Yale professor Robert Shiller belongs to a rare group of economists that I really respect as he thinks for himself based on scientific data and he’s been spot on in his forecasting. What he’s saying in this video just blows - but doesn’t surprise - my mind:
- “Housing might fall another 10-25% in the next few years.”
- “US home prices flat 1890-1990 on an inflation-adjusted basis.”
- “Home ownership - The American Dream - pays a social dividend, but is a bill of goods as an investment.”
And I agree with his statement that house owners need better tools to hedge their leveraged risks but I doubt banks, real estate agents and other in that industry would support anything that would level the playing field. Today it’s just another Las Vegas, where the “house” always wins and it’s sure not they one you mortgaged.
“If we were there for you [banks] when you got into trouble, then you’ve got to be there for the American people when they’re having a tough time.”
Nicely played but I whole-heartedly disagree that homeowners should be bailed out. A homeowner has two options: move to foreclosure (strategic or not) or just suck-it-up.
There is just too much pussy-footing around homeownership: tax deductions ($100BN / year), tax credit ($22BN) et cetera. This money could be allocated towards more growth-oriented initiatives, such as education, public transportation and infrastructure.
Residential real estate is still a falling piano, and the best action for an under-water owner is to do a strategic foreclosure, walk-away and rent. That will put pressure on the overall market and accelerate the inevitable additional 10-20% drop.
If real estate investors are entitled to the potential profits they should also be responsible for their losses, without costs being subsidized by tax-payers.
I’ve been in the deflationary and double dip camp for the past year, seeing the stock market reach unsustainable levels while unemployment has been staying around 10% (U3) and 17% (U6). The stock market started to agree in the end of April when we had the first of many daily plunges.
The dollar reversed it’s decline on August 9 and then John Chambers @cisco declared rough times ahead on August 11. We’ve had red days ever since. Amazing how quickly a day makes.
[I listen in on the clowns at Fast Money for funsies and kicks. You have to read between the lines as their feeding tube goes right back to GE. Every time a guest argues for a bearish scenario Melissa Lee looks like she’s going to pass out. I guess that’s why @dylanratigan left; he got tired of being a Wall Street megafon.]
Looking at the similarities between the summer of 1987 and 2010 I’d say we’ll have a stock market crash this fall. Most likely before October. Ashes to ashes so to speak.
How the inflation will soon be here so buy-buy-buy… that probably just means that we’ll not have inflation for quite some time. Inflation can only happen with increased money supply (M2) in combination with increased consumption with low unemployment. Clearly not where we are today. Deflation is the more likely scenario.
I still think that cash is king, renting wins over owning and that the dollar will rally for the next 6-12 months. Bodes well for a globetrotter as paying $1.50 for every Euro last week was painful… despite picking up some Euros in March @ $1.30-ish.
PS. Just look at all the 2-bedroom pads that are available in Pacific Heights. Prices are down and supply ample. I’ve never seen so many for rent / sale signs in this hood since we moved here in 2002.
