Editore"s Note
Tilting at Windmills

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September 25, 2006
By: Kevin Drum

HOUSING BUBBLE UPDATE....The supply of homes on the market is up by a third over the past 12 months, existing homes aren't selling, and prices are dropping. The glut of unsold homes is the highest since 1993 and the year-over-year price decline is the biggest since 1990. Here are a few reactions:

  • Joel Naroff, Naroff Economic Advisors: "Pop goes the housing bubble."

  • Ian Shepherdson, High Frequency Economics: "With inventory still rising, there is no chance of any short-term relief. Prices and volumes have a long way to fall yet."

  • Thomas Lawler, former economist at Fannie Mae: "You've got a ways to go. You still have affordability issues in a lot of markets."

  • David Lereah, National Association of Realtors: "This is the price correction we've been expecting with sales stabilizing, we should go back to positive price growth early next year."

Question: Can you tell which of these guys is living in a dreamworld?


Kevin Drum 9:25 PM Permalink | Trackbacks | Comments (54)

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Comments

Thanks to lower housing costs and a death tax cut, at least Paris Hilton will be able to afford a new home.

That's what really matters.

Posted by: American Hawk on September 25, 2006 at 9:30 PM | PERMALINK

Will this translate into an appropriate correction in the number of home remodeling shows on TV?

Posted by: Old Hat on September 25, 2006 at 9:33 PM | PERMALINK

David Lereah isn't in a dream world -- he's just earning his paycheck.

Posted by: Disputo on September 25, 2006 at 9:35 PM | PERMALINK

HOUSING BUBBLE UPDATE

Yawn. Been there done that.

Posted by: Al on September 25, 2006 at 9:35 PM | PERMALINK

I agree with Al here. Why spend so much ink on a potential problem, one that may effect millions, when we could be talking about the terrorists oogling white women under Al's bed.

Posted by: enozinho on September 25, 2006 at 9:52 PM | PERMALINK

Good job, Kevin, these are clear pictures. Because of the rising prices, a million more houses were built (first graphic, I guess we can assume most owners didn't just wait with their empty houses for rising prices), they arroved on the market when demand had already peaked (second graphic), and consequently sent the prices tumbling down, because nobody wants to lose money with an investment that will be worth less ina few months (third graphic).

Now the gamblers, who quit at the right time, will look for the next hype and stay away from this market, and those who didn't will be under pressure from their banks, and try to cut their losses. On the demand side, real incomes of the middle class are stagnating, the future is gloomy, and the house market for the upper ten isn't that big. This sure doesn't look like positive price growth early next year.

Posted by: Gray on September 25, 2006 at 9:54 PM | PERMALINK

Barry Ritholtz did a pretty good post on this today on his "The Big Picture" blog - it'll be interesting to see how far this goes.

Posted by: GMF on September 25, 2006 at 9:55 PM | PERMALINK

terrorists oogling white women under Al's bed.

Al moved the women to his closet.

Posted by: Disputo on September 25, 2006 at 9:55 PM | PERMALINK

Andrew Leonard at Salon has been ripping Lereah's propaganda for a while:

http://www.salon.com/tech/htww/2006/09/19/lereah_watch/index.html

There's even a blog devoted to David Lereah's spinning:

http://davidlereahwatch.blogspot.com/

Posted by: theo on September 25, 2006 at 10:04 PM | PERMALINK

"This sure doesn't look like positive price growth early next year."

Oh, btw, do people really buy new homes in winter? Isn't this a seasonal market? Can't imagine estate agents will be very successful in selling freezing houses under these circumstances. Decreasing temperatures will accellerate the trend.

Posted by: Gray on September 25, 2006 at 10:11 PM | PERMALINK

It's not a dreamworld, but it is work that involves lying on one's back.

Posted by: Kevin_r on September 25, 2006 at 10:16 PM | PERMALINK

Gray,
The figures are seasonally adjusted.

Posted by: Kevin_r on September 25, 2006 at 10:18 PM | PERMALINK

So, when do I start looking for a house? End of '07?

Posted by: enozinho (wetorture.com) on September 25, 2006 at 10:25 PM | PERMALINK

Yes, I have always wondered why the National Association of Realtors seems to have a pathological need to pretend that house prices can only ever keep going up. I have just done the math and figured it out. If median house prices keep rising by 10% per year (which is what the realtors association seems to want to believe) then in 50 years the median house will cost $26.4 million, giving a sales commission of $1.6 million.

