>>Housing isn’t exempt from being over-valued simply because you can live in it.<<
That reminds me of a phrase I have always hated: “Real estate will always go up becuase they aren’t making any more of it.”
That is pure baloney to anyone that has flown, during the day, from the west coast to the east coast. The phrase should read: “they aren’t making any more of it WORTH USING/AVAILABLE”. But then everyone would laugh at that because it would be a false statement.
Who would waste money on some of that useless crap in northeastern California becuase “it’s real estate and they aren’t making any more of it”.
Yeah, sure, your great-great grandchildren may reap the benefits of your wise purchase, but by then the property taxes would have paid for it a hundred fold...
I think a major part of our problem was that the “owned residence as investment” mentality which has been growing for many decades hit the end of the parabolic curve a couple of years ago. We are entering a time where the general population will see owning your own home in a different perspective. Heck, I owned for 18 years. I’ve been renting for ten and LOVE IT.
‘Course, in those ten years, my quality of residence and neighborhood has gone up and the rent has gone down. And this is in the seattle area. Go figure.
Exactly right.
This cycle is following the previous bust cycles: stocks peaked first, then residential real estate, then farmland.
It took 10+ years after each of these previous cycles broke their bull phase peak for people to see real appreciation in real estate again.
These historical precedents are why I really have a problem with the perma-bulls here on FR who keep saying that this is just some liberal media conspiracy to talk down the economy. No, it isn’t. We’ve had a convergence of the business cycle, the commodities cycle, the real estate cycle coming together now because of past interventions and meddling by the Fed. The Fed thought (quite arrogantly, I might add) that they could conquer the business cycle with Freidmanesque monetary intervention.
I used to think along these lines, but I’m now of a mind that they (and I) were wrong, wrong, wrong. These cycles are predicated on human behavior and psychology, which the Fed cannot change. They can play with the edges of the beginning/end of cycles, but they really can’t turn the mass of public opinion once things start to break.
Take what you just said: the “owned residence as an investment” mentality: you’re so right. Once a generation gets burned and burned badly from believing this chestnut as a Big Rule, an entire generation of Americans will ridicule this thinking for 20+ years thereafter.
Think about how the Depression Generation was so wary of stocks - for a long, long time. Some of their generation dipped into stocks in the 60’s, only to get burned again. Wall Street didn’t recover any sort of Main Street America appeal until we got all the way into the 80’s, and then we were talking of a whole new generation. That’s what it took to change the thinking of stockbrokers and Wall Street as a bunch of hucksters and cheats.
I believe the same thing is going to happen with real estate now — there’s a lot of people who are going to be burned by this real estate collapse and they’re not going to buy into another house for a long, long time, and part of the reason will be that it will become rather cheap (relatively speaking) to rent, what with all the overbuilt housing out there that will be available for leasing.