August 7, 2006 at 4:01 PM #7126
More sobering news today… This blog (not mine) has a link to the Time article reporting on falling prices and increasing inventories nationwide:
The funny part is that they quote Dick Peach, a NY Fed guy, as saying that the recent price run-up was supported by fundamentals. I found that hard to believe, but turns out that there is an explanation: Peach used to be with the Mortgage Bankers Association, and with the NAR prior to that. Unfortunately, the Time article doesn’t disclose this crucial information!!!
Most economists agree that there is a bubble and that house prices are heading down, the question remains of how much and how fast prices will drop. The few economists who say otherwise, have links to the RE industry, like Peach or Lereah.
What I noticed is that countless bloggers in cyberspace now have a negative view of the economics profession, simply because Lereah is the only economist they know!
There is an analogy with the minimum wage: most economists agree that it’s a bad thing, that wages, like all prices, should be set by the market, and that decreeing an artificial minimum wage actually hurts low skilled workers, as employers can substitute them with machinery or skilled workers (say, hire a few college graduates and a bunch of computers, machines, etc., instead of a 100 entry-level workers). The few economists who support the minimum wage are those affiliated with labor unions, or political organizations.
Apologies for the lengthy rant.August 7, 2006 at 4:22 PM #31145PerryChaseParticipant
I support the minimum wage as well as other government intervention. If we had a free for all system, life would pretty be bleak for most. I could survive but people without skills or resources would be living in slums. I believe that providing everyone with a mininum standard of living is a core American value.August 7, 2006 at 4:39 PM #31149lindismithParticipant
Yes, I actually remember an interview with the one of the editors of The Economist on NPR last year. She advised people to sell their homes if they wanted to capitalize on their equity gains, and rent until the bubble collapsed.
Maybe I can try and find the interview on the NPR website.
That report made me dig around online, and soon I found you, Rich.August 7, 2006 at 4:56 PM #31150
Yes, The Economist (UK weekly) called the bubble a while ago, as well as Ed Leamer (UCLA professor), and Robert Shiller, to mention only a few. Greenspan’s “regional froth” speech was a kind way of saying that “the bubble will bust harder in some areas than others” without scaring too many people.
I don’t know to what economists Rich refers to. Other than academic economists like Leamer or Shiller, there are the non-univesity types who focus on specific regions or industries, who may or may not be affected by conflicts of interest, depending on who their clients are.
Problem was, the mainstream media kept asking “experts” like Lereah for advice, and then reported their bullish views as if they were objective.August 7, 2006 at 5:01 PM #31151lindismithParticipant
Here is a link. (Do not know how to post an audio file.)
The main point is that it is cheaper to rent than the buy during the height of a bubble.
She advises investing the savings, rather than losing equity. Irvinesinglemom, have a listen if you can.
“House prices are… completely out of line.” She says.
She gives advice to first-time buyers, and long-time owners. Scenarios are slightly different, and you have to run the numbers for your own case to see if it’s better to rent. While she herself, was a longtime home-owner, when she ran the numbers, it made sense for her to sell.
From March 11, 2005.August 7, 2006 at 6:20 PM #31161powaysellerParticipant
The biggest early housing bear was John Talbott, former visiting scholar at the UCLA Anderson Forecast. He published a book in 2005, titled Sell Now. He probably started writing it in 2004 or early 2005, and he is advocating a recession almsot as bad as the Great Depression. He forecasts major bank collapses, massive unemployment. All this is fairly reasonable, too. It could happen.
I bet Dr. Roubini knew about the housing bubble too, as did the economist magazine.
Diego Mamani, why would a Fed member be allowed to promote their former industry? Or any industry for that matter? Shouldn’t they be independent? This Fed guy reminds me of our assessor, Smith.August 7, 2006 at 7:00 PM #31173
P-seller: I don’t think it’s a matter of being allowed or not. After all, Peach is entitled to his own professional opinion. All we can ask for, is full disclosure of all potential conflicts of interest. This is of course a tricky area; just because Peach used to be with the MBA and the NAR doesn’t necessarily mean that he’s biased.
Rich: I think that what we have here is an example of selection bias, in the sense that we were far more likely to hear opinions of industry-affiliated economists. No one bothered to go ask a few econ professors what their opinion was. Shiller got press coverage b/c he had predicted the dot-com bust, while Leamer leads the respected UCLA/Anderson Forecast.
I personally was convinced by 2002-3 that prices were out of whack. When a neighbor sold his house in 2004 for almost double what he paid in 2000-01, I decided to sell too! I have graduate training in econ and statistics, and all my colleagues I talked to about this issue agreed that prices had balloned up to ridiculous levels, if we were to simply compare them to rents or incomes.August 8, 2006 at 12:47 PM #31283
Thank you for sharing Rich. Naturally, BofA is a lender in the mortgage market. Therefore, this BofA economist has conflict of interest up the wahoo!!! Which agrees with what we were talking about yesterday, of how media outlets keep asking these questions to “experts” who have all the incentives not to be objective. The real experts, I’d argue, are scholars who are not funded by the RE industry and who conduct independent research, such as Leamer or Shiller.
OTOH, defining what soft vs. hard landing is, is very subjective. A 15% drop in nominal prices in 1 or 2 years may sound “soft” to me, but to a person who makes a living selling or building houses, or financing them, it may feel pretty “hard”.August 9, 2006 at 9:17 AM #31392powaysellerParticipant
Yesterday, I spoke with free-lance journalist who covered real estate for 10 years. I asked her why the media reports on the crazy thing that realtors say, such as “this is a great time to buy, land prices only go up”.
She told me her job is not to make an opinion or analysis. A reporter’s job is to present both sides of the story. Her goal is for a reader to walk away with some new information, or just a thoughtful, “Wow, that was sure interesting”. She seeks to report both sides, regardless of whether she agrees or not.
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