Posted by: paul on September 25, 2006 at 10:26 PM | PERMALINK

I agree with Al here. Why spend so much ink on a potential problem, one that may effect millions, when we could be talking about the terrorists oogling white women under Al's bed.

Also, Clinton's penis.

Posted by: Old Hat on September 25, 2006 at 10:30 PM | PERMALINK

National Association of Realtors: "This is the price correction we've been expecting with sales stabilizing, we should go back to positive price growth early next year."

Maybe in the South. For the rest, not until April, at the earliest. If the last slump (presented by KD a few days ago) is any model to follow, housing prices will soon stabilize, but not actually rise for a while.

Construction will slow, but population growth will not.

Posted by: republicrat on September 25, 2006 at 10:36 PM | PERMALINK

The whole housing bubble was created by aggressive speculators who drove prices into the stratosphere, which the building industry responded by building more homes. The way the game works is that speculator #1 buys a house/condo, waits a few months or a year for the price to rise enough for him to take a hefty profit and then the investor sells...usually to speculator #2 who got into the game a little later. Speculator #2 sits on the property until the comps rise enough to meet his profit expectation, then he sells. As the money got good, more speculators got into the game, driving the prices ever higher. The smart speculators bailed out of the local markets as prices were peaking. They abandoned SoCal a long time ago and moved on to Phoenix and Las Vegas. They repeated the same moves, selling to an ever expanding series of other real estate speculators. A lot of people got very wealthy from this bubble and those who didn't get out in time are now sitting on properties that aren't selling.

Posted by: arteclectic on September 25, 2006 at 10:36 PM | PERMALINK

I am nore concernedc about the "Birth Tax" that is imposed on every newborn in the country. They are the ones who will be saddled with paying the huge debrs and deficits we are accumulating now.

My grand-daughter is two, and she started life twenty grand or so in the hole. Bout time to turn her out to get a job, doncha reckon?

Posted by: Global Citizen on September 25, 2006 at 10:41 PM | PERMALINK

This wrist-brace really sucks. Sorry guys. I'll try to remember to use preview.

Posted by: Global Citizen on September 25, 2006 at 10:42 PM | PERMALINK

The White House Bubble (Head) scares me a lot worse than the housing bubble.

Posted by: Global Citizen on September 25, 2006 at 10:43 PM | PERMALINK

So, Kevin, when you going to finally put an actual graph of housing prices up, not just a "rate of change" graph?

Posted by: rko on September 25, 2006 at 10:45 PM | PERMALINK

"...existing homes aren't selling..."

I always thought "not selling" meant, you know, NOT selling, but apparently it means selling at a rate of about 6.3mm homes/year instead of 7.3mm a year. Was someone around here saying something about numerical literacy this morning?

Posted by: Tom on September 25, 2006 at 10:54 PM | PERMALINK

Hey, RKO, you want charts, I got charts.

Posted by: billyjack on September 25, 2006 at 10:56 PM | PERMALINK

'The collapsing U.S. housing market crossed another milestone in August, as the median sales price of existing homes fell for the first time in 11 years and for just the sixth time in the past 38 years, the National Association of Realtors said Monday'

This is only the beginning...

http://globalhouseprices.blogspot.com/

Posted by: house prices on September 25, 2006 at 10:58 PM | PERMALINK

"in 50 years the median house will cost $26.4 million, giving a sales commission of $1.6 million."

Yes this is likely, but a loaf of bread will be $500, particularly probable after the US inflates its way out of the Iraq war debt.

Posted by: Redacted on September 25, 2006 at 10:58 PM | PERMALINK

Kevin Drum; every time you talk about the housing prices going down, you become more and more irrelevant. It's obvious you've got Bush Derangement Syndrome really bad, and just want to desperately come up with anything bad you can say about Bush in the vain hope that the Dems will pull their heads out of their asses long enough to get elected, take over the Senate and House, get subpoena power, get hearings scheduled, override the Supreme Court on subpoenaed information that's executive-privileged and classified, so they can lose the vote to imeach because Lieberman will vote against them (even if he doesn't get elected).

