Robert Shiller is the co-creator of the Case-Shiller Index which tracks all sorts of real estate data. They predicted sharp declines in the housing market a few years before the actual declines came, which I guess gives them points for being right and demerits for being two years too soon. This is a look at the history of real estate bubbles to see if there is any precedent for how this one will play out.
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By ROBERT J. SHILLER
Published: February 5, 2011
WHAT’S the outlook for home prices over the next decade? It’s not easy to tell. We need to confront the basic fact that near the beginning of the 21st century, the market for homes in much of the world suddenly became more speculative than ever.
This enormous housing bubble and burst isn’t comparable to any national or international housing cycle in history. Previous bubbles have been smaller and more regional.
We have to look further afield for parallels. The most useful may be the long trail of booms and crashes in the price of land, particularly of farms, forests and village lots. Those upheavals may give some insights into the present situation, and some guidance for the next decade.
In the 19th century and most of the 20th, speculation in land was a powerful phenomenon. There was little speculative activity around homes, however, which were usually viewed as rapidly depreciating assets whose value was to be found almost entirely in physical buildings, not the land beneath them. Eventually, the buildings were expected to be torn down and replaced, so there was little bubble psychology for housing on any large scale. People generally didn’t think about housing as an investment.
But they knew that land was fixed in quantity and would last forever, and many believed that as the economy grew and more people were born, there would be ever-increasing demand. The speculative imagination could be easily fired by reflecting on the huge population that would consume the food from this land or settle on it in future years.
There have been many highly localized land price bubbles in the United States over the last couple of centuries, although bubbles over large areas have been rather rare. Those with the biggest national impact were in the 19th century, when speculators found opportunities that had been created by government land sales and by shifts in land prices set off by construction of canals and railroads. Stories of fortunes in land speculation captured the imagination, and led to bubbles. (That is typically how bubbles form, by titillating the public imagination.)
Two such land bubbles stand out. The first, in the 1830s, was associated with federal distributions to state banks and the loss of fiscal restraint that had been imposed by the short-lived Second Bank of the United States. People began to think farm prices could never fall. As an article in a publication called The Cultivator said in 1836: “Who ever heard of a man buying and selling a farm at the same or a lessened price? It is so well understood that the seller is to have more than he gave, that it has almost become a settled principle in the purchase of real estate.”
The bubble burst with the Panic of 1837, and was followed by the first great depression in United States history, from 1837 to 1843.
A second bubble, in the 1850s, was encouraged by an 1852 act of Congress making land warrants tradable. It burst with the Panic of 1857. Some historians — notably James L. Huston of Oklahoma State University — say they think that the resulting tensions escalated sectional animosities and helped precipitate the Civil War, which ended the depression.
The entire 20th century appears to have had only one farmland bubble of national significance — it occurred in the 1970s. Its causes were complex, but it seems to have been accompanied by a newly common belief that the human population would soon become excessive. A widely cited Club of Rome report in 1972 predicted famines induced by overpopulation. In any case, that bubble burst after the Federal Reserve clamped down on credit in the United States, effectively producing the recessions of the early 1980s.
So land manias have been rather infrequent, many decades apart. They suggest that the recent housing bubble is a similarly rare event, not to be repeated for many decades.
But, of course, the relevance of this long history isn’t entirely clear. In contrast to the 19th century, when the business cycle proceeded without much constraint, we now have the Fed and an active government housing stabilization policy, both of which mitigate the cycle’s more extreme effects. And now, the Dodd-Frank law has created a Financial Stability Oversight Council, which is supposed to go even further to prevent instability.
Ultimately, bubbles are impossible without extreme public enthusiasm. Opinions about housing seem to change in rather trendy ways, but investor enthusiasm for housing has now been down for more than five years — a decline that started well before the collapse of the housing bubble in 2007.
With Karl Case of Wellesley College, who developed the S&P/Case-Shiller Home Price Indices with me, I have been surveying opinions of home buyers in the United States on and off since 1988. We have found a fairly steady downtrend since the early-to-mid-2000s in a number of speculative attitudes. On questionnaires, people are less likely to report that they think of housing as an investment, or to express the view that real estate is the “best investment.”
As an investment, in fact, they are more likely to see housing as risky. Although they still have solid expectations of home price increases over the next 10 years — a median of 5 percent annually, in nominal terms — those expectations have been declining and are not nearly as extravagant as they were before the market peak.
