Flashback 2004: Art Laffer denies the housing bubble

Exactly four years ago today, Art Laffer, one of the founders of the quack economic theory of supply-side economics, denied the existence of the housing bubble:

The price of housing is one of those topics that grabs just about everyone’s attention. In fact, if it hadn’t been for the presidential election squeezing other topics of interest off center stage in recent months, there would have been a lot more focus on what’s been happening with the housing market. Yet, in spite of the near monopoly of politics on the media’s attention span, there still have been quite a few reports and news articles covering the virtually unabated rise in housing prices. And these stories—some of which border at times on panic—almost all invoke the word “bubble.”

A closer investigation of these alarming reports reveals that many are unsubstantiated or based on logic that is faulty. Bubbles very well may “carry the seeds of their own destruction,” but from our standpoint there is no bubble. When viewed properly, the data do not show housing to be overpriced.

Washington, DC condos are feeling the pain

From The Washington Post:

More than two years into the housing slump, the challenges facing Washington's condos are mounting. Sales prices are falling and are not expected to stabilize soon. The number of condo owners not paying their association fees is rising along with foreclosure rates, creating a budget crunch weighing down many communities.

In the face of budget shortfalls, some associations are taking drastic steps to cope, including delaying maintenance and hiking monthly assessments. Others are setting aside part of their budget to cover delinquencies for a time or looking for ways to help owners catch up on payments.... The options can often be limited by owners' personal financial realities. ...

The problem may get worse before it gets better, according to some industry watchers. Foreclosure rates for condos have been rising. By the end of October, 1,208 condominiums were in the foreclosure process in the Washington area, according to RealtyTrac, a research firm.

The average sales price of new condos fell 3.6 percent in the Washington area during the third quarter compared with the same period a year ago.... The impact on existing condos has been even more dramatic: Sales prices fell 8.1 percent during the third quarter. At the current pace, it would take 8.2 years to sell the finished and almost-completed new-construction condominiums on the market.

New home sales lowest since 1991

New home sales have fallen to an 18-year low:

Sales of newly constructed homes slumped in October to an annual rate not seen since 1991, according to government figures released Wednesday.

The U.S. Census Bureau reported that new home sales fell to an annualized rate of 433,000 in October. That's down 5.3% from the revised 457,000 annual rate recorded in September, and off more than 40% from a year ago.

"October was definitely another disappointing month for the home-building industry," said Mike Larson, real estate analyst at Weiss Research. But he added that the decline was not surprising given the ongoing weakness in the housing market.

October's sales pace was well below the consensus forecast of 450,000, according to economists surveyed by Briefing.com. And it was the lowest number since January 1991, when the sales rate was 401,000.

The number of new homes on the market decreased in October to an estimated 381,000 from 414,000 in September. At the current sales pace, it would take more than 11 months to sell through the inventory.

The median sales price of new houses sold in October was $218,000, down from $218,400 the month before. It was the lowest level since June 2004, when the median home price was $215,700.

Happy Thanksgiving!

No posts today (except this one). Have a happy Thanksgiving.

Now the housing industry wants a bailout, too!

From the Hot Property blog:

Bailouts are in fashion. The financial industry got one. The automakers have their hands out. Now the National Association of Home Builders and the National Association of Realtors are pushing their own multi-billion-dollar stimulus proposals.

The proposals are designed to get buyers off the fence and rejuvenate the flagging home sale market. The more expensive proposal comes from the home builders who want a $250 billion Fix Housing First package, which calls for a home buyer tax credit of 10% of the purchase price (up to $22,000) and a heavy subsidy from the federal government that would bring 30-year mortgage rates down to 3% for homes bought in the first half of next year and 4% for purchases in the second half, according to The Wall Street Journal.

The Realtor plan sounds is somewhat modest by comparison. The group also wants taxpayers to subsidize mortgages to bring down rates by about 2% — at a cost to taxpayers of about $100 billion. And it wants the homeowner tax credit approved by congress this year to be changed so that the $7,500 credit can be given to all buyers, not just first-time buyers and that it no longer would have to be paid back. That part of the plan would cost another $40 billion, the group’s chief economist Lawrence Yun told me today, adding that he thought the builder plan was too expensive.

Finally, the Realtors want the higher limits for federally-backed jumbo loans of up to $729,000 to be permanently extended (They’re set to expire next year).

Enough with the bailouts!

Bubble book recommendation

The Hot Property blog recommends the book Chain of Blame, which is about the subprime mortgage crisis.