All because of your Bush Derangement Syndrome. And the joke is - even if all these VERY unlikely events actually happens, you'll STILL end up with President Cheney - I Love It!

Posted by: (fake) Jay on September 25, 2006 at 11:05 PM | PERMALINK

That's Real-TOR to you and me.

Cranky

Posted by: Cranky Observer on September 25, 2006 at 11:08 PM | PERMALINK

The glut of unsold homes is the highest since 1993...

Funny you should mention 1993. I bought my house in beautiful Canoga Park in 1991. Then the bubble burst, and the Northridge quake happened. Not long after that, my house was worth about two-thirds of what I paid for it.

Good times...

Posted by: Roddy McCorley on September 25, 2006 at 11:13 PM | PERMALINK

If the last slump (presented by KD a few days ago) is any model to follow, housing prices will soon stabilize, but not actually rise for a while.

If nominal prices "stabilize", real prices will continue to drop as long as there is inflation. I think the more overheated areas will see double digit drops in the real price of houses, just like they did during the last cycle. My guess is prices in Boston have already declined in real terms by more than 10% (i.e., a double digit drop) since early '05 or so, but the various ruses of the real estate industrial complex are being employed, as usual, to squelch the bad news.

Construction will slow, but population growth will not.

Population growth is also slowing. We're more than half way through this decade, and it looks like the US population will end up expanding by a percentage that is several points less than 1990-1999. It'll still be a pretty big number, mind you, but the statement that "population growth will not" slow down is false.

Posted by: riipie on September 25, 2006 at 11:27 PM | PERMALINK

How is that bankruptcy bill going to affect the suicide rate of realtors?

Posted by: American Buzzard on September 26, 2006 at 12:16 AM | PERMALINK

Give one point to the random chemist Kevin linked to a few weeks back and take five from the crack team Bush has protecting our planes.

http://www.usatoday.com/travel/flights/2006-09-25-tsa-liquids_x.htm

Choice quotes:

Even if several terrorists smuggled liquid explosives on board, it is "practically speaking, impossible" to make a bomb on an airplane because of the equipment and expertise required, Kapin said."

"The total ban is no longer needed from a security point of view." Hawley said.

"no longer" ?!? So last month the toothpaste was more potent?

Posted by: American Buzzard on September 26, 2006 at 12:26 AM | PERMALINK

Today, during Howard's daily bike ride, he witnessed a homeowner pulling up his For Sale By Owner sign while a real estate agent planted a fresh For Sale sign advertising his agency. As if that might help the house move in this dead market.

At least Howard knows how motivated the seller must be, since people who go the For Sale By Owner route loath the idea of anyone else poaching 6 1/2% of their home's value for a couple dozen hours of... work.

Howard's been looking for a bargain in that particular neighborhood. Heh heh heh.

--
HRlaughed

Posted by: HRlaughed on September 26, 2006 at 12:41 AM | PERMALINK

We provide free real estate listings, homes for sale, cheap mortgage rates, home loans and refinance online. Comprehensive real estate and property listings. Includes information on buying, selling or renting a home, mortgage rates, home loans and refinance information. Plus free instant home valuation.

Posted by: Sam on September 26, 2006 at 12:44 AM | PERMALINK

Sam above is a perfect example of how pathetically desperate the real estate industry has become.

I'm an architect who designs the most wonderful contemporary Arts & Crafts homes and additions for any price range -- well, most price ranges. But you won't catch me spamming about it to drum up business. Not even here. My blog link below? Purely an anonymous blog.

--
HRlaughed

Posted by: HRlaughed on September 26, 2006 at 12:56 AM | PERMALINK

"in 50 years the median house will cost $26.4 million, giving a sales commission of $1.6 million."

Yes this is likely, but a loaf of bread will be $500, particularly probable after the US inflates its way out of the Iraq war debt.

But what you both forget is that the minimum wage is very likely to be up to $6 or $7/hr by then.

Posted by: classwarrior on September 26, 2006 at 1:25 AM | PERMALINK

I'm saving my pennies for the bottom!

Really, I'd like a house. At least as an investment. A place to plant my flowers and not get trampled by neighbor kids...

Not that I have anything against the kids, but I really need to help fix their bikes more often. It makes them quieter.

