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carcassgrinder (20.65)

WOW!!! I wonder what they think the returns on their 401K's will be....

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November 03, 2009 – Comments (11) | RELATED TICKERS: OPT , IM , IST

"Studies" on what the American public is "thinking" never cease to amuse me.  What also never ceases to amaze me is the fact that I have such a hard time finding anyone alligned with the "popular" sentiment.  This article struck me as a bit odd....is anyone really this bullish on housing?

According to the Case-Shiller annual home-buyer survey released last week, home buyer psychology shifted substantially in June and July of this year, coinciding with upward monthly movements in the Case-Shiller home price indices.

After falling every month for almost three years, the Case-Shiller 10-city home price index changed direction and rose 3.6 percent between April and July of this year, following a decline of 4.8 percent between January and April.

These results are surprising since the economy continues to shed jobs on a monthly basis and foreclosures continue to dominate the housing landscape. But the Case-Shiller home buyer survey indicates that home buyer optimism overshadows economic reality. According to the survey, home buyers believed (on average) that home values would increase 11.2 percent annually for the next 10 years. The median response (half above and half below) was 5 percent. This finding is overly optimistic and suggests that home buyers are convinced that the housing contraction is over and it is now a good time to buy.

The survey also measured home buyers' short-term expectations and revealed that they expected home values to rise 2.3 percent for June-July which closely matches the positive changes in the Case-Shiller home price indices during the same period.

11 Comments – Post Your Own

#1) On November 03, 2009 at 12:34 PM, carcassgrinder (20.65) wrote:

By the way....that is 284% return over 10 years....WTF!?!?  REALLY?

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#2) On November 03, 2009 at 12:39 PM, TMFEldrehad (99.99) wrote:

In this particular instance I think the median (5%/year) is much more meaningful than the mean.  I guess a few uber-bulls skewed the numbers substantially.

Where housing prices go over the next 10 years is anyone's guess (and I won't hazard one myself), but I don't think the median of 5% is unreasonable.  Over the next 10 years one could assume that the recession will end and economic growth would resume, which would perhaps justify home prices climbing a couple points per year faster than general inflation.  One could also assume that housing is currently oversold a bit, which would also help justify price escalation a bit ahead of general inflation.

Granted, not everyone will agree with the above assumptions, but I don't think assuming 5% over the next 10 years is "crazy".

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#3) On November 03, 2009 at 12:41 PM, brickcityman (23.09) wrote:

Its the same as looking at 52 week high on a stock over say the last 6 months... people are assuming that value is an intrinsic property and projecting a return to peaks.  Its the stuff modern day rallies are made of.

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#4) On November 03, 2009 at 12:50 PM, outoffocus (23.42) wrote:

I wonder if these "homebuyers" are composed of current renters or people who already own houses. In some areas mortgage payments are still higher than rents. Are they also expecting rents to go higher 11% year over year. If thats the case then thats some serious inflation.

Also, nice tickers.

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#5) On November 03, 2009 at 12:52 PM, russiangambit (99.03) wrote:

I actually expect 2-3%, if no major shocks happen. So far last 7 years the case has been 5% a year. And the tax appraisals come in with 20% increase each year, but capped at 10%. I fight them each year with no luck. Some years they lower it some years they dpm't , but it ends up being higher than the capped value anyway. 

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#6) On November 03, 2009 at 1:53 PM, leohaas (99.27) wrote:

"And the tax appraisals come in with 20% increase each year..."

What part of the country do you live in? I thought NJ had the highest property taxes, but the increase is nowhere near that much (thank God...)

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#7) On November 03, 2009 at 2:01 PM, russiangambit (99.03) wrote:

> What part of the country do you live in? I thought NJ had the highest property taxes, but the increase is nowhere near that much (thank God...)

Houston, Tx.

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#8) On November 03, 2009 at 2:30 PM, davejh23 (< 20) wrote:

Perhaps the numbers are skewed by survery participants that are anticipating hyperinflation...not necessarily a "real" rebound in housing. 

Many areas of the country simply over-built.  Housing is not oversold...supply is excessive and it could take 10+ years for population growth to work that out (unless we simply tear down thousands of homes).  I believe that housing will be hurting for years, and I would say that 5%/yr. over the next 10 years is "crazy" (without relatively high inflation)...however, this is partially based on my experience living in a hard hit area with a huge over-supply.  My opinion is primarily based on my belief that interest rates will increase to at least 7-8% at some point in the next 10 years, and they will never be 5-6% again.  Rates could be 10%+ for a time, which would decrease affordability and crush housing...we've had abnormally low rates for a decade...people seem to have forgotten what "normal housing/lending" looks like, and I believe we're heading back to "normal" ways.

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#9) On November 03, 2009 at 3:22 PM, Seansonfire (98.04) wrote:

The Real Estate Market is going to tank come next spring due to the fact that the first time home buyers tax credit will end unless it's re-upped by congress.

The tax credit was a good idea to save us from certain finacial rune, but it still needs to end so we can work it out of the demand side of real estate equation, which will cause further price decline (probably another 5-10%).

If anyone seriously thinks we are going to have positive real estate growth anytime in the next 5 yeers they are a Ratard.

 

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#10) On November 03, 2009 at 7:07 PM, jstegma (99.67) wrote:

There is something strange about the survey when the mean is 11.2% and the median is 5%.  There were definitely some uber-bulls in there.

The real issue here is that if you ask a stupid question you'll probably get a stupid answer. 

Who sits around and tries to predict what their home value will be 10 years from now?  Come to think of it, who would even respond to such a stupid survey?  And why would anyone even ask that question? 

I think the survey takers were overly optimistic that home buyer would give them a well-thought-out answer to a question like that, and then they went along with half-*ssed answers and published an average of 11.2% and 5% as if there was some meaningful information in those numbers.  It was probably just one more piece of paper shoved in front of the homebuyer at closing. 

Next time maybe they'll survey people taking out payday loans what they expect short-term interest rates to be in three years.  Then they can survey people in the mental hospital about the percentage they expect health care costs to increase in the next 5 years.  Then survey first graders about how much they expect to make their first year out of college.

Garbage in, garbage out.

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#11) On November 10, 2009 at 2:47 PM, Melaschasm (94.47) wrote:

The results of this survey might make sense, depending upon who was asked.

Depending upon how the question was asked, I would not be surprised if a few people said they expect thier new house to be worth three times as much in ten years, as it is worth today, and provided the answer '300%', meaning the total price increase over ten years, not the annual price increase.  A few percent of respondents answering this way could explain the difference between the median and mean results.

Someone who thinks the FED is going to print so much money that we will see double digit inflation for a decade, and also suspects that hard assets like property will increase faster than inflation would state an expectation of double digit growth. 

If these people are also buying foreclosure property at an 80% reduction from recent highs in regions that have only seen a 40% drop, they would have an even higher expected price escalation for the specific property that they purchased.

It is possible that some people buying property now are going to enjoy double digit price increase over the next decade.

Furthermore, it is likely that most people who are buying property right now believe we are at or near the bottom of the market.  If we have even moderate economic growth for the next decade, they could be right.  By limiting the survey to people who are generally bullish on the realestate market, and not including those with a bearish outlook, they are skewing the results. 

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