Tags: Shilling | House | Losing | Bet

Gary Shilling: Buying a House Now is a Losing Bet

Tuesday, 15 May 2012 12:15 PM

By Dan Weil

Home prices have dropped 34 percent since 2006, and the 30-year fixed mortgage rate just fell to a record low of 3.83 percent. So is now a good time to buy a home?

No, says Gary Shilling, an independent economist. “Don't buy your first house now unless you're willing to lose 20 percent of its market value in the next several years, maybe more,” he writes in The Wall Street Journal.

Median single-family house prices need to drop 22 percent just to fall back in line with the price trend going back to the 1890s identified by Yale University housing expert Robert Shiller, Shilling says.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

That trend held until the housing bubble began. “And corrections usually overshoot on the downside just as bubbles do on the upside,” Shilling says.

What’s going to knock home prices down further? Surplus inventories, he maintains.

“They are the mortal enemy of prices, and we've calculated an excess of two million housing units over normal working levels of inventories.”

Not everyone shares Shilling’s view, of course. Jack Hough of Smart Money sees plenty of functional return in homes now – either living in them or renting them.

He calculates that return as totaling more than 10 percent of prevailing home prices, before taxes and maintenance, in more than half of U.S. housing markets.

That return looks quite juicy compared to a 10-year Treasury yield of 1.79 percent.

Editor's Note:
This Wasn’t an Accident — Experts Testify on Financial Meltdown

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