Posted by: Crissa on September 26, 2006 at 1:46 AM | PERMALINK

Obviously no bubble goes on forever. It's important to note that Kevin's last chart is CHANGE in housing price, and it's currently about negative 2%. In English, this means housing prices had been rising, but now are essentially flat.

I wouldn't bet on a big decline in price, because there are more and more people who need a place to live and because the overall economy is still doing fine.

Posted by: ex-liberal on September 26, 2006 at 2:03 AM | PERMALINK

it's currently about negative 2%. In English, this means housing prices had been rising, but now are essentially flat.

LMAO. In the innumeric world of ex-lib a %2 decline = a 0% decline.

Posted by: Disputo on September 26, 2006 at 3:07 AM | PERMALINK

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Posted by: amr铃声 on September 26, 2006 at 7:02 AM | PERMALINK

Disputo: Yeah, but this is republicrat. He believes such things as:

the New York Times is one reason why conservatives are richer than liberals. Those unfortuntate liberals who had faith in the Times, and particularly in Paul Krugman, would have believed the economy was in the toilet during the last 5 years. If they followed that belief, they sold their stocks and pulled out of the stock market.

Conservatives who ignored the Times's nonsense invested their money. During the last 5 years, the Dow Jones Industrial Average went up almost 30%, and that increase doesn't include stockholder dividends.

In other words, even cherry-picking to start the period during the Bush Recession, republicrat believes that a 5.5% annual rate of return on equities - nominal, even, when inflation over the period was 2.85% - is somehow why "conservatives are richer than liberals". The guy's either an idiot or deeply unserious.

Posted by: S Ra on September 26, 2006 at 8:39 AM | PERMALINK

British economists are really concerned. Since Americans have been spending their home equity like crazy, the British have been able to weather their own housing bubble pop with few problems. With less equity to spend, the American consumer won't be able to buy the second HDTV or take 3 week vacations in Bournemouth or whatever. The economist pointed out that the American economy is several times bigger than the British economy and that it's a case that when America catches cold that England gets pneumonia. We often forget about how huge the American economy is.

Posted by: Jeffrey Davis on September 26, 2006 at 10:02 AM | PERMALINK

One other area of concern - how many new homes, condos, etc. are being built right now. Yes, the real estate market cools off during the winter (pardon the pun), but what's the big worry is exactly how many extra units are coming up for next spring?

And how many are in big markets like DC, NYC, Boston, LA and SF that are starting to turn down?

That's the big worry when housing or other real estate bubbles burst, how much remaining over-building has to clear? And don't forget that our tax structure really pumps up housing compared to other industrial countries.

Posted by: Samuel Knight on September 26, 2006 at 10:12 AM | PERMALINK

"....The supply of homes on the market is up by a third over the past 12 months, existing homes aren't selling, and prices are dropping." - Kevin


If only more people would lose their jobs, and if inflation would rise and possibly more deaths in Iraq that would be just awesome for the Democrats. Oh gosh I hope, I hope, I hope things get really really bad for America then maybe, just maybe, the Democrats could gain power without actually having to come up with a platform, plan or vision.

It's so difficult to put together that vision thing when the left is completely blinded by partisanship.

Posted by: Jay on September 26, 2006 at 10:16 AM | PERMALINK


"........even cherry-picking to start the period during the Bush Recession,..." - S Ra


Again, the left just throws shit out to see what sticks. Here's the definition of a recession:


"A recession is usually defined in macroeconomics as a fall of a country's real Gross Domestic Product (GDP) in two or more successive quarters of a year."

http://en.wikipedia.org/wiki/Recession


And here are GDP facts:

"The nation's gross domestic product (GDP), the broadest measure of the economy's strength, rose at an annual rate of 4.8% in the first quarter of the year, the fastest growth rate since the third quarter of 2003. The Commerce Department reported today that real (i.e., inflation adjusted) GDP grew in the first quarter of 2006 at 4.8%, up from 1.7% growth in the previous quarter."


http://www.epinet.org/content.cfm/webfeatures_econindicators_gdppict_20060428

Couldn't this be considered
fear-mongering"?

Posted by: Jay on September 26, 2006 at 10:26 AM | PERMALINK

Jay, I think the recession that S Ra mentioned was the one at the beginning of the Bush presidency, not a fictitious one going on now.

