In Shawn Tully’s myth buster piece [Getting real about the real estate bubble [CNN/Money]](, he sounds fed up with the housing bulls and after 5 years of biting his lip, he gets to vent with a lot of hyperbole and exageration, but its food for thought.

  • Myth #1: As long as job growth is strong, prices can’t go down
  • Myth #2: The builders learned their lesson in the last downturn. They won’t swamp the market with new houses when the market turns
  • Myth #3: Low interest rates will keep values rising, or at the very least, put a floor under prices
  • Myth #4: restriction on development in the suburbs ensure low supply, and guarantee rising prices

This seems to be real estate spin in reverse. All of the arguments, while generally accurate, seem to take the most extreme arguments and make it the position of all housing bulls. Well, I should say, housing bulls are non-existent these days. None can be found, even David Lereah, the chief economist at NAR has changed his stance. A housing bull today can be defined as someone who doesn’t think there will be a market correction.

None known.

Bears/Bulls – Middle of Road
Richard Beales of Dow Jones Market Watch makes the case in the other direction (well, not all the way) in his article: [On Wall Street: Housing data not as gloomy as bears think](

  • The post-bubble outcomes in the UK and Australia and been a relative non-event.
  • The current economic environment, while weakening, is in much better shape than 15 years ago.
  • Fixed rate mortgages still dominate, despite rise in riskier mortgage types.
  • Weakening economic conditions are driving mortgage rates down.

These arguments are basically the points Mr. Tully refutes in the previous list.

Which way?
Which way to lean right now is anybody’s guess right now. On a purely anecdotal level, I have found that the late summer months, with a slow news environment and vacations, that negative interpretation of real estate seems to win out. To the contrary, the spring market tends to be portrayed in overly optomistic tones because things are happening.

Whatever the direction, there are already predictions that the Fed will start lowering rates in 2007 in response to a [potential recession [Seeking Alpha]](, scarcely 6 months after stopping its measured approach, because it overshot the economy, and along with it, housing.

We should learn a lot this week, which promises to [deluge us with economic data [MW]]( before the Labor day weekend.


6 Responses to “(Mis)State(Ment) Of The Housing Market: Following The Arrows”

  1. Anon says:

    Whatever the Fed does, I don’t think rates are going to affect housing anymore – we’ve gone beyond it. Supply is too high and keeps rising, and demand has practically fallen off the cliff. Who’s left to buy? I think we’ve borrowed enough demand from the future to make it pretty painful for a few years.

  2. Jonathan J. Miller says:

    I think rates always affect housing to some degree, but you are right, we have left the era of the “knee-jerk” response. The Fed will probably be lowering rates in the next 6 months and that may stabilize the fall in demand. However, like you say, inventory in many markets is already too high to not be detrimental to those markets. The degree of inventory impact however, is still subject to debate. Thanks for your insight.

  3. Anon says:

    And thanks for your response. Keep up the good work, and I hope you had a nice vacation!

  4. James Bednar says:

    The Fed will probably be lowering rates in the next 6 months and that may stabilize the fall in demand.

    Buyers Hang Back in Muddled Market By THOMAS J. LUECK Published: January 28, 1990

    A TWO-YEAR slump in property values has pushed down home prices in the New York region and mortgage interest rates also have fallen, but the reductions show little sign of attracting the huge numbers of buyers who were locked out of the region’s giddy real estate market in the mid-80’s.

    Home Buyers Holding Off Despite Low Interest Rates By THOMAS J. LUECK Published: October 27, 1991

    DESPITE a steep decline in interest rates that has brought fixed 30-year mortgage loans to below 9 percent for the first time since 1977, home buyers are holding back across most of the nation in what experts say are stubborn fears that job cuts and other recessionary pressures will persist.

    Elsewhere in the nation, home sales have declined steadily at the very time that interest rates have dropped most sharply.

  5. John K says:

    I don’t see how anyone can foresee what’s going to happen in the near future, regarding house sales, etc. Certainly, less buyers and more inventory points to lower prices, and, perhaps, a recession. But, who knows?

    I think the writer’s premature in his conclusions.

    We’ve seen a very nominal drop in actual sales prices, in downtown Boston, even as inventory has risen.

    I think, as you say, Jonathan, that toward the end of summer, there’s a lot more space in the newspaper (or online) that needs to be filled.

  6. L'Emmerdeur says:
    1. If you have some time, read this.

    2. As for Australia, read this.

    Australia is not the U.S., and, for what it’s worth, anecdotal evidence suggests the prices there are tumbling further and foreclosures are rising rapidly.