Money Management and the Economy

Saturday, January 31, 2009

Is Now the time to Buy a House?

You aren't smarter than the market. It really is that simple.

The real estate industry is putting on a full court press for the notion that real estate is now a bargain. But the reality is that housing prices still have a long way to fall before they reach historic norms. And there are plenty of reasons to wonder even once they hit those norms, whether that will be the bottom of the market. The bad economy, huge amounts of other consumer debt, the tightening of credit and the hangover from the binge of new houses built at the height of the bubble would all argue that the immediate future is likely to see prices stay well below those historic norms for several years even once the current price bubble has fully deflated.

So if you are renting and thinking about buying, you are probably better off waiting until at least 2010 and probably 2011. Buy now and it may be 5 years or longer before your house gets back to the current price you paid for it.

On the other hand, if you already own a home and are unwilling to move into a rental, you are going to be on the hook as values fall regardless of what house you own. And one thing that real estate has going for it right now is very low interest rates. If you already own a home, those interest rates make moving up in the market both possible and attractive. The new home will fall in value, but probably not much more than your existing house.

If you are buying a house to live in, not as an investment, then there is a real opportunity right now. You will need good credit, a stable job and equity in your existing home to take advantage of that opportunity, but you can probably take on a bigger mortgage on a nicer house with the same payments as your existing mortgage. So if you want another bedroom, a larger yard or a lakeside location now may be the time to get a house that gives you those improvements.

Of course the worm in that apple is that you have to find a buyer for your existing home. With the smart new money sitting on the sidelines, that means finding someone in the same situation as you who sees your home as a step up. And has good credit, a stable job and equity in their existing home. With housing prices and the economy in freefall, those buyers are going to be increasingly hard to find. Which is another reason why housing prices are not likely to stop falling any time soon.

Tuesday, January 6, 2009

Is Lawrence Yun Really an Economist?

You aren't smarter than the market. It really is that simple.


Here is an article about Yun's predecessor essentially admitting his job was "spin".
Is Lawrence Yun, the Chief Economist for the National Association of Realtors, really an economist? No, I don't mean does he have a degree and training in economics. I assume that he does. The question is what services of an economist does the National Association of Realtors provide.

In case you haven't noticed Yun before, it seems every time there is an article about the housing market in the New York Times, Associated Press and other media, Yun appears with his usually rosy prognosis of the future of real estate. That is not surprising, given who he works for, but it is not really the job of an economist. Its the role of a PR flak who is delivering the message that suits his employers. I suspect the job title of "economist" is also a part of that message. Afterall, identifying himself as a "spokesperson" for the Realtors would alert people to the self-serving nature of the opinion he is providing.

Unfortunately, this is the nature of much of the economic information we get from the mainstream media. Economists are generally employed by institutions with an interest in certain economic behavior. Even those in the academic world work in departments whose success depends on contributions and grants from institutions with an interest in their work. Its not that economists or economic departments conciously slant their analysis to serve particular outcomes, but that those whose natural bias supports the wealthy are the ones that are successful.

In addition, like Mr. Yun, the people who seek out reporters tend to be the ones that have seeking out reporters as part of their job description. When you look at real estate, the average person who is facing foreclosure does not have many "economists" working for them. On the other hand there are literally thousands of people with economics and business degrees working for the other players in the mortgage meltdown. This is why Bear Stearns is a national problem requitring immediate intervention, but the thousands of people losing their homes is just the workings of the market place. This is why regulators step in immediately to help Bear Stearns with almost unanimous approval from economists, while congress will dither for months over finding the right political solution to the problems created by foreclosures for both individuals and communities.