Posted by: Barry on September 26, 2006 at 10:48 AM | PERMALINK

I'm betting witht the contrarian (even if he's an industry shill.) When everyone is on one side of a market, they have to be wrong. When every blogger, blog commenter, economist, and market guru is betting/saying that the housing bubble is over and that prices are going to go down, prices can't go down.

Mortgage rates are currently much lower, mortgage refi activity is up huge, as borrowers move out of their adjustable loans into lower rate fixed-rate loans. Thus, there will be little forced selling due to rate increases pushing borrowers out of their homes.

Bet on a soft landing.

Posted by: gab on September 26, 2006 at 11:30 AM | PERMALINK

Yes, Disputo. A 2% change is essentially flat, when looking at number that could rise or fall by 20% or more in a year.

The point is there has been no collapse (although a collapse is certainly possible.)

E.g., a poster calling himself ""house prices" posted a silly quote on this thread: "The collapsing U.S. housing market crossed another milestone in August, as the median sales price of existing homes fell for the first time in 11 years..." That poster ought to know that a "collapse" occurs when prices go sharply down , not when they go down 2%.

Posted by: ex-liberal on September 26, 2006 at 11:31 AM | PERMALINK

> I'm betting witht the contrarian (even if he's an
> industry shill.) When everyone is on one side of a
> market, they have to be wrong. When every
> blogger, blog commenter, economist, and market
> guru is betting/saying that the housing bubble is
> over and that prices are going to go down, prices
> can't go down.

Yes they can, actually, since the above-mentioned make up about 0.0025% of the house (not "home")-buying public. It is what the remaining 99.0075% do that moves the market.

Around here, the developers have been building tract mansions and tract-stuffers like mad for the last 5 years. The economy in our area isn't terrible, but isn't great either and doesn't have many long-term prospects. Those tract boxes have been sitting, sitting, sitting for the last 6 months. Even reasonable houses in desirable neighborhoods have been sitting for 6-9 months, up from 2 months two years ago.

Pop!

Cranky

Posted by: Cranky Observer on September 26, 2006 at 11:42 AM | PERMALINK

Sorry - that should be 99.9975%

Cranky

Posted by: Cranky Observer on September 26, 2006 at 11:54 AM | PERMALINK

Same situation developing in Portland, OR - Inventory increasing as speculators are trying to bail - Sales flattening -

But, I want to know who gab likes in the 5th at Kentucky Downs, formerly Dueling Grounds. Must get to Portland Meadows to get down on his pick.

Posted by: thethirdPaul on September 26, 2006 at 11:58 AM | PERMALINK

In real estate, everything is local, so national statistics do not really mean that much to individual markets.

Those markets that went up the fastest will also come down the fastest (Las Vegas, Phoenix, San Diego, Los Angeles), especially where there are no physical barriers to limit new construction such as bays, oceans, mountains. I don't think that the SF Bay Area will fall as hard because supply is constrained by physical barriers, and up here in Seattle things will be ok because prices didn't rise that much during the boom (about 9% a year annualized) and there are also physical barriers limiting supply.

Posted by: mfw13 on September 26, 2006 at 2:29 PM | PERMALINK

The Los Angeles/Orange County area has barriers as well, only we call them freeway commute times :) Almost all the new housing is in "geographically undesireable" areas with horrendous commutes, I'm talking HOURS each way. Prices along the coast will drop some as inventory rises and the last of the clueless realize that they missed the peak of the market a year ago, but not as fast as all that new tract housing out in Corona, Rancho Cucamonga, Riverside and beyond. Houses on my block in Long Beach are sitting on the market for 6 months or more now....

Posted by: arteclectic on September 26, 2006 at 8:06 PM | PERMALINK

Prices could fall by 50% in some (metro blue state) markets and you would still have "affordability issues."

What percentage of San Diego residents can afford to buy a home?

There is both an overinflated market (that was driven largely by speculation, and a small, wealthy elite) and a housing shortage in blue state markets. Until San Francisco and LA and any number of other places get serious about building up (which is in large measure the only place to build) the problem will persist.

Posted by: Linus on September 26, 2006 at 8:13 PM | PERMALINK

52,000 condos are coming online in DC by 2008. As Walter Monheit would say: OOOF!

Posted by: Jerkstore on September 26, 2006 at 10:45 PM | PERMALINK




 

 

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