since NH doesn't have a state income tax, so if a NH resident works in MA, he also pays MA state income tax. I knew one NH person, who actually consulted to companies, outside of MA, for this and other reasons. So he was bouncing around from CT to DC, regularly. Fortunately, since he wasn't on a project for a contiguous period of time, he'd expense-d all those short-term stay places on the road. End result, he's almost done with the mortgage & isn't worried about positive or negative equity anymore.

Our other buddies, who'd moved into those Boston 'burbs with the so-called great high schools, are all stressed out and so-forth. And finally, it's usually a few years down the road, when they realize that those HSs don't give their kids any better of a shot at Harvard than any other school. Instead, they should have asked Hank Paulson to adopt their kids and suddenly, their chances at Harvard would go through the roof.

I bought a home last year, not because I believe in the economy or the stock market or the government's power to get the national debt under control. It's because I saw the blatant manipulation by government and banking forces to drive housing up and make it unaffordable. It's, what I believe, is a strategy to create a permanent renter class of most working adults, and it's perpetrated by the wealthy owner class which owns our government. I can't fight such forces, but I can predict them. Over time, housing will inexplicably rise in urban places with access to jobs. This makes ownership attractive.
Also, the power of the dollar is eroding steadily, which makes American houses a bargain for foreigners who are encouraged by government policy to buy homes here. These foreign investors combine with institutional and private investors to put a floor under housing. End users who just want to live in a house they own will have to pay top dollar for anything to have a chance at it.

This is all because the uber wealthy own too much, and have too much influence over our government. Unless that changes, housing trends will be generally up.

Quigley says

It's, what I believe, is a strategy to create a permanent renter class of most working adults, and it's perpetrated by the wealthy owner class which owns our government.

That was the same reason I bought in 2010. I didn't believe it was the bottom, but I believed it was as low as the GOVERNMENT was going to let home prices go.

I just didn't want years more of disappointment and aggravation, of following a market that was defying all logic and practicality.
Then again, I didn't buy my house to even ponder on how much it will be worth, it's worth a roof over my head, and that's all.

CaptainShuddup says

The excrement has already hit the turbine, for anyone over 62 in this country. It's grotesque and ugly, I'm surprised that we as American's tolerate the way our country is increasingly treating seniors and the open hostility toward them both economically and politically.

The JoJo syndrome? It is hard times, jobs are not being created, people are pissed. This is a PR attack to defer blame from the real cause of the FED. Look at just this site and how people drink the Kool Aid or at Elizabeth Warren who is the savior spewing the income inequality bogus generality. When TSHTF for real PR is not going to be a factor as it is going to shuck the conjecture, for survival mode. Not that it is going to Mad Max.

John Bailo says

They may very well decline for the next 30 years in real terms."

I also think it is the most likely scenario.

It's not a question of bad economy. The economy may be very good and housing still erode in real terms.

Housing would just stop being the financial fetish it has become and we would return to a more practical view of having a roof above your head.

The only place where I'd say it's *safe* to buy, are regions where there are a multitude of jobs, and where typical costs of ownership are 'ok'.

Right now, that's the Texas Triangle of Houston-Dallas-SA.

The idea that former brand name cities like Boston MA, don't become the next Buffalo NY, has more to do with hubris than anything else. Much of MA's biotech industry is mature, all the big hits were back in the 90s, but yet, they'd spent a huge amount of money on local office parks, creating an illusion of continuous prosperity. Well ... much of that excess will find itself in the Carolinas, Texas, or abroad in the years ahead. Even the stable MA defense contractors are shaving 10-15% off their budgets by simply finishing existing projects and then, starting new ones in Texas. So without a major stream of blockbuster drugs, the so-called vaunted biotech will also see a fall in the years ahead.

And no, Harvard, MIT, and hospitals can't foot the bills for everyone.

Strategist says

Isn't that always the case? 200 years ago homes did not have electricity. Even a hundred years ago most bathrooms were outside the house. Homes at one point did not have central heating or air conditioning. These are all technological advances that did not result in drops of real estate prices.

The fact that as more and more amenities were added to homes, even if the prices increased, you were getting much more home say in 1955 than you would have had in 1905, but the differences were much less stark than between 1955 and 2005 when you could have had the early versions of all the comforts of the 50 year newer home. The same differences applied to all the technologies between the turn of the 20th century and mid-century, especially in automobiles.

Like he said somewhere in the article, it's unreasonable for one think of a home as more than rendering the services of shelter. Somewhere along the line peoples' thinking went way off track and they completely abandoned all the safeguards that had served earlier generations so well. My parents bought their first new home on five acres in 1937 for $7,000, it had a septic tank and butane. In 1963, five years after my father died my mother sold the property to the newly founded Catholic church on the neighboring property for $28,000. She had to pay capital gains taxes on the $21,000 gain, spread out over five years, but like she said at the time there was really no appreciable gain in spending power between 1937 and 1963, just inflation--but they hadn't bought the house and property for financial gain but just as a place to live. At the time, she had to spend less than half what she got for a much nicer home, the one I live in today, and over 50 years it has increased to six figures, but not in real purchasing power.

P N Dr Lo R says

1937 and 1963

Yeah, but here's the thing, from '37 to '63, the country's population surged from ~130M to ~190M but at the same time, a lot of work was created to accommodate that rise of population plus its urban density. Thus, you have a true cost-of-living index, incorporated into that housing figure.

