Back in June 2005, TIME magazine put what in hindsight turned out to be a massive housing bubble on its cover, cleverly calling it “Home $weet Home”. Inside, the main story titled America’s House Party raved about how disk jockeys, hair dressers and Taco Bell cashiers were making fortunes flipping houses:

You shouldn’t get the impression that you can make six figures in real estate by snapping your fingers. Just ask Max Kaiser. It once took him a whole hour. The South Florida real estate investor bought a Miami-area two-bedroom luxury condo–which had not yet been built–for $425,000 last year. After signing the purchase papers, Kaiser, 32, heard that a couple outside the developer’s office was interested in the same apartment. So he sold it to them on the spot for $525,000. “I heard it’s now going for $570,000, but what can you do?” he says. Don’t cry for Kaiser. Four years ago, he was an accountant, stultified by his job. Now he’s pricing Porsche Carreras.

At that time, I wondered if the cover story portends a real estate downturn. It turned out that in a mere weeks, the housing market started to slow down, setting off a chain reaction of economic events that brought the financial world so close to Armageddon.

TIME Magazine cover stories on housing
How TIMEs have changed! Now, with US National home prices back at the level they were in the Fall of 2003, the magazine is at it again putting the housing market on the cover (thanks to Thicken My Wallet for alerting us to the story), only this TIME the caption reads “Rethinking Homeownership: Why owning a home may no longer make economic sense”. This may or may not be the absolute best time to buy a home in the US but we can say with some confidence that it is less risky buying a home after prices have dropped sharply than it would have back in 2005 after years of strong home price increases. Did TIME once again nail the precise moment in which the market turns? We’ll know in 2015.

This article has 18 comments

  1. This Time article is consistent with the time-honoured tradition in the media of telling people what they already think is true.

  2. Great article. Reminds me of BusinessWeek’s “Death of equities” article from 1979.

    Mike

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  4. We shouldn’t overly concern ourselves with exact tops and bottoms. Few will get that right verry often. Home ownership is generally a “good” investment, as is a revenue property or two, whether or not one gets the timing exactly correct.

  5. This just goes to show that paying too much attention to headlines may not be a good thing. Makes for great reading though.

    Recent headlines have mentioned “bubbles” in the Canadian RE market. It will be interesting to see what the headlines here in Canada will be in a few years.

  6. Buying US real estate is even more attractive to Canadians with the loonie so strong against the U.S. dollar.

  7. Larry is right… I know several individuals looking at real estate in the US now. The reality is people still need shelter and for many, it is better to pay themselves than others for that basic need. It’s the other debt (credit cards, auto financing, etc.) that has caused the real crisis of personal debt because such debt is not fixed like home… it fluctuates with compulsions.

  8. @Michael: I agree. I also found it interesting that the house party article touches upon why it is irresistible to follow the crowd:

    “The boom is as much an emotional story as an economic one. It’s about the excitement of potential wealth, the fear of missing out and the envy toward the guy next door who bought for a third of what you paid.”

    I should try and remember that the next time investors get giddy over another asset class.

    @Dale: Yes, I agree that it is difficult to consistently get the tops and bottoms right.

    @Tiny Potato: The media is usually a pretty good contrarian indicator. By the time the markets are in the headlines, it is time to start moving in the opposite direction.

    @Larry: I think so. Or perhaps one of the real estate sector ETFs such as XHB might be the ticket for those wishing to bet that TIME got the timing wrong once again:

    http://www.google.com/finance?chdnp=0&chdd=0&chds=1&chdv=0&chvs=Linear&chdeh=0&chfdeh=0&chdet=1283976000000&chddm=446913&chls=IntervalBasedLine&q=NYSE:XHB&ntsp=0

    @Doc Stock: I agree. People often forget that returns from real estate are mainly in the form of income, whether rental income or imputed rents from an owner-occupied home.

    However, I would add a caveat that homes are not worth buying at any price. If I can’t comfortably afford the mortgage payments and other expenses that come with home ownership, I would prefer renting.

  9. Thanks for the link. If you subscribe to the theory that when the media gets a hold of a story it is over, it may be time to look into real estate as an asset class. Regardless, the article, although a little scattered, is interesting in showing how many billions of dollars are spent subsidizing the industry. Makes you wonder if the law of unintended consequences is once again at play since the implication of the article is that the government helped create the bubble.

  10. While I didn’t read the 2005 article, I recently picked up TIME specifically to read the cover story on housing. I thought it was a very reasonably done story weighing the pros and cons of the massive tax breaks and government intervention encouraging people to own their homes. I didn’t think the article was particularly bearish on housing.

    It’s very natural that the media would be late to pick up on things. Unless you’re an expert in any topic, you don’t see trends forming until they’re painfully obvious. Hence the media figures things out at about the same time we do.

  11. That is a great photo.

    I love how easy it is to turn on a subject or flip / flop.

    @Doctor Stock: If you are not a us citizen is it difficult to get a conventional mortgage?

  12. Exactly! When the market is booming, that’s when you should have sold. Now is the time to buy. By the time the news hits TIME magazine (or most media), you should always do the opposite.

  13. While it may be the time to buy in the US, to realize capital gains from a sale of the property will take a longer period of time.

    Better question is: What to do about the Canadian housing market?
    With incentives to buy mortgages at 0-5% down, has the stabilizing of prices and surge in volume of sales seen in 2009 warranted? Is it sustainable?

    I say we’re in for the price decline that should have occurred 2 yrs ago.
    There are various arguments for and against – both sides stating logical stats and ratios. But to determine whether I’m going to be owing tens of thousands instead of making or breaking even? I’ll not flip a coin. Better to wait.

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