Yes we are assuming that the past informs the present. However Iwant you to look at this chart that I have posted from the seconditem. Fundamentally the new generation has adopted the condolifestyle close to their work. The trend is moving against thesingle family dwelling model for efficiency sake.
Thus Shiller is right that optimism may well be misplaced and wecould be seeing a new life way taking shape that backs of from themassive commitment that a single family home demands.
Cities are also waking up to the Vancouver model in which moderncondos are all stuffed downtown to completely revitalize the region. Add in rapid transit to satellite hubs and the car is off the road.
In Vancouver the traffic entering the core has stagnated for yearsbecause of this while the population of the core has surely doubled.
SHILLER: All ThisHousing Optimism Is Way Too Premature
HenryBlodget and Lucas Kawa | Jan. 25, 2013, 4:36 AM
http://www.businessinsider.com/shiller-housie-prices-2013-1#ixzz2J0fBLXzj Yaleprofessor Robert Shiller is one of the pre-eminent experts in houseprices.
Shillercreated the "Case-Shiller Index," which tracks changes inhouse prices on a monthly basis and is the most closely followedhouse-price index in the country.
Wesat down with Professor Shiller in Davos to get his take on thefuture of the housing market.
HenryBlodget:Everybody in the U.S. seems convinced that the housing market isgoing to come roaring back, it’s going to save the economy, houseprices are going to rise, houses are a great investment again. Arethey right?
ProfessorShiller:First of all, I challenge your statement a little bit. ThePulsenomics survey of experts – they had 105 experts in theirDecember survey – and not one of them predicted a return to theboom that we had. The most optimistic had a real return for the next4/5 years of something like 6 percent.
Blodget:But that’s way better than zero.
Shiller:I’m taking the most optimistic out of 105. We also had – what’sthat perma-bear guy, anyway, we had someone at minus 10 percent. Ithink that we may be recovering, but I also think that we may havefurther real price declines in the coming years. People areoverly – we tend to focus on the latest starts and permits andother indicators, but I think that there might have – and thisisn’t a confident forecast – but there might have been a declinein our appreciation of this American Dream: detached, dispersedsingle family homes – youhave to drive for 45 minutes to get there from your job. And the ideahas gone, well it’s not gone, but it’s diminished – that thiswould be a good investment.So the latest data, ever since the crisis, almost all new housing hasbeen rental. Newhousehold units want rentals. Ifthat’s a trend, it means that home prices of single-family detachedhomes should probably go down, because it’s hard to maintain thoseas rental units. If people demand that kind of – I think they’llsell at a discount. Co-ops and condos could have a different trend atthe same time.
Blodget:So what is your sense of the next five years? Do you think we’vehit bottom in the housing market or do you have to stratify it thatway?
Shiller:I think that we might have [hit bottom], but my biggest sense is thatprobably nothing dramatic happens either way. If the Pulsenomicssurvey is right, and it’s up between 1 and 2 percent real, that’splausible to me. But also down 1 or 2 percent real, that’splausible. I’m sorry I don’t have a more precise forecast.
TheCase-Shiller Index.
Blodget:One of the things I feel that people might be missing is that if theeconomy does return to strength, at some point presumably interestrates will start to rise to more normal levels which will change thecost of mortgages and make them much more expensive. How much do youthink the cost of mortgages affects the price of housing, and ifinterest rates do go from 4 now up to 7 percent, will that dampenhouse prices?Shiller:It would seem from economic theory that it ought to. If the 10-yearTreasury goes from 1.8 percent to 7 percent, that means mortgagerates will go from 3.5 to 10 percent, or something like that. Andthat ought to affect home prices. And in a very broad sense, thatseems to be the case. Home prices reached a low in the early 80s,right around the time Paul Volcker pushed interest rates up. But onthe other hand, it doesn’t fit very well, this whole model. Homeprices don’t look like an inverse of interest rates.
Blodget:They don’t? You’ve studied it hundreds of years of home pricesand you haven’t seen a correlation between the two?
Shiller:No, in fact if you look at the path of interest rates since PaulVolcker, interest rates have just gone down secularly for 30 years.It’s absolutely amazing, how strong that downtrend is. And it’shit practically zero, it’s at a record low right now. It can’tkeep going down, so now where is it going to go from here? I don’tknow. I don’t see as much commentary on this trend. Somehow, therewas a turning point, a major turning point with Paul Volcker, that wewent from an economy of increasing inflation to decreasing deflation,and not many people appreciated how profound that transition was. Butnow, the question is where are we going now when we’ve hit recordlows. I wish I knew.
Blodget:Well, presumably there are two options. Either we’re Japan andrates stay low for 20 years, or they go back up.
Shiller:The question is attaching probabilities to those scenarios.
Blodget:Do you want to take a stab at that?
