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Shiller - "We now have a Real Estate Bubble"......
Old 04-08-2005, 11:10 AM   #1
 
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Shiller - "We now have a Real Estate Bubble"......

Listened to an Interview with Robert Shiller for about an hour. He talked about the current real estate Bubble and likened it to the Tech Stock Bubble. He said that certain areas of the country are clearly overpriced and when the air comes out of them, It will be painful.

He said that real estate has all the classic symptoms of a bubble. - The can't lose mentality and making huge amounts of money.

He said that stocks are overvalued, but there is no bubble, because nobody likes stocks. There is not enough 'stupid money' being thrown at stocks. All the stupid money is going towards real estate.

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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 11:16 AM   #2
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Re: Shiller - "We now have a Real Estate Bubble"..

Cut-Throat, is this archived anywhere so that we could listen to it?

Ta,

Mikey
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 11:41 AM   #3
 
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Re: Shiller - "We now have a Real Estate Bubble"..

Mikey,

I looked for the Radio Interview and could not find it. However, I did find a link via Google of another interview with Shiller on real estate. You find plenty to read on Shiller and Real Estate lately. I think he's selling a new book

http://money.cnn.com/2005/01/13/real...0502/index.htm
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 01:02 PM   #4
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Re: Shiller - "We now have a Real Estate Bubble"..

Thanks, C-T. Interesting article.

Mikey
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 01:30 PM   #5
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Re: Shiller - "We now have a Real Estate Bubble"..

Just found this short interview from 9/2004: http://www.npr.org/templates/story/s...toryId=3936255

Kind of like him after hearing him... can't wait for my library to get a copy of the new edition of Irr Exuberance.
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 03:21 PM   #6
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Re: Shiller - "We now have a Real Estate Bubble"..

Ironically, in the May 2005 Kiplinger's magazine, James Glassman tackles the same topic. However Glassman's conclusion is the opposite of Shillers. To determine who's right, we could always compare who's book was better -Shiller wins that hands down over Glassman's Dow 36,000.

Both quote statistics to make their point, although we all know that one can bend statistics in ways to prove one's point. For example, I'll first quote from the Money article:
Quote:
for the United States as a whole, real home prices were 66 percent higher in 2004 than in 1890, according to the index my research assistants and I have put together. But all of that increase occurred in two brief periods: the time right after World War II and since 1998.

Other than those two periods, real home prices overall have been mostly flat or declining. Moreover, the overall increase, including the booms, is not very impressive -- 0.4 percent a year.
Now here are Glassman's numbers describing the rise in home prices:
Quote:
...though existing-home prices rose faster in 2004 than in any year in a quarter-century, they were up just 8.3%, according to the National Association of Realtors. Since 1950, residential real estate prices have increased an average of 5%, says Freddie Mac. That's only a little more than 1% per year after inflation.
Shiller removed the periods after WWII and 1998 to present and gets 0.4 %/year. Glassman keeps those periods in and gets 5%. Statistics can be fun.

To make his point, Glassman quotes his buddy and co-author of Dow 36,000, Kevin Hassett from Bubbleology: The New Science of Stock Market Winners and Losers. But just briefly.

Shiller also alluded to home prices going beyond the limits of affordability. But Hassett's article uses the housing-affordability index calculated at economy.com. which Marc Louargand of Babson Capital wrote in a letter to clients. It's described as follows:
Quote:
If the median family income in a market is exactly the amount needed to qualify for a loan to buy a house at the median resale price, then the index is 100. If the median income is more than sufficient then the index rises above 100. Louargand found that of the 318 metropolitan areas tracked, only 29 had affordability indexes less than 100. "In fact," he writes, "the average index value as of year-end 2004 was 180, which indicates that the median family income can qualify for nearly twice the median home value."
But just because you qualify for a loan amount, certainly doesn't mean a family can actually afford it in the real world. I was always told never to take a mortgage for what you qualify for, as you're likely to over extent yourself.

Glassman quotes Value Line's William Ferguson relating to a demand issue that may not have been seen before.
Quote:
On the demand side, purchases of second homes are rising as baby-boomers get close to retirement...
He also mentions immigrants as contributing to home-buyers, but that has certainly happened before. Both articles we very interesting, and equally make valid points.

Bookm
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 05:38 PM   #7
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Re: Shiller - "We now have a Real Estate Bubble"..

