RadioBDC Logo
Just One Of The Guys | Jenny Lewis Listen Live
 
 
< Back to front page Text size +

Are buyers to blame for housing bubbles?

Posted by Scott Van Voorhis September 25, 2012 08:13 AM

E-mail this article

Invalid E-mail address
Invalid E-mail address

Sending your article

It's easy to blame bankers and real estate agents for the housing mess. But maybe it's also time to take a good hard look in the mirror.

Karl Case and Robert Shiller recently collaborated on new research that looks at the power of belief in driving up home prices.

The dynamic duo, founders of the vaunted Case-Shiller housing index, laid out their case last Friday before a Newport hotel hall packed with mortgage bankers.(OK, blaming the buyers also probably went over well given the audience, but I will leave that for another post.)

Here's an observation from Case - as reported by Banker & Tradesman - that gets right to the point.

"It's the people who have the highest willingness to pay that drive the price," Case said.

Think about the implications of that - it's pretty frightening. It's not the savvy buyers sticking with a budget who are driving this train.

Here's another excerpt from the article that nicely sums up what Case and Shiller are saying. Basically, when people believe that home prices will be headed up faster than interest rates, trouble is ahead.

For 10 years, the pair has surveyed buyers across the country about their expectations for home prices, asking how much they thought their home's value would change over the next year and how much it would change each year for the next decade.

The pair suggest that when people expect prices to rise faster than current interests rates over the coming decade, this helps drive purchases, and the differences between expectations and interest rates track more closely to the changes in sales than changes in interest rates themselves.

"It's the people who have the highest willingness to pay that drive the price," Case said.

It's a lesson well worth looking at amid more signs the real estate market is finally on the upswing.

Massachusetts home sales jumped 20 percent in August, with the median price edging up 1.6 percent to $310,000, The Warren Group reports this morning. The Massachusetts Association of Realtors reports a slightly higher increase, 22.8 percent, with the median price flat at $317,500.

We live in a bubble prone market in Greater Boston, where prices can quickly get out of hand. New home construction is anemic at best and never comes close to meeting demand, while our high-tech and life sciences industries bring in a steady stream of high-earners ready to outbid others.

Don't believe me? Well just wait a year or two and then let's talk.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

E-mail this article

Invalid E-mail address
Invalid E-mail address

Sending your article

About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

Latest interest rates

SPONSORED
RE by the Numbers
Mortgage Q&A: First Time Home Buyer in MA
Thinking about buying a home? Are you a first time home buyer? Or an owner that hasn’t been through the mortgage or buying process in...
archives