14 April 2013

Shilling For Shiller

This endeavor began in the idleness resulting from The Great Recession, and took square aim at the silliness of the housing market. In particular the notion the a home mortgage is an investment, whether from the point of view of the homeowner or the buyer of MBSs or CDOs and the like.

Well, today Robert Shiller begins a three column series on housing. While the housing industrial complex has always trumpeted the home mortgage as the bedrock of a family's "investment portfolio", economists not tied to the complex have always made the point that housing (residential) or commercial (offices) don't generate any fiduciary returns. You've read that here more than once.
Here is a harsh truth about homeownership: Over the long haul, it's hard for homes to compete with the stock market in real appreciation.
Housing is an ambiguous investment to evaluate, because a good part of its real return typically comes in its providing a place to live, not in providing dividends paid in cash.

He devotes the last part of the piece discussing changes in technology that have led to declining costs of building housing. There's that old saw, "If cars had followed a cost curve like PCs, a car would cost $100 today"; or thereabouts. Would it make even a bit of sense to "invest" in an "asset" that's going to be cheaper to make next year than it was last year?
By contrast, real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style.

Unless, of course, your house is an original Queen Anne or Victorian or some other distinctive antique building, with suitably updated electric, plumbing, and mechanicals of course. Needless to say, but I'll say it anyway, is that improvements in house building technology apply (nearly) solely to new construction, and thus drive the market price per square foot down. Your house's competition for sale will be cheaper, and perhaps better. For myself, I don't want a house with engineered floor joists made of wood chips and glue or space frame roof rafters which have no attic.

There you have it. Stupidity goaded by those who benefit from the stupidity. Perhaps we should have a program so that "No homeowner left behind"?

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