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Saturday, October 14, 2006

Goldilocks Has Analgesia

This article from the Seattle Times this morning, Housing Bust? No, a cyclical correction, reminded me of a recent episode of Grey's Anatomy. A young girl believes she has superpowers because she feels no pain. If Goldilocks had Analgesia she could have easily gorged herself on the hottest of porridge without a second thought.

"With all the dismal reports about the home real-estate market, don't lose track of something critically important: Mortgage interest rates have been falling quietly but steadily for weeks, and are now at their lowest level in half a year, barely a percentage point above 40-year lows."

New mortgage applications are up sharply, the number of pending home sales is up, the national economy continues to expand moderately, and the rate of unemployment just declined again — to 4.6 percent. All of which begs the question: Just what kind of housing bust is this anyway? With gloom-and-doom purveyors forecasting imminent crashes in dozens of metropolitan areas, how could such key fundamentals as jobs, interest rates and even pending home sales simultaneously be trending in the opposite direction?

Kohn sees no imminent bust or crash in housing at all. It is a "correction" that's under way — a cyclical rebalancing of a marketplace that got too hot for too long in some parts of the country, and is now heading back toward more "normal" conditions, where prices are more in line with what consumers can afford.

Not all home sellers have fully grasped the altered realities in their markets — that they've got to reduce their asking prices if they truly want to sell — so the process is still unfolding. Re-priced houses, in turn, should stimulate greater numbers of potential buyers to get off the sidelines and make offers.

The nationwide 4.3 percent increase in pending home-sales contracts, reported Oct. 2 by the National Association of Realtors, could be a sign that Kohn's prediction is already taking shape.

Second, said Kohn, the housing correction — expressed through new home
starts — "may be closer to (its) trough than to (its) peak."

A final key factor, Kohn said: "Continuing growth in real incomes should underpin the demand for housing, and as home prices stop rising, help erode affordability constraints."

Mike Moran, chief economist of Wall Street's Daiwa Securities America, minces no words: The financial press and TV news shows are overly dramatizing what is a normal and long-predicted cyclical rebalancing, and "portraying it as a catastrophe."

"[Housing] is going through a correction that's badly needed," Moran said. "The key issue is whether it is orderly or disorderly." And all signs point to a continued orderly process, not a breakout bust or panic.

Doug Duncan, chief economist of the Mortgage Bankers Association, points out that national housing-sales numbers are merely rolling back to 2003 levels — "and that was a record year."

Serious sellers and buyers shouldn't be misled by predictions of imminent crashes, Duncan says. Not only do the doom reports ignore the positives out there in the marketplace — mortgage rates in particular — but "the rhetoric is just way overwrought."


In this fable, will the Bears will eat Goldilocks in the end?

(Keith R. Harney, Seattle Times, 10-14-2006)

14 comments:

Eleua said...

I wonder what all these Carnacks were saying a year ago? Was it up-Up-UP! for all eternity?

Now, they are talking about a "correction." As if they KNOW what will happen anymore than anyone else.

My bet is they didn't see this "correction" coming, even if it is "cyclical." If not, why bother to put any stock in what they are saying about the next 12 months.

For prognostications, who are you going to believe? Them or us.

Nolaguy said...

"It is a "correction" that's under way — a cyclical rebalancing of a marketplace that got too hot for too long in some parts of the country..."

So if this is cyclical, they should be able to tell us when the last time(s) it happened, right?

No mention of past cyclical events like this is mentioned at all.

I sent an email to the author, asking when this last happened.

wreckingbull said...

Kenny boy: Is your bread buttered by those who don't want to see a crash?

These puff pieces are truly shameless.

wreckingbull said...
This comment has been removed by a blog administrator.
wreckingbull said...

Kaleetan,

You are correct. Not all HELOC dollars go toward a new pair of Dow-Cornings for the wife.

In this runup, people were virtually guaranteed that spending 50K on granite and stainless would easily pay back 100K.

At least nationally, it is now obvious that this is no longer the case. This is exactly why things are getting very dangerous.

Some of the listings I see now remind me of shopping for a used car. You find some guy that has spent 15K on a stereo system for his Honda Civic and thinks that his car is worth (Kelly blue book + 15K). Not the case.

Speaking of Ballard, the thing that really gets me is not the high prices, but the remarkably poor construction which is fetching those high prices. The 500K 'Cape Cod' is a punch in the gut. The extra 100K to keep it livable is a second uppercut to the chin as you double over.

Eleua said...

If you want to buy a house now is the time. There is no doubt there is a serious drop in prices.


David,

You can't be serious, can you?

Mrs.Bowllan said...

I agree with Michele Blackmon who writes@
http://therealtorbymichele.blogspot.com

"My answer to all of this... "HUB BUB!" The market has (over the history of time) had a pretty predictable trend. Currently, the trend has lasted longer than most. However, it is not crashing by ANY means. I call this a time of balance."

Eleua said...

"My answer to all of this... "HUB BUB!" The market has (over the history of time) had a pretty predictable trend.

It is only predictable from a very, very distant point-of-view, and over a very long period of time. Markets are absolutely wild, unpredictable, dangerous animals in the short-term, and up close. Sorry, but anyone who thinks otherwise, is either a fool, a liar, a moron, or a member of the Federal Reserve.

Currently, the trend has lasted longer than most.

However, it is not crashing by ANY means.


Those two statements are incongruent. The boom causes the bust. Any honest view of economic history bears this out.

I call this a time of balance."

I call this a time of market inflection.

Shadowed said...

I'm all for returning to the historical trend. That's what, a 50% reduction in local housing prices?

Matthew said...

Yeah great, who doesn't want 40 inch rims????

Comrade Chairman Greenspan said...

Word for word, the same crap we heard about the rest of the country last year. It's all over but the screeching denial.

Eleua said...

From Ray Hennessey's latest article poo-poo-ing the idea of a bubble...

"So, please, for the sake of all that's holy, stop talking about the housing bubble. For one thing, it just makes you look uninformed. And, worse, it may scare buyers away from the place I'm trying to sell."

While I'm certain that is tongue-in-cheek, it does encapsulate why many bulls look at bubble talk the same way a vampire looks at a cross.

Eleua said...

sdtosea,

Only 2003? Did the Mortgage Bankers Assc. pick this last year? If not, why not? Why 2003? Why not 2002? or even 2000?

What would it look like if prices rolled back to where the Bubble Economy first started? (1997+/-)

Matthew said...

I was reading Calculated Risk today and in the comments section of one of his posts CR states that he was talking to one of Fleck's friends (with intimate knowledge of subprime) who is predicting that the housing market will "Just freeze" in the next 3-6 months.

My interpretation of this is the following:

1. First time buyers are now priced out of the market by using traditional means
2. Non-traditional means are either gone or on the way out.
3. First time buyers can no longer purchase homes = frozen market