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Home Ownership May Be for the Few, Not the Many

CNBC.com | March 14, 2011 | 09:00 AM EDT

Homeownership has long been associated with investment savvy.

Tax breaks, equity growth and the sanctity of the American dream — the real estate community has made a pretty compelling case over the years for the merits of purchasing property versus throwing your money away on rent.

But as the housing market redefines itself in the wake of the subprime mortgage crisis and the ensuing industry recession, a number of economists who follow the industry suggest the benefit of buying no longer applies. Others say it never did.

Yale economist Robert J. Shiller, whose book “Irrational Exuberance” accurately predicted the stock market collapse in 2000, notes that U.S. housing prices posted roughly a zero percent gain between 1890 and 1990, after adjusting for inflation.

“That’s the remarkable thing that most people don’t realize,” he says. “This is not a financial investment. It’s an investment that provides you services and you have to answer for yourself how you value that.”

The biggest dividend of real estate, says Shiller, is the lifestyle it affords. Some are willing to pay a premium for kid-friendly neighborhoods, quiet streets, a historic home or a condo close to work.

But taking the plunge today is a bigger financial gamble than it once was.

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Wading Back Into Real Estate

CNBC.com | March 14, 2011 | 09:01 AM EDT

Another spring, another burst of hope for a real estate market recovery. And, so for many, to list or not to list — that is the question.

It may be hard to believe, but real estate prices have been falling for five years now in America.

For-sale signs on lawns come and go like weeds, foreclosure signs cast a pall on neighborhoods, and unfinished buildings turn into landmarks.

For some, houses have become a ball and chain, choking mobility; for others, a financial time bomb, threatening bankruptcy.

What’s all the more frustrating for many homeowners is that while their biggest financial asset—and retirement nest egg—sits in limbo, the stock market has come roaring back.

Amid all the doom and gloom, its hard for many to think of real estate as anything other than a money pit; for some, however, it is an opportunity, and, hopefully, a well of profit to be tapped.

It’s the optimistic, even opportunistic, side we’re focusing on in our annual special report, “Investor Guide to Spring Real Estate” and CNBC’s forthcoming series of reports by “Realty Check'” blogger and TV correspondent Diana Olick. “Opportunity USA”.

We plan to help you decide if the residential market is for you.

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Crude oil fell in New York as concerns that damage from Japan’s earthquake will limit crude demand outweighed heightening tensions in the Middle East.

Crude oil for April delivery dropped as much as 35 cents, or 0.4 percent, to $100.84 a barrel in electronic trading on the New York Mercantile Exchange, and was at $100.86 at 9:31 a.m. Singapore time. Yesterday, the contract added 3 cents to $101.19.

Brent oil for April settlement traded at $113.05 a barrel, down 14 cents on the London-based ICE Futures Europe exchange. The contract slid 17 cents, or 0.2 percent, to $113.67 yesterday.

To contact the reporter on this story: Christian Schmollinger in Singapore at Christian.s@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

The U.S. Treasury market could feel financial aftershocks from Japan’s tragic earthquake. Offloading some of the Asian giant’s $1 trillion of foreign reserves could raise cash to help rebuild after Friday’s disaster. Meanwhile, the Federal Reserve is due to end its Treasury bond-buying program in June. If Japan, the second-biggest foreign holder, starts selling that’s another support gone — with the potential to make borrowing more expensive for the U.S. government.

It’s too early to estimate the cost the Japanese government and private sectors will have to shoulder for reconstruction efforts. But bond investors can’t any longer take for granted that Japan will leave its ample reserves intact as it has, broadly speaking, for the past several years. For the government, cashing in could be more palatable than yet more borrowing. Japan’s debt already amounted to more than 200 percent of GDP, according to the International Monetary Fund, before last week’s events.

Between the public and private sectors, Japanese investors owned $882 billion of Treasuries at the end of last year, according to U.S. data — second only to the Chinese with $1.2 trillion. Traders on Monday were already speculating that Japan’s institutional investors could sell liquid Treasury holdings to raise cash. It’s not a stretch to imagine the Japanese government might do the same. Selling dollar-denominated assets could strengthen the yen — an undesirable outcome for the nation’s manufacturers. But at a time of crisis it shouldn’t be ruled out.

If it happened, it would up-end many investors’ faith in the notion that Asian central banks would never sell their Treasuries. In more concrete terms, it could further change the balance of supply and demand in the market for U.S. government debt. And there was already a question about who will step up to buy Treasuries when the Fed ends its buying program in just three months.

The U.S. central bank has accumulated more than $400 billion of government paper since it kicked off its purchasing program in November. It has been buying enough to absorb some three-fifths of new debt being issued by Washington to fund the yawning federal deficit. Prominent investors including Bill Gross of Pimco have warned that interest rates could spike when the Treasury market loses its newest best friend. Now it can’t be sure of one of its oldest supporters, either.