Are You Clueless About the Housing Market?

NEW YORK (TheStreet) -- There is a lot of forward-looking opinion about recovery in the real estate sector, but much of the talk is just opinion. The data continue to have some negative features.

Most recently I wrote an article in TheStreet about the likelihood that the bottom of the housing market had not yet been reached with respect to average prices, although some markets look more promising than others.

In the past couple of days, more data have been in the news. Here is a summary.

U.S. Housing Market

According to Prof. Robert Shiller of Yale University, the recent price increases for existing home sales has been accompanied by unrealistic expectations. In his monthly Op Ed piece in the New York Times, Shiller reports on survey results from 309 home buyers in June and July. Home buyers were from four cities in different parts of the country.

One question had astounding results. The average expectation for annual gains in house value over the next 10 years was 11.2%. That would mean that, in 10 years the average of expectations was a gain of 189%: Buy a house worth $200,000 today and in 10 years it will be worth $578,000.

Compare that to the 10-year interval leading up to the peak price in June 2006. Using the Case-Shiller Composite-10 Index, the average value for a $200,000 house in June 1996 rose to $323,271 by June 2006. Talk about bubble mentality.

The median expected return in the survey was 5% per annum. This would produce a $325,780 value in 10 years, almost exactly the same return as the recent housing bubble.

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