IT will take a while for the housing market to recover fully. Still, many people continue to think of housing as an investment, and so it does seem that we are in danger of encountering another whopper bubble someday. Even so, both the history of land bubbles and the slowness of shifts in public opinion suggest that such bubbles will be fairly rare.
Add the new policy restraints, and a new national housing bubble looks even less likely anytime soon.
Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC.
View original article: http://www.nytimes.com/2011/02/06/business/06view.html?_r=1
Thursday, February 10, 2011
Go Figure
If you've ever looked at an "artist's rendering" of a planned development and wondered where all those happy little people came from this article will answer that for you. And in a local Savannah shout-out, one of the quoted experts is SCAD Professor Tim Woods. Tim is also known in town for the Loci House http://www.locidesigngallery.com/, a modern/modular house that he has built and promotes.
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By ROB WALKER
Published: February 4, 2011
As a genre of visual communication, the architectural rendering is underscrutinized. When we see one — in a business meeting, on a real estate sign, accompanying an article about a public-works project — we understandably focus on the merits of what’s depicted, not the depiction. Recently, however, I happened to spend a lot of time looking at such drawings, and found myself drawn to a recurring feature that, strictly speaking, had nothing to do with the suggested structures: the little human figures who inhabit the rendered world.
The apparent purpose of these figures is to provide sense of scale — in fact one architect friend of mine refers to these figures as “scalies.” That is no weirder than the more-official names given to these denizens of hypothetical environs, including “people textures” and “populating images.” In general, they are a happy and healthy lot: they jog past environmentally responsible retail, stride in smart business attire toward gleaming office structures, hobnob in the former back alley magically converted to green space.
But where did these uncanny little citizens come from, and what are they really up to? I figured I’d ask Geoff Manaugh, proprietor of the delightful Bldgblog.blogspot.com, devoted to such themes as “architectural speculation” and “urban conjecture.” In the past, Manaugh told me, people were often completely absent from architectural representation, so letting figures into the frame humanized and presented buildings in a social context. “The funny thing is how it has become its own subgenre,” he continued. “You can take the most random rendering and just stick in a few people — someone listening to an iPod, somebody reading a newspaper, maybe a couple holding hands, some guy playing an acoustic guitar. Suddenly it’s meant to make the entire building beyond critique; it’s already part of our city.”
In a sense, then, people textures became a form of rhetoric, whether they seem drawn to the buildings they’re placed near or even if they seem oblivious to them in a way that suggests a new structure is a natural part of the streetscape. “You tend not to see people spraying graffiti or a homeless person sleeping in the alley,” Manaugh observed. “Or rats.” Every so often, student projects will play with the form — Manaugh recalls examples involving people textures in gas masks or having sex or urinating on the street. Obviously that’s rare in more-professional contexts, where the norm is an anonymous pedestrian with no attention-hogging features.
There is a small people-texture industry. Realworld Imagery sells CDs containing, for instance, 104 “Business People,” for insertion into renderings, for about $150 a disc. A site in Britain, Falling Pixel, offers, among others, “120 Casual People” (which sounds like a passable indie movie) for about $70. Marlin Studios, in Arlington, Tex., also sells textures, and its founder, Tom Marlin, explained the business to me.
He found his way into the field by way of creating video games and learning how to incorporate photo-realistic surfaces and textures borrowed from real life. Packaged digital bundles of images of trees and cars and the like turned out to be useful tools for architects who want to add pizazz to renderings. A developer trying to get financial backing for a shopping center, Marlin explains, might tell the architect, “I need to see the parking lot full of cars, and I want hundreds of people walking around.” His visualizations are two-dimensional moving computer animations, though soon Marlin plans to release three-dimensional figures who walk or gesticulate in repetitive loops. Many of the people textures he sells were created in long, single sessions in which scores of individuals in neutral day-to-day costumes (a blazer and tie; jeans and T-shirt) are photographed against a green screen and sign an all-purpose image waiver. While a certain amount of variety matters — scalies can be young or old and come from diverse ethnic backgrounds — the most important factor is making sure any individual isn’t so remarkable as to distract from the scene as a whole (or dressed in outfits that will quickly look dated). The idea is to sell the same scalies over and over.
