patrick.net

This is a great video, and worth watching.

There is a lot of denial going on in Real Estate today because of what has happened to the market place since 1998.

The 1990s were certainly a great time to buy property. We have had nothing but volitility, and exhuberance ever since.

It's just hard to predict how far our government, or governments globally, will go to prop up property prices, and save the banking industry as we know it.

He owns 2 houses. Enough said. No excuses.

golfplan18 says

Despite the fact that house prices crashed, wiped out millions of loanowners, and wiped out the illusory equity of an entire generation, people persist in believing owner-occupied housing is a good investment. Most people believe house prices appreciate 5% to 10% or more each year and by simply owning real estate they can become wealthy. It doesn’t work that way.

I would like Shiller to explain why my house inspite of a housing crash is worth 4 times more than it was 25 years ago. That is 6% growth compounded every year. The same goes for everyone else I know who purchased in Southern California.

Raw says

golfplan18 says

Despite the fact that house prices crashed, wiped out millions of loanowners, and wiped out the illusory equity of an entire generation, people persist in believing owner-occupied housing is a good investment. Most people believe house prices appreciate 5% to 10% or more each year and by simply owning real estate they can become wealthy. It doesn’t work that way.

I would like Shiller to explain why my house inspite of a housing crash is worth 4 times more than it was 25 years ago. That is 6% growth compounded every year. The same goes for everyone else I know who purchased in Southern California.

Because the worth of your house gets conflated into the worth of the land it sits atop of, silly. Your house decays over time, and requires upkeep and maintanence. The land that's included in the piece of real estate, is what appreciates. Your house depreciates.

errc says

Because the worth of your house gets conflated into the worth of the land it sits atop of, silly. Your house decays over time, and requires upkeep and maintanence. The land that's included in the piece of real estate, is what appreciates. Your house depreciates.

So the structure depreciates, while my investment appreciates.
A 6% bottom line return with tax benefits would be a no brainer.
Therefore Shiller is dead wrong. Would that be right?

If a person can afford a home at current cost using a fixed rate mortgage then why not? When it is time to retire their housing expense will be minimal if not non-existent. Plus rent rises. That monthly mortgage payment will stay the same. I live in SF Bay area and have paid close to 220K in rent over the last 10 years.

robertoaribas says

Because the house depreciates!

I was telling my wife about this earlier, yes the house depreciates. You're talking about the rate of inflation, two different things: http://thecostofliving.com/index.php?id=102&a=1

jahreigns says

If a person can afford a home at current cost using a fixed rate mortgage then why not?

Because the mortgage is debt that needs to be repaid. If all of the things said on these threads are true you have more flexibility in a rental.

You get no equity out of a mortgage in the first fifteen years, and that is getting to be a very long time in a volitile financial market place.

People used to buy homes as a safe place to build a nest egg, but today it can be a mill stone, and albatross.

No one here knows for sure what will happen, but the financial landscape is indicating housing will be put on the back burner very soon, because it hasn't performed.

It is all speculation, the cash is sitting in reserves, and when the margins get small enough investors will move on.

robertoaribas says

hmmm. I guess that is why the original owner of the house I'm sitting in, paid $30,000 for it in 1968. I paid $230,000 for it 1.5 years ago, and it just appraised for $300,000.... Because the house depreciates!

Well, Shiller studied house prices globally going back 400 years. He found that prices did no better than the monetary inflation rate.
Yes, the physical facility depreciates (per the tax code) over 27.5 years, 100%.
I guess Shiller should have talked to you before he made a fool of himself.

robertoaribas says

If the value of my homes goes up at the inflation rate for ever,

The value of your home can only increase to the amount of rent it can take in.

One of the things I talk about is that we have had little or no construction of apartment buildings in the past ten years.

Builders built single family homes to sell because it was quick cash. That is the cash we are seeing in the Real Estate market today.

The good paying construction jobs are now building apartment complexes. That gives renters more choices.

It also means the values of your properties, all properties, can only rise as much as people can afford to pay, or are willing to pay.

The part about inflation is we would have to have wage inflation for your rents, or property values to go up. What we have is a rise in commodity prices, like with Real Estate. That is different from true inflation.

Gold can go up forever because no one needs it, it's useless, it's an illusion, but Real Estate is tied to economic principles of affordability.