I was reading the Express on the Metro this morning and it had a whole big (by the standards of the paper) section about how to buy your first home. Nowhere was the worry that one might be buying into a market that's still on its way down so much as considered. I'm not saying anyone who buys a house right now is buying into a downward-trending market (if I thought I could forecast asset price changes accurately, I'd get into another line of work) but it seems like an obvious concern people might have. No more obvious, though, than the fact that the advertising in the section came pretty much exclusively from condo developers who, presumably, aren't so interested in a rigorous look at this issue.
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Media Bias
24 Oct 2007 10:15 am
Comments (18)
I suppose that's worse than the quarter-page ads in the Express that ask if the reader is plagued by the "My home isn't selling!" problem...
The Washington Post real estate section is by far the most coopted group of journalists I have come across. I mean, it's really shocking how much kool-aid they have consumed. Read their weekly on-line chats; try to get them to respond to skeptical letters or emails; it's hopeless.
You got it exactly wrong. This is a bad time to sell but a ggod time time buy. The time to buy something is when the prices are dropping. Maybe right now, right at the beginning of the slump is not the best time, but the basic realities of the market are still there. There is still a shortage of housing in desirable markets. 5 years ago we bought a house assessed at 90k. Now it is assesed at 165K. That rise reflects the shortage plus some bubble. Now the bubble effect is gone, but there is still shortage price in that rise. So the value is going to go down (or not go up for a while), but it's not going to go back down to 90k because there is still a shortage. And in a few years it's going to go up further. So now, or in the next year or two is going to be a good time to buy a house, or especially a condo. Here in Madison they built a whole bunch of condos durring the bubble that are now standing empty while the developer's bank account drains. There's going to be some good deals.
I actually want prices to go down so my taxes go down (not likely). The only time you want prices to go up is when you wnat to sell. Now is a bad time to sell.
Joe:
Why would the real estate section being anything but a shill for the builders and real estate agents? The paper doesn't want to chase away the few advertisers they have left!!
If I thought I could forecast asset price changes accurately, I'd get into another line of work
Don't quit your day job.
CW is pretty much right. In addition, the prices in the DC area aren't really falling much, if at all. Local prices seem strangely unaffected by the decrease in activity. That's probably because the local market is historically much more predictable than the national housing market. The local company isn't going to go out of business before you pay off your mortgage.
It's a very bad time to buy a condo, so I wouldn't. I'd wait until real estate begins 'moving' again, that transactions are occurring, to buy one, if that's what one wants to do.
Lord Keynes' economics is based on aggregate demand getting out of whack with aggregate supply. This can only happen if the market 'price' can be higher than the market clearing price. The only two markets where this generally happens are residential real estate and the labor market. In the labor market what you get is unemployment and 'unemployment' in the residential real estate market is an increase in inventory for sale and a decrease in 'sales' of existing and new homes. This is because, in stocks, commodities, commercial real estate and and everything else, in labor markets and residential real estate, if the price of what's traded is too high, thge price goes down rather quickly, but in residential real estate and labor markets prices are sticky downward, they take a long time to fall, and when the 'price' is higher than the market clearing price 'trading' dries up.
Though I'm generally not very 'Keynesian' it seems to me that the economy could use some fiscal, done through the tax system, keynesian pump priming in regards to residential real estate.
cw makes some good points, but there's a bigger point here--that you shouldn't buy a house simply as an investment, and certainly not as a short-term investment. Housing will certainly go up in the long run, regardless of when you buy, but it won't necessarily give you a great rate of return. David Leonhardt of the NYT recently recounted a conversation he'd had with a midwestern real estate broker whose daughter had just sold her house for 30 percent more than she'd paid for it ten years before; "Tell me what sort of investment would give a better return than that," the broker said. Leonhardt's [silent] response: "Any bank savings account." And that's before figuring in taxes, insurance, mortgage interest, and maintenance [and, TBS, savings on rent]. I live in one of the trendiest neighborhoods in Nashville, and, using a reasonable valuation on my house, I calculate an annual compounded return of 5.7 percent over the eighteen years I've owned it, before the aforementioned offsets. The big advantage is that I have a neat place to stay, a secure and [now] paid-for roof over my head and my stuff.
You got it exactly wrong. This is a bad time to sell but a ggod time time buy. The time to buy something is when the prices are dropping.
I take it that cw has never heard the phrase "catch a falling knife". Look at any economics blog or housing bubble blog. The optimists do not predict prices to bottom until 2009. Even if the asset price is falling, if it continues to fall after you made the purchase, you will have lost money.
