The case for buying a home now
Mary Umberger, Chicago Tribune, February 5, 2012, link
|According to housing bear Christopher Thornberg, the “wild up-and-down” in real estate is over, and markets should begin a gradual turnaround soon. (Comstock Images)|
A notorious housing market bear has changed his tune. Yes, he says, now is a good time to buy a home, if …
It’s a pretty important “if.” Still, people noticed when Christopher Thornberg — an economist who built a reputation for being a relatively lonely and boisterously outspoken housing doomsayer in the middle of the last decade, while Americans were buying homes as fast as they could — recently began to suggest that the overall market had settled and conditions are much improved for buying.
Thornberg, a founding principal of Beacon Economics, an independent research firm in Los Angeles, and former senior economist with the UCLA Anderson Forecast, talked about the differences between then and now:
Q: Is it safe to presume that you made no friends in the housing industry when you started publicly warning that the bubble was bursting?
A: Yes, I’m persona non grata. Local (housing-industry) groups will interact with me, but the national groups, no way. In 2004 and 2005, I was screaming that there was a real estate bubble, and everyplace I went, other economists would pooh-pooh me.
When the National Association of Realtors was spending lots of money in 2007 advertising to consumers that it was both a good time to buy and sell a house, I continually pointed out the stupidity of thinking — and promoting — the idea that housing is a great investment. It’s not. We as a nation need to come to the functional realization that housing is a consumption good — the lower the price of housing, the better off we are as a nation. Cheap housing is good.
Q: Why weren’t more economists vocal at that time that the market was getting overheated?
A: Ninety percent of all economists are guys who sit in academic offices writing on obscure issues that are unimportant, that three other people will read, so that they’ll get tenure. The majority of economists aren’t attached to the real world.
But most private-sector economists are attached to the financial industry, they work for housing agencies and the industry. They have a conflict of interest.
I’d like to say I was the smartest guy out there, but there were other economists shouting “Bubble!” — though they were in the minority. But the guys who look at the economy on an independent basis, for the most part, they got it.
Economists are taught that markets are efficient, and from that perspective, bubbles can’t happen. When you’re sitting there in the midst of the real estate market going up, up, up, it’s easy to say, if this is a bubble, it would have blown up already. A guy walked up to me in 2006, when prices were still climbing, and said, you ruined my life — because I listened to you, I didn’t invest in property, and look at all the money I could have made.
Q: Did you hear from him again, when housing prices kept falling for years after that?
Q: Do you believe the market has bottomed, from a nationwide perspective?
A: Absolutely. That’s been going on for a while now. You can argue, is this (bottoming) just in certain markets? But when all is said and done, the wild up-and-down is done.
But housing markets don’t bounce, they splat. They hit bottom and they stay on the bottom. We have to get rid of excess supply of units and get rid of foreclosures, and home equity has to start building. That’s when the market starts to recover.
So, we’re still in the splat phase. This should be the year that things start to perk up a little. We’ve burned up excess supply, foreclosures are starting to decline, income is starting to rise, jobs are starting to rise. Housing should start to turn the corner this year — but there won’t be anything frenetic, and there will only be a slow increase in prices.
Q: Do you think conditions now are right for buying?
A: A couple of years ago, I was saying that we were still in the bubble, don’t buy. But now I’ve been saying, if you need a house — if you recognize that a house is a consumption good and not an investment opportunity, you should consider buying. With interest rates continuing to come down and with prices that have sagged, in some markets — particularly Florida, Arizona and Nevada — affordability is at record levels. But it has to be a long-term hold — you have to be in long term.
Q: Where do you see interest rates going?
A: Treasurys will start to goose up this year, as fears of Europe start to fade away, and that will start to push mortgage rates up, but I don’t see them going to 8 percent or anything.