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Remember the Housing Market?

Tuesday, 22 March 2011 05:02

Some folks might have heard of it. We had an $8 trillion bubble in this market in the last decade. It led to a huge construction boom. The wealth created by the temporary run-up in house prices also led to a consumption boom. When the bubble collapsed, construction plummeted and consumption fell back to more normal levels. The collapse of this bubble has given us the worse downturn since the Great Depression.

Given the importance of the housing market for the economy it might be reasonable for the media to pay some attention to important economic releases. However, news outlets don't seem to share that perspective. 

The news of a 9.6 percent drop in home sales in February seems to have escaped the notice of the New York Times and the Washington Post. The Wall Street Journal noticed the decline but raised the unlikely possibility that bad weather was a major factor explaining the falloff in sales.

This is unlikely since the data reports the number of sales that were closed in February. Since it typically takes 6-8 weeks between a contract's signing and the closing, most of the contracts for homes sold in February would have been signed in December and January. Weather would have only been a factor if bad weather at the end of the month had prevented people from coming in for a closing during February. 

It is also worth noting that both the median and average house price fell sharply in the month. The median house price is now 5.2 percent below its year ago level.

Comments (9)Add Comment
Let Markets and Falling House Prices Restore Aggregate Demand, Low-rated comment [Show]
written by Ron Alley, March 22, 2011 6:48

I think your analysis of the woes in housing market is skewed too far toward the collapse of the bubble. While the collapse is a significant factor, the collapse of the jobs market has become the dominant factor. The portion of work force that is unemployed, or underemployed, in the 16 - 25 age group is about 25%. No recovery in housing market can be expected until young people find sufficient job security to form households.
written by kharris, March 22, 2011 8:05
It is worth keeping in mind that, at the current low level of sales, a monthly swing in sales that is small by historic standards shows up as a large % change. Tack on the fact that we have just come through the slowest season for sales, which means seasonal adjustment factors are prone to exaggerate swings in sales, and you have a formula for big % changes being reported. They don't really mean very much. Look at the absolute level of sales, instead of the % change, and you see that sales are at historic lows and not doing much of anything. Hard to right an attention grabbing story based on "terrible, pretty much like last month", so any press outlet which does write about home sales will try to tart things up with percent changes and hope and weather and a series of "Bob and June looked for months for a home that had a doggy door big enough for their 700 lb daschund, Raffles" hook stories. Blah.
Since Keynesian Solutions are Off the Table
written by Paul, March 22, 2011 8:12
The only rational approach to the excess supply in the housing market is the same one FDR used during the Great Depression to revive agricultural markets that were burdened with excess supply and low prices for food: Burn the excess and plow it under.

It would be a win-win: jobs for arsonists and the clean-up crews, plus rising house prices as vacancies are eliminated; sort of like Cash-4-Clunkers but here we would burn brand new houses too. I think izzatzo would approve.
Good call Dean
written by Tony, March 22, 2011 8:50
Dean, and Robert Shiller are the only two economist that I know off who are showing their concerns on the housing market again. I myself, use housing starts data, and last week, they dropped 29 1/2% from there April 2010 peak. There have been on 9 times that housing starts have dropped by 30% from there high, and 7 out of 9 lead to a recession, with 1966 and 1988 being the exceptions. With housing permits dropping 8.2% in February, and they usually lead starts by about a month, the odds are strong that we will be below 30% in March. The questions is, will this lead to another recession, and why is the media paying so little attention to this? If Steve Keen (a Australian economist, who also called this past crisis years in advance) is right that mortgage debt causes housing prices to go up, I fear our housing prices have much further to go on the downside.
written by Fempus Tugit, March 22, 2011 10:40
izzatzo feels the need to lecture Dr. Baker on his basic economics, but then somehow seems to think the slope of the curve is inconsequential or probably didn't notice. Sharp decelerations and accelerations are not what add to confidence in the economy. Once you jump off the cliff, there's no turning back, just don't drag the rest of us down with you.

I may be an idiot, but at least I'm man enough to admit, unlike izzatzo. And that's where conservatives are dumb: they think they understand it all (or most of it), when they don't. The conservatives are the worst interferers in the free market, ever, and yet they primp and prose as the protectors of "free" markets. It's laughable, almost, but so much is at stake.
Hey Fempus, No Worries
written by Paul, March 23, 2011 8:13
izzatzo is the Stephen Colbert of Beat the Press.
written by izz, March 23, 2011 2:27

izzZzzz is FCKING DUMB!
Median home price
written by Richard Hodde, March 28, 2011 10:34
It would be educational to write a piece on the importance of the math behind the median home price calculation. For example, home sales could be strong at the same time that the median price declines, and vice versa. In other words, the median price may be more a reflection of who (income class) is or is not buying than how many units are being bought.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.