Ideally, you want to buy at the bottom. However, that's near impossible to do. So there is exactly one rule that you should use for buying a house.
When it is cheaper to buy than it is to rent a property of comparable size/quality.
Anything else is speculation based not on fundamentals, but the belief that there is a greater fool out there. It is almost guaranteed to lose money for the next several years. The ugly truth is that in many, many areas renting is cheaper than buying even when you include the often overhyped tax deduction on interest.
This is true even in "cheap" areas like Upstate NY (where I am right now). If it is between buying a 2k sq foot 50-year old farmhouse for $250k, or renting it for $800/month with a property manager to handle all maintenance, the choice is clear.
Back to Matt's post that started this all. Newspaper bias towards real estate is well, well documented. The issue is not articles like the one you posted. It is that they regurgitate NAR's made up numbers on a regular basis (The California organization CAR has redefined "affordability" twice in the past five years). Until the credit crunch started this summer, newspapers regularly had articles about how there is no bubble and everything is fine with real estate. No attempt was ever made to question distortions or out-right lies from industry shills.
Why do they do this? The claim is that newspapers make way too much money from real estate adds to upset local realtors. Is this true? I leave that for you to decide.
To understand the real estate section of the newspaper, think of it less as news and more like pornography.
I don't think it's a good idea to make your personal decisions based on macro trends. You can't time the market and the right time for you to buy a house may not coincide with optimal market conditions. People buy and sell houses in every market.
agreed--if you want to buy a house as a place to live (which is still, I believe, what most people do), you view it as searching for a place to live, first, investment second, if that. If it's likely you'll sell within a few (2-3?) years, you'll want to pay more attention to resale potential related to the market (as opposed to to the property itself), but if not, things will have likely changed so much by the time you sell that it would be silly to try to "game" things.
Walker: "Newspaper bias towards real estate is well, well documented."
Tyro: "To understand the real estate section of the newspaper, think of it less as news and more like pornography."
To understand the real estate section of a newspaper, realize that newspapers operate in two-sided markets. They sell advertising space to one set of customers and information to another. The advertisers are every bit as much the customers of the newspaper that readers are.
"So there is exactly one rule that you should use for buying a house.
When it is cheaper to buy than it is to rent a property of comparable size/quality."
I don't think I agree with that. Say you paid $2000 a month for maintenece, mortgage and taxes for that 250k farm house. You pay that for 15 years that's 360k. Say over that same 15 years the value of that house goes up a very conservative 3% a year or 45% (I'm not even doing compounding here). You sell it and you get 362,500 back. You break even. But if you rent for 15 years at $800 month (no increases even!) and then move, you are out 144,000.
If you are only going to stay a few years it might make sense to rent, but after a few years it's better to buy, if you can afford it.
There is another factor that should go in the plus column for buying a house: theoretically, at some point you will finish paying for your house, substantially decreasing your overhead; whereas you never stop paying rent, and it goes up.
Another factor against owning a house is that you may end up with too much space, which leads to too much furniture and other unnecessary stuff, and than some stupid improvements in the backyard etc. If you rent an appartment you are not tempted to waste money on unnecessary stuff because you just not have the place to put it. And without a garage, you may opt for a cheaper car. Surely, you will not be tempted to buy a tractor to mow your lawn. And you live next to a bus line, and closer to the place where you work.
Then the house can develop some problems. It can be literally eaten by termites. Or wrong kind of spiffy exterior can cause the plywood in the walls to rot. Or some pipes can leak and drywalls will become wet. Or the roof can leak, or the window, or the basement will flood. There are also more exotic hazards. Some families in Texas could not get rid of poisonous snakes. Houses in particularly beatiful places burn, together with the beatiful forest of shrubland around.
Of course, it can be too cramped in an appartment, and it is rather hard to scale it just right. Once you decide that you need a lot of space, renting is usually a loosing preposition. So I view it as a major life-style choice.
Of course, you can have a tiny condominium, but then the investor's benefit is rather small too. But you can remodel the place any way you want, and there is some lifestyle value in that too.
Kinda like CNN's Planet in Peril... sponsored by Conoco Phillips.
Comments closed November 07, 2007.
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Heads in the Sand
I was reading the Express on the Metro this morning and it had a whole big (by the standards of the paper) section about how to buy your first home.
It seems to me that how to buy your first home is a different question than whether to buy your first home right now.
Posted by Al | October 24, 2007 10:24 AM