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Home Publications Blogs Beat the Press Robert Samuelson Continues His Reign of Error: Relies on Realtors for Predictions on Housing Prices

Robert Samuelson Continues His Reign of Error: Relies on Realtors for Predictions on Housing Prices

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Monday, 09 May 2011 04:37

Robert Samuelson pulled a Washington Post special, reporting that:

"Young buyers 'will be able to enter the housing market at bargain prices,' argues NAR [National Association of Realtors] economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says."

Actually, home price increases do not "parallel income gains." They track the overall rate of inflation, as has been shown with a century of data compiled by Yale University Professor Robert Shiller.

Relying on the NAR for predictions on the housing market is the standard practice at the Washington Post. All through the build up of the housing bubble, its main source on the housing market was then NAR chief economist David Lereah, who was also the author of the 2006 best seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.

Contrary to what Mr. Yun claims, homes are not now selling at bargain prices, in fact they must fall by roughly 10 percent more to return to their pre-bubble levels. If Samuelson had relied on a disinterested expert, he might know this.

Also it is remarkable to see Samuelson repeat uncritically that Yun "expects only modest increases in interest rates." In his columns, including this one, Samuelson has endlessly bombarded readers with tales of soaring budget deficits. If Samuelson is right about soaring deficits then he cannot possibly agree with Yun's assessment that interest rates will increase only modestly.

In other words, if Samuelson's deficit stories are right -- and he certainly spends plenty of time on them -- then interest rates will rise a great deal. Insofar as higher interest rates translate into lower house prices, the story from Samuelson's perspective should be that home ownership looks really really bad.

How can he get this one so completely wrong?

Comments (16)Add Comment
Younger Generation Benefits Either Way From Low House Prices
written by izzatzo, May 09, 2011 6:49
They (houses) track the overall rate of inflation ... Insofar as higher interest rates translate into lower house prices ...


Baker has completely missed the brilliant insight of Yun and Samuelson on the interplay among house prices, inflation, a deflating housing bubble and real income.

If housing prices rise after being purchased now the young will benefit from owning an asset with increased value.

If interest rates rise after houses are purchased now the young will benefit as well because rising house prices will track inflation and protect their real value.

Any economist knows that inflation and nominal interest rates move in the same direction. The real interest rate never changes and follows productivity.

Stupid liberals.
apparently, izzato can't read
written by roger, May 09, 2011 7:54
Wow, your first commentor seems so entirely clueless as to be a caricature. Apparently, he missed the part about housing prices falling rather than rising - which is how the younger generation would buy a house worth less in a year than at the time of purchase. And Samuelson expects, in his other columns, that the budget will shoot up inflation, thus raising the interest rate. So the younger generation's housing purchases over the midterm - unless you think they all eagerly read Samuelson, discount the contradictions, and buy now - are going to be buying in a market of rising interest rates.
Of course, it is true that interest rates are probably not going to rise very much. But this is because Samuelson is wrong, as a stupid conservative, overlooking slack demand and the lack of drivers of inflation except those in their country club heads. Even so, unless you are happy about being underwater for an indeterminate period, now is the best time to buy a foreclosed property - certainly not a new house. Stupid conservatives don't know this, but the great mass of people recognize it easily, which is why new housing sales have dropped 80 percent over the last year.
izzatzo
written by govcin, May 09, 2011 8:10
is a caricature. He writes parody. . .
...
written by cavjam, May 09, 2011 8:11
If housing prices rise after being purchased now the young will benefit from owning an asset with increased value.

Someone with more time should explain to this genius the difference between price and value.

If interest rates rise after houses are purchased now the young will benefit as well because rising house prices will track inflation and protect their real value.

Someone with more time should explain Aristotle's Organon to this genius. Special highlighting of argumentum ad ignorantiam and Affirming the Consequent would be necessary.

Plus - who knew raising mortgage prices would increase housing demand? I'll have to try that with my widgets.

Any economist knows that inflation and nominal interest rates move in the same direction. The real interest rate never changes and follows productivity.

Someone with more time should open a history book for this genius. And turn the pages. And explain the myriad periods when this did not occur as outliers. (The massive productivity rise between '94 and '04 had best be avoided to deter brain explosion.)

Does the WaPo pay this genius?
...
written by liberal, May 09, 2011 8:16
They track the overall rate of inflation, as has been shown with a century of data compiled by Yale University Professor Robert Shiller.


Not really possible for a fixed house in a desirable urban location---or, at least, the land it sits on. Land values in desirable locations will tend to be bid up in direct proportion to income.

