Monday, July 28, 2008

Flashback 2005: Neil Barsky Asks "What Housing Bubble?"

From July 28, 2005—exactly three years ago today. Neil Barsky, writing in the Wall Street Journal, insisted there was no housing bubble.
If you want to be scared out of your wits these days, you basically have two choices: go watch Steven Spielberg's latest, or listen to the hysterical warnings of economists and journalists about the imminent popping of our so-called housing bubble. Robert Shiller, the ubiquitous Yale economist, says home prices could fall 50% from their peak. Taking things a step further, The Economist recently went so far as to call the global housing boom "the biggest bubble in history."

In a free country, it is fair game for the media and economists to scare homeowners with words of gloom and doom, however knee-jerk, consensual and misguided they may be. But housing is a serious business; for most of us, it is our most valuable asset. For generations of immigrants, home ownership has represented the realization of the American dream.

The reality is this: There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: low interest rates, local job growth, the emotional attachment one has for one's home, one's view of one's future earning- power, and parental contributions, all have done their part to contribute to rising home prices. Over the past quarter-century, there has been an explosion of second-home purchases, a continued influx of immigrants, and a significant reduction in existing housing inventory through tear-downs. Not all of these trends are accurately reflected in the unending stream of data published daily. Home prices on average have risen at a 6% annual pace since 1999, and 13% over the past year.

The summer of 2005—when he wrote the words above—was actually the peak of the housing bubble.

Congratulations, Neil Barsky! I hereby award you the James K. Glassman and Kevin A. Hassett Award for being completely unable to recognize an asset bubble. Keep up the good work and perhaps you can become a senior fellow at the American Enterprise Institute, too.


  1. Well done. Many permabulls made embarrassingly wrong prognostications such as this when scant evidence could support their rosy predictions. No doubt, more than a few struggling middle class families were enticed by this nonsense and permanently sacrificed their financial futures (and in all probability, that of their children) in futile pursuit of the "ownership society" will o' the wisp.

    While little can be done about this misfeasance, at least you have catalogued it, hopefully preserving for eternity their shame.

    Let this be a recurring series! (A few people should probably receive Lifetime Achievement Awards...)

  2. Good job James. :-)

    Very funny!

  3. Here is another good flashback that you'll enjoy. This 2002 OpEd piece defending the holiness of Fannie Mae comes from the honorable former CEO, Franklin Raines.

    Franklin says the WSJ should be ashamed of itself for daring to tar Fannie Mae.

    He defends the company's leverage and capital as being sufficient to "survive an economic nuclear winter." He states that U.S. residential mortgages are among "the safest, best collateralized assets in the world."

    He laughs at the Journal's questioning of the integrity of the company's audits (nevermind the subsequent massive restatements).

    He states that their derivative book is safe and minimal, even going so far as to say that "if all our derivative counterparties failed to perform, it would cost Fannie Mae about two weeks of earnings." Gee, sorta sounds like Fannie Mae is the Rock of Gibraltar.

    And finally, he concludes by saying (don't laugh), "At Fannie Mae we take pride in the tone we set at the top, in our risk management focus, in our commitment to integrity and intellectual honesty and in the values of our people."