Friday, April 08, 2005
Moving on the bubble.
Robert Shiller looks back to the Southern California housing market of 1887 for parallels to our current situation. And Angry Bear explains the economics of the role of speculation in a bubble.
I've become increasingly convinced in recent months that we are at the end of a run-up in this market -- Angry Bear points out that "housing 'bubbles' typically do not 'pop, rather prices deflate slowly in real terms, over several years" -- but am not sure what to do about it. If I were moving anyway, and looking for new housing in one of the coastal cities where the market has been crazy, I might look to rent for a while instead of buying again.
I've become increasingly convinced in recent months that we are at the end of a run-up in this market -- Angry Bear points out that "housing 'bubbles' typically do not 'pop, rather prices deflate slowly in real terms, over several years" -- but am not sure what to do about it. If I were moving anyway, and looking for new housing in one of the coastal cities where the market has been crazy, I might look to rent for a while instead of buying again.
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If you're planning on staying put in the same house for a while, then there's nothing to "do". As I see it, as long as your house's value doesn't fall below what you paid for it (plus inflation, arguably), then you're breaking even. So you've effectively been paying your mortgage interest in order to have a (presumably) nice place to live. Which probably approximates what you'd have been doing had you been renting, anyway.
In my case, I expect I'll want to buy a new place in the same area in the next 5 years or so, mainly for the additional space (and perhaps to have a standalone home rather than being part of a homeowners association). So I'm conflicted.
I think what I want is the market to level off and maybe decline a little bit (3-5%?) around the time I buy. I think that would allow me to find and buy a house with less stress that I have to beat off other buyers with a stick, but still have enough demand to be able to sell my current house fairly easily.
On balance, I think I would rather have stress over buying a house rather than selling a house, when I'm doing both at about the same time. But, having never done so before, I don't really know.
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In my case, I expect I'll want to buy a new place in the same area in the next 5 years or so, mainly for the additional space (and perhaps to have a standalone home rather than being part of a homeowners association). So I'm conflicted.
I think what I want is the market to level off and maybe decline a little bit (3-5%?) around the time I buy. I think that would allow me to find and buy a house with less stress that I have to beat off other buyers with a stick, but still have enough demand to be able to sell my current house fairly easily.
On balance, I think I would rather have stress over buying a house rather than selling a house, when I'm doing both at about the same time. But, having never done so before, I don't really know.
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