As for Shiller's data, questions of the quality and nature of the dataset, and whether he looks at things longitudinally or not, need to be addressed.
NPR also
written by Hugh Sansom, May 09, 2011 8:53
NPR invariably turns to the National Association of Realtors for "facts" and "insight" on housing numbers.
WSJ: Home Prices take a tumble
written by Sherparick, May 09, 2011 8:54
1. From someone actually reporting data, http://www.calculatedriskblog....mble.html, Zillow.com reports home prices fell 3% month to month in March, and 8% from March 2010 to March 2011. According to the article, prices will continue to drop for the remainder of 2011 and into 2012.

2. What is different between the last 10 years and the 1970s, 1980s, and 1990s is the general inflation in prices and wages in those years. Although, they lagged to some extent, leading to lower medium real wages by the end of the 1980s, they rose about 8% a year during hte 1970s and 6% a year during the 1980s. Prices and wages (although now wages caught up and increased a bit more), rose around 4% a year in the 1990s. Home prices nation wide rose with the inflation rate, although certain markets soared for local reasons (New York, Boston, Washington D.C./Northern Virginia, Chicago, and parts of California.)
3. Wages really stagnated in the Oughts (rising at an average 2% nominally, while prices increased at around 3% nominally, and home prices shot up at 15% a year for 4 years (2002-2006). There was insufficient medium income to service the debt on the medium price house. This is what is meant by a bubble, since loans were being made on a speculative basis that home prices would continue upward at 15% a year. But eventually Herb Stein's law came into effect.
Lawrence Yun's Status as "Economist" or "Expert"
written by Hugh Sansom, May 09, 2011 9:06
Here's Yun in July 2008: "I think we are very near to the end of the housing downturn."

January 2009: "A real estate-focused stimulus plan is urgently needed." [That is, puhleeze puhleeze reinflate the bubble!]

September 2008: "This winter will be better than last winter... There is this great pent-up demand that cannot be held back any further."

In July 2008: "There are signs of pent-up demand.... I think we are very near the end of the housing downturn." [July 2008....]

In the September comments: "It is inappropriate [for Ben Bernanke] to comment on home prices, because people react to that." [Of course, if BB were saying everything was coming roses, Yun would be happy as a fly at a pigsty.]

Yun is a lobbyist and propagandist working for lobbyists hellbent on inflating real estate prices no matter what. It's pathetically absurd to take anything he says seriously.
...
written by Moopheus, May 09, 2011 9:13
“People have become much more value oriented,” says Jeff Mezger, chief executive of KB Home, a major builder. "Which is why our sales are way down, and we need some help from the shills at the Post. Ticky-tacky little boxes don't sell themselves, you know."

The houses-are-now-a-bargain meme has been a mainstay of newspaper "reporting" about the housing market for several years now. If they're still appearing, I'd guess that means we're not quite at the bottom yet.

...
written by skeptonomist, May 09, 2011 9:52
Kevin Drum

http://motherjones.com/kevin-drum

reproduces a good housing price diagram from the WSJ. I guess Samuelson doesn't read the WSJ - or look at any kind of real data.
...
written by RAP77, May 09, 2011 4:53
"If interest rates rise after houses are purchased now the young will benefit as well because rising house prices will track inflation and protect their real value."

If interest rates rise, housing prices fall - that's the point being made.

izzatso is an idiot, even worse that Samuelson.

At least Samuelson is making a living at it - izzatso seems to have made a career out of making inaccurate, factually challenged comments on every political blog he can find. Must be a good conservative.

Certainly in no position to call anyone stupid.
100 yr Case-Shiller not as it seems
written by Mark, May 09, 2011 5:49
"Actually, home price increases do not "parallel income gains." They track the overall rate of inflation, as has been shown with a century of data compiled by Yale University Professor Robert Shiller."

Take a look again at the methodology. A large part of the mid-century data comes from government inflation statistics tracking a home prices with constant size and amentities, but does NOT adjust for location. That means that it's "median" home moved further and further away from the city center as megalopolises grew. That is not even close the the "same-home" methodology used by the Case-Shiller index. The government statistic effectively ignores the land component of housing.
...
written by diesel, May 09, 2011 7:18
izzatzo is the Harpo of this blog. Remember your surprise when you first saw him play his harp, after all the honks, blats and gags?
...
written by liberal, May 10, 2011 8:41
Thanks, Mark.
...
written by goodrich4bk, May 10, 2011 9:34
A very useful bit of research would be to determine what percentage of boomers within "X" years of retirement hold mortgages with "x + y" years of maturity and, of that subgroup, what is the mean number for "y".

Anecdotally, I believe at least one third of boomers refied in the last ten years and are now five or less years from retirement but more than 15 years from payoff. These people will need to sell as soon as they can or they will default. They will not be able to afford their payments on SS income. I also think this is a much larger problem than is generally believed due to the lack of good data from which to predict default rates.
...
written by AlanDownunder, May 12, 2011 12:13
Realtors and newspapers have a symbiotic relationship. Who knew?

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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.

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