The Financial Times Weekend

Published: October 17 2009 00:39 | Last updated: October 17 2009 00:39

Karl E Case, who with Robert J Shiller created the influential Standard & Poor’s Case-Shiller Home Price Indices, is the Katharine Coman and A Barton Hepburn professor of economics at Wellesley College, where he has taught for more than 30 years. He lives in Wellesley, Massachusetts, in a Cape Cod “cottage” built in 1952.

Yours is a typical American “Cape” home.
From the front it looks small. But then it explodes in the back. There are four bedrooms, three living rooms, three-and-a-half bathrooms, two offices, a wine cellar, a dining room and a kitchen arranged in a terrific way. There’s a lot of space here in this little Cape.

What makes this your favourite home?
The arrangement and the location. It is also built well – by an architect. It’s terrific for what I do. I’ve got two computers and two offices. It’s self-contained life in this house. I do most of my work here now. I can walk to town in a few minutes. It fits our lifestyle. It’s modest – not real modest but not showy.

What attracted you to it?
My wife picked the house out. I thought it looked like a piece of trash. The decoration was terrible, with dark-stained floors and [some] wall-to-wall carpeting. The drapes had been up for 20 years. We had to strip it and rebuild it. We bought it in 1991 during the recession and the contractor was pouring concrete 10 minutes after I signed the closing documents.

You have a lot of space.
It is great for parties. We can have 40 or 50 people and can seat 13-14 at the table. I’ve invited every class I’ve ever taught at least once. We make a buffet in the kitchen and barbecue in the back if it’s a good day. When we entertain, people circulate. If you want a quiet conversation you sit in this corner of the living room, where I play the guitar – I’m bad.

You are often hosts.
We have lots of guests and make optimal use of guest quarters. We added a major league bathroom and a suite downstairs, where I can put my daughter’s family. Two Wellesley students live in one bedroom and we live on the ground floor.

Do you own other property?
I’ve owned other properties but this is my sole remaining piece of real estate. I have a timeshare for the Red Sox’s spring training in Bonita Springs, Florida, but this is my major asset. I like it here and this is probably where I’ll die.

Where else have you lived?
I lived in a suburban home in New Jersey – nothing fancy – until I was 12 and moved to Ohio. Then I was in the army medical service corps in Vietnam for several years. My wife and I ran a dormitory at Harvard for two years.

What other houses have you owned?
We had a 1930s centre-entrance colonial nearby, where we lived from 1976 until I traded up in 1991. I bought it for $56,000 and sold it for $230,000. I bought this one for $392,000 and maybe it’s worth something like $1m now.

You seem to remember your houses as economic units.
A house is a durable consumer good, even if you can knock down walls and make it personal. The bad thing is that it is expensive. First-time homeowners are surprised at what home maintenance takes. If I buy a house outright I live in it rent-free, so the yield is in the form of valuable rental services. If I were a business, I would sell those services, rent them – for cash. That means you get a terrific rate of return. It is tax-favoured. A stock can stop paying a dividend but a house’s dividend is constant in real terms. I buy it and live in it. They can’t take that away from me – unless they foreclose.

So the reason that someone owns a house is economic?
Well, it’s a part of your being. You spend lots of hours in it. It’s the environment in which you live. Some people don’t spend much time at home but I do.

Your home mixes life and work.
Being a homeowner taught me what the housing market was all about. You don’t really understand until you participate. I make my students do it in my urban class. They have to “buy” a house and write a paper about it. They have a blast. Then I can talk about house prices and why they get in the way of the functioning of the macro-economy.

What about non-economic aspects of a house, such as the emotional ones?
There are two things. There is the emotion of getting attached to it, of being inside it. The other is the emotion of the gamble of buying a big thing on leverage. There is fear and reward. Still, a house is a symbol of security, of settling down. If you get a house you love, it grows on you. It’s a home. And it’s an investment; there are emotions in both. But the behavioural part is focused on the betting, on the economic return. I think people figure out the emotional thing when they get in a house but not when they are buying and selling. Then they are thinking about it going up and down. They are thinking about the price of a consumer durable.

You have a lot of photos and mementoes.
This artwork comes from a woman from Bangladesh. This pot is from Ghana. A student’s mother carried it over. Those are kids we photographed on a trip to Nepal. That photo is my favourite person: Richard Musgrave, my mentor at Harvard.

Could you live there?
No. No Red Sox.

The Speakman showerhead. It was the biggest quality of life improvement in the house. If you have a Speakman showerhead it will change your life – plus a Grohe valve and a 1in water main, which is not ecological. This bathroom cost as much as the first house I ever bought.
Our trees: maple, apple hawthorn and spruce.
1961 Château Lynch Bages. Best year ever.

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