This is the same Robert Shiller who predicted the stock market bubble in 1996, right? Oops, he was four years early. I hate being right that early.
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 05:52 PM   #8
 
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Re: Shiller - "We now have a Real Estate Bubble"..

Quote:
This is the same Robert Shiller who predicted the stock market bubble in 1996, right? * Oops, he was four years early. * I hate being right that early.

Yup, same guy. -- I don't put much stock in predictions even from Hocu*! - But I have always believed if you want to see where the next crash is follow the cash!
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 05:55 PM   #9
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Re: Shiller - "We now have a Real Estate Bubble"..

Quote:
This is the same Robert Shiller who predicted the stock market bubble in 1996, right?
But most importantly, he timed the release of his book perfectly though in March of 2000. It just took a while for reality to catch up with valuations, I guess. :

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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-08-2005, 08:24 PM   #10
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Re: Shiller - "We now have a Real Estate Bubble"..

Quote:
Just found this short interview from 9/2004: http://www.npr.org/templates/story/s...toryId=3936255
Kind of like him after hearing him... can't wait for my library to get a copy of the new edition of Irr Exuberance.
I listened to this and enjoyed it. But that dweeb who conducted the interview sure was annoying.

Mikey
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 08:05 AM   #11
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Re: Shiller - "We now have a Real Estate Bubble"..

Thanks for info and links.

I read a similar article (can't remember where) - where he said "real estate is certainly peaking in popular markets". Then he said, "some people should consider selling".

Schiller himself apparently bought a second home on Long Island last year.

Interviewer asks, "are you selling your home". He said, "well no....."

I would not be buying now. But I would also not be selling.....
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 10:28 AM   #12
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Re: Shiller - "We now have a Real Estate Bubble"..

To clarify, when they say 5%, they talk of the property's total appraised value, right? You still get the mortgage leverage advantage, right? pay 20% down, increase of 5% in a year = slightly less than 25% profit (hey, you had to make payments). I mean, that's the whole idea of real estate investing right? Then when you get rentors they cover your mortgage and you are sitting even prettier, right? I'm just making sure that 5% isn't a "rate of return" on your investment, because otherwise it doesn't seem worth it....
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 01:46 PM   #13
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Re: Shiller - "We now have a Real Estate Bubble"..

Can you say "Nothing down!" ?

To succeed in real estate, you need knowledge and guts (and a little energy).
That's it. Alas, I lack only the energy.

BTW, bubble smubble............there are always good deals to be had.....ALWAYS. This will continue unless
free enterprise is effectively eliminated and "profit"
becomes a dirty word. (already the case in some "lib"
circles).

JG
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 03:22 PM   #14
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Re: Shiller - "We now have a Real Estate Bubble"..

It does not sound like the overall real estate market is going to decline soon eccept for those highly priced areas, according to the conversation with Shiller. He is suggesting investments in China and India. I guess increasing exposure into emerging market is not a bad idea.
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 03:31 PM   #15
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Re: Shiller - "We now have a Real Estate Bubble"..

No one should ER unless the mortgage is dead..............period!
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 04:49 PM   #16
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Re: Shiller - "We now have a Real Estate Bubble"..

[quote=Zipper
No one should ER unless the mortgage is dead..............period![/quote]

Hey Zipper! I think we are in total agreement on this.
It's a wonderful thing

JG
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 07:28 PM   #17
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Re: Shiller - "We now have a Real Estate Bubble"..

Debt free is nice. However, a large mortgage has one advantage - interests paid are tax deductible. I kinda miss it since our tax due is significant for 2004.
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 08:39 PM   #18
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Re: Shiller - "We now have a Real Estate Bubble"..

Quote:
However, a large mortgage has one advantage - interests paid are tax deductible.
I never bought this argument. For every dollar of interest paid, you get ~$0.36 back, but you still paid $0.64. Sure, it reduces your cost of borrowing a little, but it's not an interest free loan.
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 08:59 PM   #19
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Re: Shiller - "We now have a Real Estate Bubble"..

Quote:
Debt free is nice. However, a large mortgage has one advantage - interests paid are tax deductible. I kinda miss it since our tax due is significant for 2004.
There's no logic to this whatsoever. It makes more sense to pay the tax on your income without a mortgage interest deduction than it is to pay mortgage interest and MAYBE get a tax break.
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Re: Shiller - "We now have a Real Estate Bubble"..
Old 04-09-2005, 10:16 PM   #20
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Re: Shiller - "We now have a Real Estate Bubble"..

credit=goood......deduction=baad
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