GUY RAZ, host:
The Case-Shiller Index is one of the best measures of home values. And the latest number show that homes are now worth about the same as they were in 2003. But according to one-half of the team behind the index, Professor Karl Case, there's some good news as well. And I asked him whether he thinks the housing market has bottomed out.
Professor KARL CASE (Economics, Wellesley College; Co-Creator, Case-Shiller Housing Index): I think it has, but I say that without a great deal of conviction, to be honest with you. In most places, in fact almost all of the cities we track, prices stopped falling about a year ago. And they've come back a little bit.
The worrisome thing to me is the vacancy rate. If you look at rental property and owner-occupied or previously owner-occupied housing, the vacancy rates are still at a all-time high levels, even though we're building practically nothing.
What worries me about that is we must be losing households. That is people who are coming to this country aren't coming in the same numbers, people who came are going home, and people are doubling up and staying with mom and dad. And if we don't have the household to buy, then we're never going to get rid of that inventory.
RAZ: But recently, you said that you're seeing some positive stuff in the...
Prof. CASE: Right.
RAZ: ...in the current housing market. Like what?
Prof. CASE: If you look at places, particularly California, which is a quarter of the value on the country, believe it or not, California is up substantially. Look at the coastal towns. San Francisco is up 21 percent actually from the very bottom. Eventually, when prices get down low enough, people are going to buy this property, all right? And they're going to buy it up and they're going to live in it. And by all historical standards, they're getting a pretty good bargain right now.
If you look at a $300,000 house, three years ago, the house payment on an 80 percent mortgage would have been $1,500. Today, the same house is 30 percent lower on average and the same mortgage at 4.1 percent gives you a house payment of about $800.
RAZ: That's a bargain.
Prof. CASE: It's a bargain.
RAZ: So is it a good time to buy now, in your view?
Prof. CASE: Well, it certainly is the best time we've seen in the last four, five years, and maybe in my lifetime. And if you look at some of the property values that are out there, one of the things that people forget is that a house is a consumer durable good. It's not just an investment. If you're going to hold it for a long time you live in it and you derive from it housing services that have a real value.
So if you don't think of housing just as something to earn you capital gains in the long run, but something you're going to live in and you can afford to make the payments on it, it looks to be a pretty good deal. And by the way, the income - that form of income is completely tax free.
RAZ: Now for decades, Karl Case, you know, homebuyers were told to spend a bit more than they could afford. Buying a home was the safest investment you could make. Will that advice, in your view, still be valid?
Prof. CASE: Well, I don't think it was ever valid, but I don't think it will be valid in the future. You buy something you can afford and you can make the payments whether you, you know, to promise to pay. You want to look forward with a realistic outlook and take on payments that your income can handle.
But it's not going to be the case, as people were told three or four years ago, that housing is going to go up 20 percent a year or 10 percent a year and you're always protected because you can sell the house. That's never really been true, although we got addicted to the idea because from 1975 to 2005, house prices never fell nationally.
I mean, housing is now something which can go up and down like any other price, and it's a big one. It's an important one because you're borrowing other people's money to buy it. So you have to make it cautiously. You have to make it with foresight. But when you do make it in this environment, it looks to me like it's a pretty good investment.
RAZ: That's Karl Case. He's a professor emeritus of economics at Wellesley College in Massachusetts and the co-creator of Standard & Poor's Case-Shiller Index.
Professor Case, thank you so much.
Prof. CASE: My pleasure. Transcript provided by NPR, Copyright NPR.