Shiller:I don’t know. This is something that, Bayesian statisticians havetried to represent ignorance by probabilities, and this is why my sonis a philosophy Ph. D candidate right now, and he’s interested inhow to represent uninformative priors. There’s all kinds ofparadoxes when you try to do it. So we just don’t know, and I can’tattach a probability.
Blodget: Thanks,Professor Shiller.
This item comes from an investmentnewsletter and the chart tells it all.
Breaking: We Hit the Peak in2005!
By Jeff Siegel | Monday, January 28th, 2013
62 miles.
This was my mother's daily commute for abouttwo years after we moved out to the suburbs in 1981. Total transittime was about three hours round-trip, depending on traffic, ofcourse.
So basically, my mother spent about two andhalf days' worth of time every month driving to and from work...
Twoand a half days!
Fortunately, she only had to do that commutefor a couple of years before getting reassigned back to the mainoffice, which was much, much closer to home. But it was around thattime I realized I would never put myself through that kind of hassle.
It just made no sense... the wear and tearon the car... the stinging fuel costs... the wasted time andproductivity... the stress of daily traffic...
No, this was never something I wanted. Andafter college, I made a conscientious effort to never live more thanten or fifteen minutes from work. Anything more would just beunacceptable.
And as it turns out, I wasn't alone. Overthe past ten or fifteen years, there's been an interesting shift inbehaviors regarding daily work commutes. And what was once consideredjust a part of a daily routine has started to become an exercise infutility.
The mere thought of spending a significantamount of one's life behind the wheel of car, sitting in traffic andstarting the day completely stressed out has sparked a migration backto some of this nation's cities — at least, for a youngergeneration that works within city limits.
And thishas led to some folks not even needing acar anymore, as biking, mass transit, and carsharing services likeZipcar are making it easier for daily commuters to live without acar.
This new trend not only represents acomplete reversal of the car-centric society in which I grew up, butsome believe it could actually be one of the reasons behind what someare now calling “Peak Car.”
New Trends
There was an interesting article a couple ofweeks ago by business and policy writer Tim Fernholz in which heconsiders the possibility that demand for cars has hit a plateau and,from this point forward, demand can only start to decline.
It's an interesting thought. But on thesurface, it's a hard one to buy.
That beingsaid, there has beena visible trend in vehicle miles traveled that could lend itself toFernholz's argument. According to the OECD, growth in total vehiclemiles traveled in the developed world has actually been decreasingsteadily since the early part of this century...
In his piece, Fernholz attempts to justifythis data with a few solid explanations that are at least worthy ofconsideration:
- Increasing costs of fossil fuels, parking, and insurance at a time of stagnant wage growth in advanced countries.
- Policies designed to mitigate pollution and reduce urban sprawl.
- Availability of communications technologies that has made some work travel unnecessary.
- New trends toward urbanization replacing the flight to suburbs.
- A new generation of potential car buyers — specifically those in the Millennial generation — that doesn't view cars as rights of passage or status symbols, as previous generations have.
- The inability for people to tolerate daily commutes for more than an hour.
Of course, current trends that can make asupportive argument for the case of "Peak Car" do notreflect the full global scenario...
Many automakers today are looking towardsemerging markets for continued growth, and certainly we've seenevidence of this in China, India, and a few South American countries.The question, however, is will theseemerging economies embrace car-centric communities as we have done inthe United States?
Car ownership in emerging economies isdefinitely viewed as a status symbol. And having this certain tasteof freedom that we've grown so accustomed to in the U.S. is stillvery new in other parts of the world, and offers a tremendous amountof enthusiasm over car ownership.
Then again, with the significantavailability of cars comes some of the hassles, too — particularlywhen it comes to fuel costs and traffic. Consider for a moment theworld's longest traffic jam in history was in China in 2010: Itstretched for 62 miles and lasted twelve days!
Truth is it's still too early to knowexactly how car ownership will play out over the long-term inemerging economies. But here at home, we're already witnessing atransition to alternative forms of transportation and mass transitacceptance.
I can't say with absolute certainty thatthis could prove a "Peak Car" theory, but here's what we doknow: There has been clear evidence of robust growth in mass transitridership over the past 16 years.
Accordingto the American Public Transportation Association, from 1995 through2011, public transportation ridership increased by 34%, representinga growth rate higher than the 17% increase in U.S. population, andhigher than the 22% growth in the use of the nation's highways overthe same period.Also worth noting, in 2011 Americans took10.4 billion trips on public transportation — the secondhighest annual ridership number since 1957.
And as far as alternative forms oftransportation, we know from the actions of automakers that thetransition to more fuel-efficient vehicles, like hybrids andelectrics, will continue; natural gas will eventually end up poweringnearly all of our buses and trucks; and freight rail will continue tobuild market share, especially in the race to develop and secure thisnation's oil and gas resources.
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