patrick.net

You may want to read it yourself. He showed that over long durations housing prices are basically flat once adjusted for inflation.

And since real prices are way up compared to 1980, it follows that now is a very bad time to invest in housing.

Here is long-term house prices, on a real basis (the "right way"):
http://www.showrealhist.com/RHandRD.html
You would NOT call it an investment, but speculation over 1997-2006 realized a factor 100/54 gain.
Conpersons might quote numbers, but leave out charts. (The public be suckered!)

RentingForHalfTheCost says

egads101 says

Shiller owns a home.

Most likely just because of pressure from his wife.

Just like Worm said: "In the poker game of life, women are the rake. They are the (sic) rake!"

egads101 says

Shiller owns a home. That kind of shoots the shit out of your entire point.

Absolutely not. Owning a home is not an investment.
If you are rich enough, you would just pay cash and not even care.

egads101 says

How long have you been on here, saying "now is a bad time to buy" while the market has kicked your teeth in?

Let me remind you that you don't know anything about me including whether I own a home or not.

All I'm saying is that the real value will go down in the long term and all signs are that it will. ttsmyf is certainly right about that.

egads101 says

"housing was never a good investment"

bullshit. His claim was that asset class prices can overshoot on BOTH sides. i.e. the market is not always efficient.

You might try actually reading his works, before saying something so stupid!

Roberto, are you willing to gamble on your home, your residence, where you actually live in ?..
like so many here they are looking for a home to live in.. this is NOT some RE investment forum.

Shiller has been right for a very very long time now.

He might as well have pissed on the flag and a picture of Jesus Christ.

thomaswong.1986 says

Shiller has been right for a very very long time now.

Why hello there Thomas. Just in case you forgot, in re the "republican party in 10 years" thread, the ball is in your court. As a refresher:

1. You said SF suffered economic declines from 1960 til 2000, while SJ experienced economic gains during the same (1960-2000) timeperiod.

2. Your chart shows that from 1975-2000 home prices in both SF and SJ moved in lockstep. If home price is tied to economic performance, how is this possible? How can this be?

It was refreshing to see you initially respond to me in an honest and direct answer. However, as (i believe) you realized how at the end of the day you are going to have to back off of item 1 or 2 above, you went to your usual well of responding with tangential non-issue after tangential non-issue.

Thusfar, I have put each and every tangential non-issue into the asked and answered column and will continue to do so if necessary. That said, can you now address the central issue here? Feel free to respond to me here or in the original thread -- but in either event, good luck!

Tim Aurora says

Once again if you include dividend, which in this case is rent , the graph
will look much different

I don't understand how people can continue to pretend that housing as an investment only includes asset price gains.

Tim Aurora says

Once again if you include dividend, which in this case is rent , the graph will look much different

That's a naive comment.
If you buy you pay the rent to yourself but if you rent you can use your money that is not stuck in your house to invest somewhere else and rake in gains. It's a wash.

Heraclitusstudent says

That's a naive comment.
If you buy you pay the rent to yourself but if you
rent you can use your money that is not stuck in your house to invest somewhere
else and rake in gains. It's a wash.

Except it's not a wash. Forget the financing part of the equation. Comparing a house to a stock as an investment-you have to include the avoided rent just like you count a dividend from the stock. When you calculate return on stocks, you always include dividends so you have to include the dividend from a house as well (avoided rent).

tatupu70 says

When you calculate return on stocks, you always include dividends so you have to include the dividend from a house as well (avoided rent).

Yes and when you do it for both, it's a wash... Many people do pay their rents from investments returns.
In any case this cannot be listed as a reason to buy rather than renting.

What we were talking about is the expectation of capital gain and the fact that people buying now can reasonably expect a capital loss in the long term.

egads101 says

MY HOUSE bought exactly 2 years ago, was $230,000. I put 20% down, so $46,000. and financed the rest at 4.25%

Oh please don't bore me with the details of your special case.

