CR, you probably caught this, but there's an editorial in the WSJ today by two real estate professors describing a model they've developed that explains why real estate is not in a bubble. It's a little vague, but the gist is that price/rent ratios aren't as important as monthly-cost-of-owning/rent and that that is stable, even in the high appreciation markets.
I'd thought it was another "low mortgage rates mean high prices are reasonable" article, but there's something towards the end about the importance of capital appreciation in markets like SF with higher financing costs (i.e. prices are reasonable because they are rising).
Anyway, take a look if you haven't seen it. Sounds like something you'd be interested in.
The assumption in most eco. blogs and comment sectons seem to be that the leaders of the economy (whomever they are) are dumb. It does not seem to occur to most, that the people who contol the economy know exactly what they are doing; serving their class interest - making the rich and powerful more rich and powerful.
To change things one must understand the cause of things. If one assumes ignorance and infact its conspiracy, then there will be no change.
Movie Guy, thanks for the comments. I intend to keep writing about the problem - we definitely need some leadership on this issue.
Mark, thanks for the heads-up. I missed that article, but I'm going to read it today.
Tom, whether they are ignorant or incompetent (and both parties are to blame), the only antidote is information. If the "leaders" are serving their special interests, they have a very short term view.
The research that the WSJ article refers to takes home appreciation into account. It subtracts home appreciation from carrying cost. Needless to say, housing is a terrific deal. It is like saying that low dividend yields are ok as long as we have capital gains.
You've read the original research ? It actually deducts home appreciation explicitly (or just implicitly by comparing against average costs) ? If so, their Op-Ed is most dishonest. One expects no less from the WSJ Editorial page, but one would expect academics to be more honest when describing their research.
Side Comment: I think we may have already seen the return of the "overimproved" house. Saw one such yesterdat at a open House, asking price = $1.45 M. We were only the 2nd people to arrive and the realtor was really desperate, kept on trying to get us to look at the place even as we were leaving.
We are more a debtor society than an ownership society. The question is how good an investment is debt. At times, the 70s, it has been very bad, and at other times, the 80-90s, it has been very good. Going forward, I would expect it to be at best a mediocre investment, but just about everything looks like it will be a mediocre investment so it is difficult to say how good or bad it is.
Agree with Movie Guy re keeping it up as strong as needed to turn this ship around.
And, in my view, need to toughen people to & their kids up to do more with less waste, more minimalist living, and also get all involved in long delayed necessary tasks for our civil defense, etc.)
Suggestion:
Think about the Concord Coalition.(it appears viable to get the job done & via C-Span and/or use of blog or a few; Pete Peterson, Rudman, Bob Kery started it several years back to deal with federal spending and tax issues).
Think about our asking them to get on C-Span on a weekly basis. (when people who work & in CA can participate, not when the oldsters are sitting at home in the mornings or when only the east coast can call in).
CR,
Good post that you put up at Angry Bear.
It's time for the economic blogs to pull the gloves off. And keep them off.
These blogs have some influence in Washington, D.C. and New York, and it's high time for the visibility of our problems to be cranked up.
Your post did a good job of that, but we need some outrage mixed in with the general politeness that we all exhibit in most posts.
The standard economic waffling, quibbling, and general sheepishness must be replaced with calls for action and course correction.
It might take six months to capture significant media attention, but this change in presentation needs to happen.
Sheep can not run this nation.
Our leadership voids are immense, and I am not referring to only the Republicans. The problem is much broader.
--
CR, you probably caught this, but there's an editorial in the WSJ today by two real estate professors describing a model they've developed that explains why real estate is not in a bubble. It's a little vague, but the gist is that price/rent ratios aren't as important as monthly-cost-of-owning/rent and that that is stable, even in the high appreciation markets.
I'd thought it was another "low mortgage rates mean high prices are reasonable" article, but there's something towards the end about the importance of capital appreciation in markets like SF with higher financing costs (i.e. prices are reasonable because they are rising).
Anyway, take a look if you haven't seen it. Sounds like something you'd be interested in.
The assumption in most eco. blogs and comment sectons seem to be that the leaders of the economy (whomever they are) are dumb. It does not seem to occur to most, that the people who contol the economy know exactly what they are doing; serving their class interest - making the rich and powerful more rich and powerful.
To change things one must understand the cause of things. If one assumes ignorance and infact its conspiracy, then there will be no change.
Movie Guy, thanks for the comments. I intend to keep writing about the problem - we definitely need some leadership on this issue.
Mark, thanks for the heads-up. I missed that article, but I'm going to read it today.
Tom, whether they are ignorant or incompetent (and both parties are to blame), the only antidote is information. If the "leaders" are serving their special interests, they have a very short term view.
Best Regards to all.
Mark,
The research that the WSJ article refers to takes home appreciation into account. It subtracts home appreciation from carrying cost. Needless to say, housing is a terrific deal. It is like saying that low dividend yields are ok as long as we have capital gains.
Tea
You've read the original research ? It actually deducts home appreciation explicitly (or just implicitly by comparing against average costs) ? If so, their Op-Ed is most dishonest. One expects no less from the WSJ Editorial page, but one would expect academics to be more honest when describing their research.
Side Comment: I think we may have already seen the return of the "overimproved" house. Saw one such yesterdat at a open House, asking price = $1.45 M. We were only the 2nd people to arrive and the realtor was really desperate, kept on trying to get us to look at the place even as we were leaving.
I think the Fed will increase rates, but they may signal that they're going to watch Katrina's impacts to decide whether to continue.
We are more a debtor society than an ownership society. The question is how good an investment is debt. At times, the 70s, it has been very bad, and at other times, the 80-90s, it has been very good. Going forward, I would expect it to be at best a mediocre investment, but just about everything looks like it will be a mediocre investment so it is difficult to say how good or bad it is.
"Debtor Society" is an excellent post.
Agree with Movie Guy re keeping it up as strong as needed to turn this ship around.
And, in my view, need to toughen people to & their kids up to do more with less waste, more minimalist living, and also get all involved in long delayed necessary tasks for our civil defense, etc.)
Suggestion:
Think about the Concord Coalition.(it appears viable to get the job done & via C-Span and/or use of blog or a few; Pete Peterson, Rudman, Bob Kery started it several years back to deal with federal spending and tax issues).
Think about our asking them to get on C-Span on a weekly basis. (when people who work & in CA can participate, not when the oldsters are sitting at home in the mornings or when only the east coast can call in).
To clarify:
They have access to C-Span (or most any other program) & could use blog discussions e-mail for enhancement.