Housing Prices

[chickenhead]

The Case Shiller Historical Index is arguably the most useful tool for seeing where we are in relation to norms. This was the only chart required to know we were in a bubble while it was happening, nothing was more obvious. Here is a chart updated to include recent information. For anyone who thinks our housing problem and its deleterious effects on our economy, our banking sector, and everything else is behind us, we are still around 30% high.



http://www.ritholtz.com/blog/wp-content/uploads/2011/04/2011-Case-SHiller-updated.png

[DJofSD]

If this is recent data, I expect this will be covered on Kudlows program this week. (That is if the huricane or something else doesn't bump him off the air.)

Thanks, chicky.

[chickenhead]

saw this the other day on Yahoo Finance, I can't vouch for this guy but he basically shares my long standing opinion that we need to eliminate the mortgage tax deduction (which does not mean it need result in a net tax hike).

High housing prices do nothing but make us a less competitive labor market compared with the rest of the world. Somewhat in relation to the paradox thread -- anything that can be done to keep housing prices low (lets say at a natural level, not artificially, but by removing any and all artificial support) is a very large net positive long term.

Making people pay more for housing does no one any good. It punishes those who save money and pay more in cash, it rewards leverage. Higher debt also means less flexibility to move, which hinders economic activity. It requires higher wages all around to pay for these artificially more expensive houses.

High housing prices based on large mortgages are a bad, bad thing -- and the mortgage tax deduction encourages it.

http://finance.yahoo.com/blogs/daily-ticker/housing-fix-end-government-subsidy-ponzi-scheme-says-184750774.html

[Robert Goren]

The US housing bubble was caused by people looking at buying a house as investment fueled along by lenders having a way to sell off what they knew as bad loans. It was a prefect storm. We have the mortgages deduction for years and rightly or wrongly, it isn't going away. I have even heard people who push the flat tax say that they would have incorporate it into their tax to pass.
For the record, I have never owned a house. I think unless you have kids at home, it is a dumb idea. If you do own a house, you should sell as soon the kids are gone. I think that as general rule they are terrible investments.

[chickenhead]

The US housing bubble was caused by people looking at buying a house as investment fueled along by lenders having a way to sell off what they knew as bad loans. It was a prefect storm. We have the mortgages deduction for years and rightly or wrongly, it isn't going away. I have even heard people who push the flat tax say that they would have incorporate it into their tax to pass.
For the record, I have never owned a house. I think unless you have kids at home, it is a dumb idea. If you do own a house, you should sell as soon the kids are gone. I think that as general rule they are terrible investments.

Well sure, you can lump it in with all the other third rails, rightly so. But it doesn't mean the proposition shouldn't be talked about, and regularly.

Phase it out over the next 30 years by reducing the deductible amount by 3% per year. A plan that removes it imperceptibly slow is better than not getting rid of it at all. That's my main beef with this country, we don't understand that long term planning, implemented today and stuck to, will solve problems for the future without abrupt changes. Things need not be abrupt to end in a happy result. Do the same thing with farm subsidies. And our entire tax code. And social security retirement ages.

We have zero ability to implement a long term plan.

[Dave Schwartz]

Consider this: If you own a 2,000 sq ft home that cost you (say) $150,000 last week and it burns down this week, can you rebuild it for $150,000? (Your insurance won't pay that much because the land is a significant part of what you paid.)

In Reno, the answer is a resounding, "No" because builders say $150 per sq ft is the minimum cost. Yet the house is only worth $150k.

How can a house be worth substantially less than it costs to build or rebuild?


There is a disconnect somewhere.

[Mike at A+]

Many policies (mine too) have a "cost to rebuild" clause. For a few bucks more in premium it's well worth it.

Since home values are at record lows, I'm seriously entertaining the thought of buying a small house up in Saratoga. Obviously, racing season isn't the time to go looking but I'm thinking that maybe November/December may be a good time.

Anyone have any suggestions?

[chickenhead]

Consider this: If you own a 2,000 sq ft home that cost you (say) $150,000 last week and it burns down this week, can you rebuild it for $150,000? (Your insurance won't pay that much because the land is a significant part of what you paid.)

In Reno, the answer is a resounding, "No" because builders say $150 per sq ft is the minimum cost. Yet the house is only worth $150k.

How can a house be worth substantially less than it costs to build or rebuild?


There is a disconnect somewhere.

Once something is built, its price isnt really related to what it cost to make. Its rock bottom price is whatever it can be dismantled and sold for scrap, generally. Used gas guzzlers drop in price when gas goes up, go up when gas prices are low. Large, expensive (but meant for middle class) houses prices drop when debt is unwanted, goes up when debt is in vogue. In some cases, sure, below replacement. Maybe well below replacement if there are too many big houses.

