A nation of housing speculators?
Check out Robert Shiller’s excellent analysis piece in The New York Times.
Shiller and long-time housing market co-guru Karl Case of Wellesley College have opened a window into the kind of thinking that has driven the recent surge in home prices.
And let’s just say it isn’t pretty.
The pair, best known for the S.&P./Case-Shiller home price indexes, over the summer surveyed newly-minted home buyers in four different markets on their views of the market, including Boston.
The surveys coincided with the recent, 3.6 percent increase in home prices from April to July, a dramatic shift coming after the nearly 5 percent drop in prices reported by Case-Shiller during the first few months of 2009.
Shiller and Case’s survey highlight two findings that should give pause to the housing bulls out there.
First, there are strong indicators that bubble thinking is now the norm for home buyers when it comes to their long-term view of the market.
Undaunted by the housing downturn, buyers still have extremely high expectations of the potential price appreciation of their homes.
On average, the 311 buyers surveyed expect to see the value of their homes soar more than 11 percent each year. The median was 5 percent, still pretty darn high given the current outlook for the economy.
But Shiller points out another, potentially more alarming shift, is taking place in short-term attitudes.
Buyers surveyed said they expect, on average, the value of their newly purchased homes will increase 2.3 percent over the coming year. That’s compared to a more realistic view last year of a .4 percent drop.
Shiller points to other indicators as well that buyers are taking a market-timing approach when it comes to deciding whether to plunk down money for a home.
Here’s what Shiller has to say:
“At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs — including the $8,000 first-time home-buyer tax credit that is currently scheduled to expire before Dec. 1 — in an effort to time their home-buying decisions. The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility.”
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