Pay Attention Now, or Pay Later
Wise prognosticators like Robert J. Shiller use very precise language for a reason. Pay particular attention to the words used when someone predicts a drop in housing prices of "40 percent in inflation-adjusted terms over the next generation." That doesn't mean a $500,000 house is going to be $300,000 next year. First, understand that a "generation" can last 10, 20, 30 years or more. And then you have to adjust for inflation. Consider it this way:
Using ONLY inflation-adjusted dollars:An article by Holden Lewis of Bankrate.com underscores this point. The Lewis article is addressed to "Bubble Sitters," those who are waiting to buy a house until the bubble pops and prices fall. According to Lewis the "Bubble Sitters" might be waiting for a very long time:
Purchase a $500,000 house in 1980
House value stays flat for 10 years
Same house worth $500,000 in 1990
(You'd have to spend $853,759 in 1990 inflation adjusted dollars to have the same buying power as that $500,000 had in 1980)
LOSS: 41 percent, or $353,759 in inflation-adjusted dollars.
Should you rent and wait to buy a house after prices fall? Don’t get your hopes up. If history is a reliable guide, home values in your target neighborhood probably won’t fall. But they might stagnate long enough for your income to catch up to prices.Like I said... Pay attention to the words.
This year the Federal Deposit Insurance Corp. prepared a research report titled, "U.S. Home Prices: Does Bust Always Follow Boom?" The answer to the question in the title is ‘no.’ Sometimes a housing boom ends not with a decline in values, but with prices leveling off or rising slowly.
Find the Holden Lewis article at the Portsmouth Herald in Portsmouth, NH.
— The Boy in the Big Housing Bubble
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