I have a commentary on the Time Magazine article coming this week — I find it is both inaccurate and misleading — but meanwhile, here is Jim Bianco’s take on it:
1. Time Magazine – The Case Against Homeownership
Homeownership has let us down. For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point. Herbert Hoover argued that homeownership could “change the very physical, mental and moral fiber of one’s own children.” Franklin Roosevelt held that a country of homeowners was “unconquerable.” Homeownership could even, in the words of George H.W. Bush’s Secretary of Housing and Urban Development (HUD), Jack Kemp, “save babies, save children, save families and save America.” A house with a front lawn and a picket fence wasn’t just a nice place to live or a risk-free investment; it was a way to transform a nation. Houses owned by the people who lived in them, we believed, created social and financial stability — more-involved citizens, safer neighborhoods, kids who did better in school. No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy.”
2. Jim’s Comment:
The TIME Magazine indicator was popularized by the Wall Street legend Paul Montgomery of Universal Economics. Paul argues that a TIME Magazine cover signifies a peak in momentum but the price peak could be as many as 12 months away. In the case of the 2005 bullish cover about housing, this was exactly correct. Year-over-year changes in home price indices were near a peak in the summer of 2005 and the high in prices occurred a year later. The cynic would say a TIME Magazine cover marked the last rush of “top buyers.”
So how do we interpret the current cover above? The momentum low (year-over-year change) has probably occurred, but prices could languish and even drift (not plunge) lower over the next year before a rebound. In other words, looking back after five years (not one year) , we expect the “rethinking homeownership” cover will be as ill-timed as the “Home Sweet Home” cover in 2005.
3. Time Magazine – America’s House Party
June 13, 2005
“Ah, the blistering real estate market, where dreams of big bucks come wrapped in aluminum siding, and you can get a three-bedroom ranch house with your hair extensions and a mortgage with your Grilled Stuft Burrito. The stock market may be dragging, but home prices are soaring, fueling a national obsession with real estate. Your house is now your piggy bank, ATM and 401(k). House gawking is a hobby; remodeling, both entertainment and an investment. Folks brag about having bought their home in the ’90s the way they used to brag about having bought Microsoft in the ’80s. Even if you’re not contemplating buying or selling anytime soon, the amazing lift in home values is changing the way we think about the roofs over our heads. Real estate isn’t so much about nesting today as it is about nest feathering.