Marlin’s biggest rival is most likely the architect who simply creates his own populating images, maybe grabbing pictures off the Web and altering them. Tim Woods, a professor of architecture at the Savannah College of Art and Design, advises his students on proper deployment of people textures (racial balance is important, for example). He says it has lately been the case that some will use recognizable figures. He showed me one of his firm’s renderings, in which Anderson Cooper relaxed happily in front of a modified-shipping-container home. If that seems absurd, Woods reminded me that the point of a rendering is not to depict a reality; it’s to persuade viewers — whether clients or investors or the public at large — to go along with an architect’s vision and let him or her make it reality. They may not seem to have much on their minds, those orderly little scalies, but it turns out they have a lot to say.
View original article: http://www.nytimes.com/2011/02/06/magazine/06fob-consumed-t.html
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By ROB WALKER
Published: February 4, 2011
As a genre of visual communication, the architectural rendering is underscrutinized. When we see one — in a business meeting, on a real estate sign, accompanying an article about a public-works project — we understandably focus on the merits of what’s depicted, not the depiction. Recently, however, I happened to spend a lot of time looking at such drawings, and found myself drawn to a recurring feature that, strictly speaking, had nothing to do with the suggested structures: the little human figures who inhabit the rendered world.
The apparent purpose of these figures is to provide sense of scale — in fact one architect friend of mine refers to these figures as “scalies.” That is no weirder than the more-official names given to these denizens of hypothetical environs, including “people textures” and “populating images.” In general, they are a happy and healthy lot: they jog past environmentally responsible retail, stride in smart business attire toward gleaming office structures, hobnob in the former back alley magically converted to green space.
But where did these uncanny little citizens come from, and what are they really up to? I figured I’d ask Geoff Manaugh, proprietor of the delightful Bldgblog.blogspot.com, devoted to such themes as “architectural speculation” and “urban conjecture.” In the past, Manaugh told me, people were often completely absent from architectural representation, so letting figures into the frame humanized and presented buildings in a social context. “The funny thing is how it has become its own subgenre,” he continued. “You can take the most random rendering and just stick in a few people — someone listening to an iPod, somebody reading a newspaper, maybe a couple holding hands, some guy playing an acoustic guitar. Suddenly it’s meant to make the entire building beyond critique; it’s already part of our city.”
In a sense, then, people textures became a form of rhetoric, whether they seem drawn to the buildings they’re placed near or even if they seem oblivious to them in a way that suggests a new structure is a natural part of the streetscape. “You tend not to see people spraying graffiti or a homeless person sleeping in the alley,” Manaugh observed. “Or rats.” Every so often, student projects will play with the form — Manaugh recalls examples involving people textures in gas masks or having sex or urinating on the street. Obviously that’s rare in more-professional contexts, where the norm is an anonymous pedestrian with no attention-hogging features.
There is a small people-texture industry. Realworld Imagery sells CDs containing, for instance, 104 “Business People,” for insertion into renderings, for about $150 a disc. A site in Britain, Falling Pixel, offers, among others, “120 Casual People” (which sounds like a passable indie movie) for about $70. Marlin Studios, in Arlington, Tex., also sells textures, and its founder, Tom Marlin, explained the business to me.
He found his way into the field by way of creating video games and learning how to incorporate photo-realistic surfaces and textures borrowed from real life. Packaged digital bundles of images of trees and cars and the like turned out to be useful tools for architects who want to add pizazz to renderings. A developer trying to get financial backing for a shopping center, Marlin explains, might tell the architect, “I need to see the parking lot full of cars, and I want hundreds of people walking around.” His visualizations are two-dimensional moving computer animations, though soon Marlin plans to release three-dimensional figures who walk or gesticulate in repetitive loops. Many of the people textures he sells were created in long, single sessions in which scores of individuals in neutral day-to-day costumes (a blazer and tie; jeans and T-shirt) are photographed against a green screen and sign an all-purpose image waiver. While a certain amount of variety matters — scalies can be young or old and come from diverse ethnic backgrounds — the most important factor is making sure any individual isn’t so remarkable as to distract from the scene as a whole (or dressed in outfits that will quickly look dated). The idea is to sell the same scalies over and over.
Marlin’s biggest rival is most likely the architect who simply creates his own populating images, maybe grabbing pictures off the Web and altering them. Tim Woods, a professor of architecture at the Savannah College of Art and Design, advises his students on proper deployment of people textures (racial balance is important, for example). He says it has lately been the case that some will use recognizable figures. He showed me one of his firm’s renderings, in which Anderson Cooper relaxed happily in front of a modified-shipping-container home. If that seems absurd, Woods reminded me that the point of a rendering is not to depict a reality; it’s to persuade viewers — whether clients or investors or the public at large — to go along with an architect’s vision and let him or her make it reality. They may not seem to have much on their minds, those orderly little scalies, but it turns out they have a lot to say.
