Opinion: First-time buyers turned off by low real estate prices?

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I’m a tad late sharing my thoughts on this June 6 New York Times piece on real estate prices by Yale economics professor Robert Shiller, but better late than never.

Shiller appeals to historical trends and past recessions to make a case for his theory that home prices will continue to fall for years to come, even after other consumables recover most of their lost value once the economy perks up (whenever that happens). Shiller’s use of history seems solid; after all, housing prices in the L.A. area didn’t start marching upward until the better part of a decade after the ’91 recession, the ’92 riots and several major earthquakes sent Southern California real estate values plunging in a hurry.

What puzzles me about this piece is the point at which Shiller wades from the bedrock of history to speculation about consumer behavior in the housing market, namely his attempt to get inside the minds of young couples who are renters. Writes Shiller:

Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don’t have a speculator’s sense of urgency. And they don’t like shifting from being owners to renters, a process entailing lifestyle changes that can take years to effect.

Among couples sharing a house, for example, any decision to sell and switch to a rental requires the assent of both partners. Even growing children, who may resent being shifted to another school district and placed in a rental apartment, are likely to have some veto power. ...

Imagine a young couple now renting an apartment. A few years ago, they were toying with the idea of buying a house, but seeing unemployment all around them and the turmoil in the housing market, they have changed their thinking: they have decided to remain renters. They may not revisit that decision for some years. It is settled in their minds for now.

Let me graciously offer myself as a case study for the ‘young couple now renting an apartment.’ I am under 30, was married in 2007 and currently rent an apartment with my wife. In our case (and for many other non-homeowning twenty-something couples), Shiller has it exactly backward: The astronomically high home prices of the pre-2007 bubble were extremely discouraging, and made buying a home back then seem as realistic a possibility as owning a private jet. Cruel as it sounds, the steep decline in prices is exactly what we have been holding out for to break into the market -- and yes, as a Los Angeles Times staffer, I do indeed see unemployment all around me. In 2006, the American-as-apple-pie ritual of buying a home was a matter of creative financing and a willingness to take major risks on homes almost no one could actually afford. Today, affording a decent down payment is simply a matter of saving enough for a few years. I can’t emphasize enough how much this matters to those of us who felt locked out of the housing market by unsustainably high prices.