I invested my $46K down-payment in TSLA in Jan. Checkmate.

egads101 says

hardly a special case, as I repeated it a dozen times...

Not a special case. Right.
Would it return the same if you were buying it now? If not, how was it not a special case?

You're saying your house went up 40% in 2 years and it's not a special case? And you seriously believe this will happen to every home buyer?

I'm amazed someone would make such an argument.

Tim Aurora says

ttsmyf says

You would NOT call it an investment, but speculation over 1997-2006 realized a factor 100/54 gain.

Once again if you include dividend, which in this case is rent , the graph will look much different

Tim Aurora,
You are just saying "I DON'T LIKE THAT, PLOT SOMETHING ELSE!!!" Trying to keep real asset price histories

http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html
out of sight is fully consistent with 'education' as a four letter word, IN OUR USA!

egads101 says

A homebuyer today will pay a mortgage much closer to the rent, and will likely see 5% appreciation over the next few years. STILL much better than renting in the long run.

So Shiller got a Nobel for proving home prices are flat in the long term, but Mr know-it-all here says they will gain 3%/year...
Well at least for a few years...
And so everyone should jump in a buy a home.

Well that's great but people don't buy homes for a few years.
And the Nobel price says real prices will go back to where they were when you bought them or maybe even 1980.

So far I'm amazed mostly by the vacuity of the arguments coming from a megalomaniac character.

I've heard Shiller say in interviews several times that there are lots of good reasons to buy a house. They just aren't reasons based on finances.
If buying a house is the only way to get your child in the school you want, then that's a good reason to buy a house.
If you feel significant stress and a sense of failure having not bought a house, that's a good reason to buy a house. Those feelings and thoughts will probably not set you on a path toward disciplined money management anyway.
If buying a house is the only way to live where you want to live, that's a good reason to buy a house. Think of the peace of mind that will bring to you and, if you have one, your family.
Plus, it's just more socially accepted to buy a house. Do you want to be outside society? Most people are not comfortable being outside social mores. Or is that breaking social mores?

Plenty of good reasons to buy a house. Kind of like the first advice given when people invest their retirement money in stocks, mutual funds. "Invest in a way and with the amount of risk that lets you sleep at night." If you're worrying all the time about your money, that probably won't lead to financial success.

Buying a house might be considered risky, especially at San Francisco prices!, since the probability of a return is low. But at least you know you'll get some money back at some point even if careful calculations show you making a low percentage return.

egads101 says

See, at "flat with inflation" appreciation, and nearly a million of it leverage at 4% rates, I will be fine.

What you don't seem to appreciate is that a low 4% rate is just extra leverage that inflate prices today. What you gain through lower rates you will exactly lose on principal, if rates were to increase.

Or let me put this an other way for you to understand. Shiller said real prices are flat over time. But real prices are way higher now than their average for the past century. Meaning, once again they will revert down. Even what you call "an irrationally low period" was high in real term compared to long term average.

Again, you don't have an argument.

You're still stuck with the short term bias. You think what we lived in the past 30 years define normal and will continue forever. You think a period when the Feds print $85 billions a month defines normal. Well no, it constitutes an historical anomaly.

'Normal' will hit you in the face like a freight train.

egads101 says

Go ahead, find any thing of Shiller's ever where he predicted "prices would go back to 1980"

Just look at Shiller's chart posted by ttsmyf and you will see that 1980 just about defines the long term average Shiller is talking about when saying real prices are flat over time.

egads101 says

I like Dr. Shiller. I read his research. But frankly, if you got out of stocks when he published "irrational exuberance" Written march 2000....

you got fucked.

you should know only a few stock were moving the indexes .. many being tech..

and certainly if you got out of Ariba or Yahoo or even Apple ... well you did well..

the other guy who bought lost 90% of his cash investment.

egads101 says

Dr. Shiller "I don't know if home prices are going to go up any time soon" April 2012... Nice call, My Nobel laureate!

"It seems unlikely to me that we'll see a really big rebound" - hey 15% ago nationwide!