View original article: http://www.nytimes.com/2011/02/06/magazine/06fob-consumed-t.html
Wednesday, February 9, 2011
Five Beloved Myths of the Mortgage Market
More commentary on the aforementioned Fannie/Freddie topic with this analyst pretty much saying that life would go on without Fannie and Freddie.
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By AGNES T. CRANE
Published: February 6, 2011
America’s mortgage market almost sank the world economy. But rather than rushing to fix it, the government has blown two deadlines for proposals. The ideas are finally due as early as this week from the Treasury, and those recommendations will frame the debate. But the danger is they will be based on dogma that should in fact be seriously questioned.
Proposals have been circulating ever since the previous administration seized Fannie Mae and Freddie Mac in 2008. Most agree that both entities should be wound down, one way or another. But whether government should still have a role subsidizing housing finance is still up for grabs — or rather, few seem able to resist the idea that it should, even if it is a smaller one. The trouble is that financial types have become accustomed to a government safety net, and few of the constituencies involved are willing to challenge America’s core housing myths.
MYTH 1 Significant reform will kill the housing market. Many fear any major overhaul of housing finance will slam a still tottering housing market.
THE REALITY If America scraps its current system tomorrow, that’s what will happen. At a minimum, removing the government subsidy should nudge mortgage interest rates higher, potentially knocking home prices down further. But Britain took more than a decade to phase out tax deductions on mortgage interest. Homeowners, would-be homeowners and mortgage lenders can adapt to even a potentially wrenching change if there’s a five- or 10-year transition period. The United States needs to get started on a plan.
MYTH 2 The American mortgage market is too big for the private sector to handle alone.
THE REALITY The $10.6 trillion mortgage market is huge, and Fannie and Freddie own or guarantee roughly half of it. But the size of the market — and the secondary market in securitized mortgages, and so on — was part of the problem in the years leading up to the 2008 crisis. The market is already down from its $11 trillion peak, but it is still nearly twice as big as in 2001. With the national average home price down more than 30 percent from its highs and millions of homeowners in danger of foreclosure, it’s clear only a smaller mortgage market is really sustainable.
Fully private-sector mortgages would be more expensive, but at the right price banks will lend. Studies conducted before the financial crisis suggested that government backing saved homeowners only 0.15 to 0.4 percentage point on their mortgage interest rates.
MYTH 3 Investors would stop buying mortgage bonds without government guarantees. Bill Gross, bond guru and co-head of Pimco, certainly has said he wouldn’t want to buy mortgages. Mr. Gross and others in his industry have grown used to the government guarantee. It reduces volatility and saves them some time-consuming analysis.
THE REALITY There are plenty of deep-pocketed investors looking for good investments and with the capacity to figure out their value. Again, interest rates would have to be a bit higher, and the securitization market would probably be a good bit smaller. But what existed before the crisis was unsustainable.
MYTH 4 The 30-year fixed-rate mortgage is part of the American dream.
THE REALITY It’s true that the current standard American mortgage — one with a relatively low rate of interest fixed for 30 years that can be refinanced at almost no cost — would probably be harder to get. Yet high home ownership rates in other countries prove this structure isn’t necessary to enable people to buy homes. A longish transition period would allow mortgage borrowers to get used to less generous home financing. And that’s preferable to having them pay much more down the line through their tax bills if investors need bailing out.
MYTH 5 Government subsidies promote homeownership.
THE REALITY This doesn’t seem to be the case at all. Homeownership rates in the United States from 1998 to 2008 averaged 67.8 percent, just ninth highest out of 17 developed nations, according to a study from the University of California, Berkeley. Moreover, the study found that American homeowners paid significantly higher mortgage rates, roughly 1.5 percentage points more, than those in Europe. That means that even if homeownership is a worthy policy goal, subsidizing mortgages is not the way to do it.