Meanwhile, I have The Trillion Dollar Meltdown on my Christmas list. Since there have been so many comparisons of our current situation with the Great Depression, I have also put The Forgotten Man: A New History of the Great Depression on my Christmas list as well.

While on the subject, let me also say that although I believe Alan Greenspan deserves much of the blame for the housing bubble and the resulting financial crisis, his book, The Age of Turbulence, is still an excellent read.

S&P/Case-Shiller: House prices down 16.6% year over year

S&P/Case-Shiller released their latest home price index numbers yesterday:

Home prices continued to fall as the economic downturn deepened in September, according to the S&P/Case-Shiller home-price indexes and the Federal Housing Finance Agency home price index.

"The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals," Case-Shiller index committee chairman David Blitzer said.

For the third quarter, the Case-Shiller national index posted a 16.6% decline in home prices from a year earlier, worse than the 15.1% drop posted in the second quarter.

Don't worry. As people have been predicting for three years now, the recovery is right around the corner.

Has the bubble fully deflated?

The Wall Street Journal says two different methods of measuring home valuation disagree on whether there is still a housing bubble:

Two measures provide conflicting answers. Home price increases have traditionally kept pace with income, and that measure has returned to its historical average, suggesting that housing prices are close to returning to normal. But a separate gauge, which tracks home prices increases against rent increases, shows that the housing market is still overvalued by around 15%, suggesting that it has further to fall.

I'd say that rental prices, which are a substitute for buying, are the better measure. A third measure, which the WSJ didn't discuss, is inflation-adjusted home prices. Adjusted for inflation, housing is still way overvalued.

In fact, I'd say there's something fishy going on with the price-to-income ratio. For incomes to have kept pace with housing prices, there must have been a dramatic increase in real incomes. However, many economists like Paul Krugman have been repeatedly pointing out that median real incomes have not increased during this decade.

Are there any economists out there who want to take a stab at this?

I've been hit! You sunk my housing graphs.

Like many bloggers and web site developers, I assume, I find it interesting to see how many visitors I get and where on the web they come from. Attracting visitors to a web site or blog is a bit of a catch-22 situation. People won't visit your site unless there are links to it, but people won't link to it until they've visited it. Even showing up in Google search results requires numerous incoming links.

Ever since I created my housing graphs web site in March 2006, Bubble Meter has been a significant source of visitors to the site. Even though the vast majority of visitors these days come from Google, Bubble Meter's links to my site are primarily responsible for my Google PageRank (with the dormant Chicago Bubble Blog and Baltimore Metro Area Housing Blog also helping out).

Thus, when David started getting blogger's fatigue, one of the factors influencing my decision to become a co-blogger here was the fact that I had a vested interest in Bubble Meter's survival. My housing bubble graphs get more incoming visitors from Bubble Meter than from any other site except Google.

Every once in a while, I will get a spike in visitors when somebody links to my housing graphs on a discussion forum. I really get intrigued when the incoming links are from a foreign language forum. For example, within the past month or two, quite a number of visitors have been coming from several Japanese discussion forums. (I wish I could read what they are saying.) However, I've never had such a bombardment of incoming visits as I've had within the last few hours.

I was checking the visitor stats for my other blog on StatCounter.com last night, when I decided to check the stats for my housing graphs web site. I was surprised to see that it had gotten over 1,000 daily page loads, which is a bit more than what it normally gets. Seeing the spike in visitors, I decided to check where they are coming from. So, I looked at the recent visitor history and was surprised to be getting almost all visitors from Patrick.net.

(Click image to enlarge.)

Even more surprising, all these visits were in the last hour of the day. It appears Patrick.net linked to me at around 11:12 PM. The swarm of visitors keeps coming in. By the time you read this, even if it is before noon, Patrick.net will likely have caused more people to visit my housing graphs than I have ever had in a single day.

Anyway, I'm not really going anywhere with this post. I just thought I'd share this little bit info about watching a housing bubble web site grow.

National median house price falls to $183,300

Surprise! NAR says housing prices are still falling:

The National Association of Realtors reported that sales by homeowners slid in October to an annual pace of 4.98 million. That was down 3.1% from September's revised reading of 5.14 million. ...

The national median existing-home price in October was $183,300, down 11.3% from a year ago when the median was $206,700. In September, the median existing-home price was $191,400.

October's median existing-home price was the lowest since March 2004, when it stood at $183,200. That means that homeowners who has lived in their homes for 4-1/2 years are seeing their homes worth the same or less as when they bought them.

I bet you didn't see that coming.