When the facts change, I change my mind. What do you do? -- John Maynard Keynes

Sunday, April 1, 2012

What You Need To Know About The U.S. Housing Market

Home prices fell in January in most US cities - National Business - MiamiHerald.com: ". . . . prices fell in 17 of the 20 cities in January compared to the same month in 2011. The group's nationwide index of prices has fallen 34 percent since the housing bust and is now at 2002 levels. The continued drop in prices suggests the housing market remains weak, even after the best winter for home sales in five years and steady improvement in the job market. . . The biggest reason why prices are still falling is foreclosures, which are still high across the country. Foreclosures and short sales - when a lender accepts less for a home than what is owed on a mortgage - are selling at an average discount of 20 percent. Foreclosure activity surged in February across half of U.S. states.. . . ."

Prices are down, mortgage rates are low--it might be a good time to buy a house if you have a compelling reason to do so--but read this first--"Why Entrepreneurs Should NOT Buy Homes."

The reality today is that most working people (exluding those working in government jobs) by necessity are "entrepreneurs"--lifetime employment for one employer in one location is a dying, if not already dead, concept. Which is why Robert Bridges, professor of clinical finance and business economics at the University of Southern California's Marshall School of Business, wrote last year in the Wall Street Journal that "today's young people would be foolish to imitate their parents and view ownership as the cornerstone of personal finance"--

A Home Is a Lousy Investment
“. . . . the average single family house has never been a particularly stellar investment. In a society increasingly concerned with providing for retirement security and housing affordability, this finding has large implications. It means that we have put excessive emphasis on owner-occupied housing for social objectives, mistakenly relied on homebuilding for economic stimulus, and fostered misconceptions about homeownership and financial independence. We've diverted capital from more productive investments and misallocated scarce public resources. . . .
. . . a dollar used to purchase a median-price, single-family California home in 1980 would have grown to $5.63 in 2007, and to $2.98 in 2010. The same dollar invested in the Dow Jones Industrial Index would have been worth $14.41 in 2007, and $11.49 in 2010”
“. . . . A nation of house buyers becomes captive to the economic cyclicality caused by bursts of construction activity, and it is not lifted or sustained by the limited levels of service employment related to existing housing. By contrast, a nation of business startups and investors supports our capital markets and creates long-term employment, income, exports and the myriad technological advancements desperately needed by an expanding American society.”

I cited the above in a post last year and then posed the following (still relevant) question: I wonder if anyone in Washington D.C. gets it?

The Big Picture

Financial Crisis - The Telegraph

JohnTheCrowd.com | The Sailing Website

Craig Newmark - craigconnects