View original article here: http://www.nytimes.com/2011/02/07/business/07views.html?_r=1
Fannie and Freddie phase-out plan due
This is the first of two articles I'm going to be posting today on Federal "dis-involvement" in the mortgage market. Among the many problems in the mortgage end of the housing market in the bubble years, the repercussions of which we are still facing, was that the government entities Fannie Mae and Freddie Mac were pretty much horribly mismanaged. And you don't have to be a Tea Party supporter to make that statement--that's pretty much a concensus opinion. One of the arguments for reducing government involvement is that the mismanagement costs taxpayers more than the savings they received by having the government backing these entities. In other words, loan costs were kept artificially down by Fannie and Freddie, but that caused the necessity for a bail out, which pretty much cost everyone the same money they had been saving on their mortgages. Naturally, it's impossible to say dollar for dollar what cost more, but as the federal government is going through a budget reduction phase Fannie and Freddie are certainly going to be in the conversation. My own opinion is that it probably will not change the real costs of owning a home, but again no one will really know until some changes are implemented and the system has time to adjust. More opinions on this in my next post, from the New York Times.
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By Ben Rooney, staff reporterFebruary 9, 2011: 8:20 AM ET
NEW YORK (CNNMoney) -- The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.
The highly-anticipated "white paper," which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.
While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.
After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.
The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.
At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.
The issue has become politically charged, with some Republicans blaming Fannie and Freddie for contributing to the recent housing bubble. Democrats argue that the institutions help promote home ownership, especially among low- and middle-income Americans.
Given the political challenges involved and the threat to the housing market, any winding-down of Fannie and Freddie is likely to take place over a period of years.
A representative for Fannie Mae declined comment. Freddie Mac representatives did not immediately respond to a request for comment.
The three options in the administration's white paper were outlined in published reports Wednesday.
The most conservative of the three options would involve no government role in the mortgage market beyond existing federal agencies, such as the Federal Housing Administration, according to the Wall Street Journal.
The two other options relate to the government's place in the secondary mortgage market, previously filled by Fannie and Freddie. Under one option, the government would backstop mortgages during times of "market stress," while the other recommends that the government be involved at all times.
In addition, officials could also reduce the maximum loan limit for mortgages that Fannie and Freddie are allowed to buy, and encourage them to raise the fees they charge banks to guarantee mortgages.
Other options that could be discussed in the white paper are gradual increases in the minimum down payments on government-backed loans, and an accelerated reduction in Fannie and Freddie's loan portfolios.
View original article: http://money.cnn.com/2011/02/09/news/economy/fannie_freddie_phase_out/index.htm?hpt=T2
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By Ben Rooney, staff reporterFebruary 9, 2011: 8:20 AM ET
NEW YORK (CNNMoney) -- The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.
The highly-anticipated "white paper," which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.
While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.
After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.
The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.
At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.
The issue has become politically charged, with some Republicans blaming Fannie and Freddie for contributing to the recent housing bubble. Democrats argue that the institutions help promote home ownership, especially among low- and middle-income Americans.
Given the political challenges involved and the threat to the housing market, any winding-down of Fannie and Freddie is likely to take place over a period of years.
A representative for Fannie Mae declined comment. Freddie Mac representatives did not immediately respond to a request for comment.
The three options in the administration's white paper were outlined in published reports Wednesday.
The most conservative of the three options would involve no government role in the mortgage market beyond existing federal agencies, such as the Federal Housing Administration, according to the Wall Street Journal.
The two other options relate to the government's place in the secondary mortgage market, previously filled by Fannie and Freddie. Under one option, the government would backstop mortgages during times of "market stress," while the other recommends that the government be involved at all times.
In addition, officials could also reduce the maximum loan limit for mortgages that Fannie and Freddie are allowed to buy, and encourage them to raise the fees they charge banks to guarantee mortgages.
Other options that could be discussed in the white paper are gradual increases in the minimum down payments on government-backed loans, and an accelerated reduction in Fannie and Freddie's loan portfolios.
View original article: http://money.cnn.com/2011/02/09/news/economy/fannie_freddie_phase_out/index.htm?hpt=T2
Friday, February 4, 2011
10 Bedside Tables That Aren't: Repurposed Bedside Storage
Keeping in mind that the following comes from the Apartment Therapy website which is geared toward small space design, while some of these are very cool looking you kind of wonder about their functionality. And my mother would die at the sight of the first one which pretty much looks like a trash can next to the bed. Thoughts?
View the article: http://www.re-nest.com/re-nest/bedroom/10-bedside-tables-that-arent-repurposed-bedside-storage-138033
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