Irrational Exuberance never left... its still there in some places. And of all things we have Govt supporting higher bubble prices.

egads101 says

Actually, Shiller's claim is that markets can be irrational, and that this irrationality can be seen

You're confusing separate areas of Shiller's research. He's written on more than one topic and stated more than one idea.

egads101 says

really? so the home I bought for $76k, which is rented for $1000 for the past 1.5 years, and is now worth $150K will drop a ton, when rates go up? and why would I care, when my mortgage is $440 a month?

As I said don't bore us with your special cases.
This is irrelevant.

egads101 says

Heraclitusstudent says

What you don't seem to appreciate

You condescending cocksucker, i "appreciate" and know about 1000 times more real estate economics than you do.

If you appreciate it then why bring up this story about paying rates lower than inflation when you know nothing is gained from this?

The car you drive to work in isn't an investment, and ideally neither should the house you live in. Buy the house to live in it, and any price gain would be a bonus when you sell, not an expectation.

egads101 says

He also said two years ago, that prices would rise 1% a year through 2015

Really he published a paper saying that prices would rise 1%/yr through 2015?

Seriously, are to you too stupid to differentiate punditry from academic research?

egads101 says

I bought a 3/2 with a 2 car garage for $26K from Hud. I spent 5k on repair and appliances, and it has been rented to the same tenant for 2.5 year at $820 a month... that was LOWER than it sold for in 1984...

More boring stuff about special cases. Does your brain lack the abstraction capacity to make a general case about what your are trying to say?

egads101 says

No, the reality is you are a dumbass who missed the opportunity of a lifetime!

You still don't know anything about me, or what I bought or not.

You're just rambling endlessly about your few lucky guesses without any clue why this is relevant to decision making in real-estate as of today.

egads101 says

I'll bet I've made one hell of a lot more money on investing in real estate, then the good dr. shiller ever did, all with a hell of a lot less income to work with!

Yeah but he has a Nobel price and is likely a lot richer than you, and you're still a loser who as far as I can tell hasn't accomplished anything in his life besides speculating on the price or this or that - but that obviously thinks he is entitled to tell other people what they should do for no good reason he can explain.

egads101 says

but as an investor??? using his pronouncement for cues would have been disastrous.

I agree, because that investor would have missed his point. You also seem to be missing the points he makes. He's very careful not to make predictions. He and his teams carefully analyze a bunch of data, which is always historical. Then try to draw conclusions about possible future outcomes based on the data always admitting that the conclusions can't be certain.

FunTime says

I agree, because that investor would have missed his point. You also seem to be missing the points he makes. He's very careful not to make predictions. He and his teams carefully analyze a bunch of data, which is always historical. Then try to draw conclusions about possible future outcomes based on the data always admitting that the conclusions can't be certain.

Freely admitting that I need to read his book, can anyone here clarify the data set he used for the 1890 - present home price index? From what I can tell, it's different than the "house pairs" type of data he used with Case for their Case-Shiller Index.

Anyone know the details?

egads101 says

I like Dr. Shiller. I read his research. But frankly, if you got out of stocks when he published "irrational exuberance" Written march 2000....

you got fucked.

Likewise if you took his literal advice on housing!

so, as an academic, I respect his deeper works, but as an investor??? using his pronouncement for cues would have been disastrous.

Hey conperson,
Please show the truth.
http://patrick.net/?p=1223928

never seen a millionare use "dickwad" on here before.

egads101 says

Soooo, I have been 100% accurate in my housing market analysis for two decades, buying several after the last crash, selling before the peak, and then buying a ton after this crash... making a couple of million dollars, but I shouldn't share my expertise?

Studies show market timers are no better than chimp throwing darts.

Just because some random idiot on the Internet pretends to have a few successes investing says absolutely nothing about his abilities. And of course self-serving attributional bias prevents you to be objective about it.

More importantly, you are still unable to articulate a logical case as to why real housing prices should permanently stay above their century average where they were around 1980.