My Mortgage Blog

Here are a couple of things well worth our notice this week.

First, if the name of one of this year's Nobel Prize Winners in Economics seems vaguely familiar, Yale Professor Robert Shiller is indeed one of the developers of the estimable S&P Case Shiller Home Price Index that has been helping to guide major analyst’s assessments of the state of the real estate market for years.

Just the fact that the index has a 3-week moving average built into it makes it unusually reliable. The main component, though, is a means of comparing apples to apples by which I mean, the index looks at homes with the same or very similar shape and size and amenities and, if possible, age when comparing selling prices. This creates a databank of comparable homes (or comps, as they are known in real estate and appraising) that yield highly accurate summations of value changes in the twenty metropolitan markets that the Case Shiller Index follows. Arguably, the upward turns in this index had more impact on market analysts than most other resources making them inclined to declare that the real estate market was at last recovering.

Shiller, in spite of his connection to the index that signaled recovery, has not been inclined to predict a long-term heating of the real estate market. Relying on data from past recoveries, he has found reason to call today’s numbers fragile but positive. In his estimation, it’s a good time to buy a home for people who truly need one. For others, it’s probably time to see how home values and costs change in the coming months.

Shiller has also been a big contributor to a school of economics that should perhaps be called psychological. He reminds us that people don’t necessarily act rationally so, when we try to predict where the marketplace will go, we should be ready to be unsurprised by those who make essentially emotional investment and business decisions.

One aspect of this last point has created a second thing worthy of mention this week. Perhaps you have wondered over an obvious question during recent months. Specifically, with fixed mortgage rates still near 4% even still attractive at the 4.35% Freddie Mac rate for Nov. 14 and with the likelihood that rates may be climbing, irregularly but fairly steadily, over the coming months and years and with the price of homes rising continually doesn’t it make sense to buy the house that will suit you well for many years to come and to take advantage of attractive financing before it fades?

Well, yes, it does make sense but this is a decision involving more than common sense or careful reasoning. It's an emotional decision. And, as many economists have pointed out recently, today’s economy isn’t all that available to careful reasoning. It’s a time of tremendous uncertainty. Thus, people are inclined to wait for something better resembling confident certainty about the economy's future and, more important, their own economic future.

Consider the Millennial Generation -- today's 18 to 35-year-olds. The unemployment rate in this segment of our society is huge and, as a result, many young Americans have chosen to live in the shelter their parents homes and homes owned by other relatives. These are called hidden households -- the groups of usually-related people who would almost certainly be buying a home and forming a household if they felt more certainty about the present and future of our economy.

The good news is that this group of Americans will remain a market for real estate for quite some time. Watch for better jobs data as the precursor of more purchases by this age group. The bad news is that great home purchase opportunities are slipping away daily, and not for rational reasons.