But, obviously demand for houses will resume, at some point, and they'll need to get built.

Here's a list from the homebuilder association of actual costs / sq ft to build, by year. This includes profit and overhead on the contractors part. If $150 sq ft is the minimum, it appears far out of whack with average, even at the peak in 2006.

In fact, interestingly, if you extrapolate this chart out -- the average cost shown for the West works out to right about $150K for an average 2000 sq ft house.

Just as likely, or hopefully I guess, the housing prices will continue to fall by result of people requesting slightly smaller, slightly more modest houses.

[chickenhead]

oops, forgot the link :blush:

http://3.bp.blogspot.com/-4iLEAio5GIw/TgutN1Hyt7I/AAAAAAAABps/ofBg3Z6mi1U/s1600/New%2BPriceSqFt.jpg

from nahb

[chickenhead]

The US housing bubble was caused by people looking at buying a house as investment fueled along by lenders having a way to sell off what they knew as bad loans. It was a prefect storm. We have the mortgages deduction for years and rightly or wrongly, it isn't going away. I have even heard people who push the flat tax say that they would have incorporate it into their tax to pass.
For the record, I have never owned a house. I think unless you have kids at home, it is a dumb idea. If you do own a house, you should sell as soon the kids are gone. I think that as general rule they are terrible investments.

Read an interesting stat on the mortgage deduction -- I know people hate playing the race card, and hate playing the wealth card - but people do love playing the location card...

The mortgage tax deduction is a $1 trillion dollar per decade cost. We could decrease marginal tax rates for everyone equal to $1 trillion per decade by eliminating it.

75% of that $1 trillion in mortgage tax deduction goes to greater:

New York City
San Francisco
Los Angeles

residents. 25% spread amongst the remainder of the country.

Hows that for a tax cut for the few, at the expense of the many. But only having one result, causing house prices to be higher than they should be, and people to take on more debt than they should.

And like you said Robert -- something this costly, this stupid, this skewed, with profoundly negative effects for everyone, including those it supposedly benefits -- is treated by most people like not only a holy institution but a right.

[Dave Schwartz]

That's interesting... can you post the source?

I'd really like to read that.


Dave

[Robert Goren]

I never said it was a good idea to keep it. I said it is not going away. I stand by that statement. That is the political reality of it.

[bigmack]

That's interesting... can you post the source?

I'd really like to read that.
I have reason to believe this is what The Chickster read, Mr. S:
http://articles.sfgate.com/2011-09-04/news/30111766_1_mortgage-interest-freddie-mac-top-tax-bracket

Don't like to see them using numbers from 2004 but I suspect they'll not be dissimilar with what you might find taday.

I don't have much of a problem with it. Heck, I'm surprised the "Get the Rich" crowd hasn't gravitated. Then again it does take ingenuity. :rolleyes:

[chickenhead]

Heck, I'm surprised the "Get the Rich" crowd hasn't gravitated. Then again it does take ingenuity. :rolleyes:

More interesting is that the "Get the Rich" crowd is exactly who (wrongly) supports the deduction. Any conservative think tank you find opposes it fully. Of course those conservative thinkers also oppose things like agricultural subsidies, another view not likely to catch on with pols interested in winning Iowa.

But you're right about the rich part -- the reason those three areas get such a large percentage is because they have a large number of comparatively very wealthy people. If you sorted any tax benefit that had a high ceiling, a handful of people in a handful of urban areas are going to grab the majority of the total benefit.

Something which is always confusing about the soak-the-rich, but love the urban-elite, and the opposing protect-the-rich, despise-the-urban-elite crowd dichotomy.

The rich and the urban elite are, in aggregate, the same exact group of people. Both sides use the same group as foils, and the same group as champions. This necessarily leads to being less than honest about who they're actually talking about most of the time.

No shocker there, America is conflicted about rich people, and all political parties fully reflect that.

[Dave Schwartz]

Thanks, Mack.

[Rookies]

Not the whole great white North, but certainly TO, the house price graph is off the charts and for a looooong run. With some correction years, it's been a GREAT investment and this with $0 mortgage deductability for one's own home. http://www.torontohomes-for-sale.com/4a_custpage_2578.html

Today, a new level of insanity: http://www.theglobeandmail.com/life/home-and-garden/real-estate/buying-and-selling/shareTweet/article2362078/

I know that neighbourhood and that type of house very well. Almost identical to a close family member, albeit a bit smaller and likely with less property!

Have no idea how the X/Y Gens could ever afford one here.

[JustRalph]

I can buy that same house in Columbus Ohio right now for 70k or less in good condition and updated.

for 35k as a foreclosure that needs work