NY Times: Karl Case: ‘It’s unbelievable’

Karl Case: ‘It’s unbelievable’

A professor emeritus of economics at Wellesley College, Mr. Case’s name is practically synonymous with real estate values, because he helped create the Standard & Poor’s/Case-Shiller home price index (along with the Yale professor Robert Shiller), which is pretty much the Dow Jones industrial average of real estate. Thanks to the Case-Shiller index’s relentless decline since the financial crisis, many are predicting that residential real estate will drop even further in 2012. In a radical reversal of the conventional wisdom, home ownership has gone from an unquestioned virtue to something to be wary of.

“People are discouraged and fearful,” Mr. Case said. “They’re moving in with their parents. People thought home prices would never go down. We now know that they do go down, and you got hammered if you were overleveraged. Now people think they’ll never go up. The fear is there won’t be any capital gain.”

This week S.& P. reported that the Case-Shiller index recorded yet another drop in home prices through the end of October, with 19 of 20 metropolitan areas (including New York City) showing declines from the previous month and year. United States housing prices on average are now where they were in 2003. But Mr. Case points out that the data masks some signs of eventual recovery.

The 20-city composite index of home prices hit bottom in March 2011 and has improved modestly since. “Household formation is increasing and the vacancy rate is dropping,” he said. “Housing starts are at a 60-year low, and they’ve been there for three years. That’s unheard-of. We’re starting to see some signs of an increase in value.”

But looking at a home like a stock or bond is probably the wrong approach. “If you think of a house as a consumer durable and you qualify for credit, it’s unbelievable how cheap housing is relative to previous years,” Mr. Case said. “Mortgages are cheap. If you’re buying a house or apartment to live in and pay for over time, and can afford the payments, then it’s a terrific time to buy.”

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