Today, aside from finance, govt, & health care work, much of the housing gain since that mid-90s was mainly due to lending practices and QE practices, not the rise in well paying jobs. In fact today, you could even say that housing is de-coupled from the labor markets. With that in mind, if a millionaire, let's say losses a million or two on a mansion, it's no big deal, however, if a regular Joe's home goes from $900K to $700K, it's a devastating loss vs let's say a haircut from $350K to $270K. Unfortunately, many recent working Joes in the good 'burbs may take the former haircut if their jobs get re-located.

jazz music says

"Say you and I both have $250,000. I buy a house for $250,000 cash, and you rent a house across the street for $1,000 a month and put $250,000 in the S&P 500. After 20 years, I'll have a house worth $200,000 in real terms, and you'll have a portfolio of stocks worth $330,000 adjusted for inflation "

Except the house owner will also have extra cash flow for 20 years (since he bought his house for cash) that they can invest over that 20 year period.

Yeah, but $250K is not much money for a house these days. Even when I was in tech, making from $70-$110K, a median-non-bubble township house was very doable. That's in essence, 3x one's income. The problem is when we have two ppl working, buying a place from $600K to $1M.

There, job loss equals devastation.

In the future, everyone will be given a house, but be forced to pay 70% of their take home pay to live in it, with a minimum payment based on a local incomes.

Those that can't even afford that will be provided a tent and basic cooking supplies.

exfatguy says

Those that can't even afford that will be provided a tent and basic cooking supplies.

That'd be too much, they should live in their cars, if they can afford to own a car.

Same as my chart ...
http://www.showrealhist.com/RHandRD.html

Shoddy new construction and cheap materials is what will come with new fangled homes with all the gadgets. The older homes, mine is almost 100 years now, were built much better and made of real solid materials. I prefer the stuff as old as i am. Even when it comes to people!

Heraclitusstudent says

John Bailo says

They may very well decline for the next 30 years in real terms."

I also think it is the most likely scenario.

It's not a question of bad economy. The economy may be very good and housing still erode in real terms.

Housing would just stop being the financial fetish it has become and we would return to a more practical view of having a roof above your head.

I say again: The MAIN ENABLER of sizable asset price bubbles is keeping the real asset price histories out of sight -- Look & see:
http://www.showrealhist.com/RHandRD.html

casandra says

The older homes, mine is almost 100 years now, were built much better and made of real solid materials

That is true. Many 1920's home were beautiful and also well built without many of the concessions to cheapness of today's homes. They are getting into their 90's, though, and I think homes were still well built in the 50's and 60's and also had many of the modern comforts we expect built into them from the ground up. The real cheapening and cost cutting began in the 70's, specifically with aluminum wiring to replace the much more expensive copper, caused by one of the many manufactured "shortages" of that awful decade.

Rin says

Unfortunately, many recent working Joes in the good 'burbs may take the former haircut if their jobs get re-located.

Yes, you are right about that.

P N Dr Lo R says

My parents bought their first new home on five acres in 1937 for $7,000, it had a septic tank and butane. In 1963, five years after my father died my mother sold the property to the newly founded Catholic church on the neighboring property for $28,000. She had to pay capital gains taxes on the $21,000 gain, spread out over five years, but like she said at the time there was really no appreciable gain in spending power between 1937 and 1963, just inflation

A four fold increase in 26 years is not too shabby. There is also the question of location. In Huntington Beach, Ca as an eg. there are homes built in the 1950's that originally sold for $17,500. Now they are priced at $700,000. I would call that an awesome return on investment.

jazz music says

That has been true since the early '70s
...
This is how and when the 2-income trap first got baited. Many people fell for it too. It was as effective when houses were $50,000 as when they were $500,000

The exception I'd make here is that during the 70s stagflation, interest rates were rather high, along with wage hikes.

At the same time, if my dad's memory serves him right, an engineer could earn some $20K+ and his legal secretary wife, $10K, which next to a $50K+ home, is still affordable.

And oil patch tech workers back then, were easily minting north of $40K. Thus, the birth of the 'Dallas' TV series, the world of extravagant living in the oil patch.

Rin says

The exception I'd make here is that during the 70s stagflation, interest rates were rather high, along with wage hikes.

At the same time, if my dad's memory serves him right, an engineer could earn some $20K+ and his legal secretary wife, $10K, which next to a $50K+ home, is still affordable.

That's right about the 70's. I could have afforded the 1930 built house in Forest Hills at 8122 Santa Clara Dr. in Dallas where I'd lived in the garage apartment for 7-1/2 years when the old couple who had lived in it since 1940 put it on the market in 1973 for $34K--the most expensive house in the neighborhood was $45K--all beautiful 20's and 30's houses on 100 x 200 lots. To be fair, it did require nearly $10K in deferred roofing and foundation repairs they hadn't been able to afford. Instead I rented for the next five years from 1975 to 1980 before buying a condo. By 1980, the house had increased to $100K and is now close to $600K, down from $750K at the height of the boom. Not only could I not have afforded it in later years, neither could a reservoir engineer of today, which is who I worked for at the gas company.

http://www.zillow.com/homes/8122-santa-clara-dr.-dallas,-tx_rb/