CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Robert Samuelson Explains a Housing Bust that Doesn't Exist by Lack of Access to Credit

Robert Samuelson Explains a Housing Bust that Doesn't Exist by Lack of Access to Credit

Sunday, 18 August 2013 20:48

Robert Samuelson's column today is devoted to explaining why housing has not recovered. According to Samuelson the problem is lack of credit. This in turn is the result of the fact that lenders are feeling so beaten up that they are scared to make loans. The moral is that if we don't stop beating up on the banks then no one will be able to buy a house.

This is a nice story that unfortunately does not fit the data. At the most basic level the problem is that people are actually buying just about as many homes as we should expect. Samuelson focuses on the rate of housing starts, which is below trend, but the relevent measure for a discussion of homebuying and credit is the number of homes that people are buying.

Currently people are buying existing homes at close to a 5 million annual rate. They are buying new homes at close to a 500,000 annual rate for a total rate of home purchases of 5.5 million a year. If we go back to the mid-1990s, after the recession but before irrational exuberance began to dominate the housing market, existing home sales averaged around 3.5 million a year (1993-1995). New home sales averaged just under 700,000 a year for total sales of around 4.2 million a year.

The population is roughly 20 percent larger in 2013 than it was in 1994, which means that we should be seeing around 5.2 million home purchases a year if we are even with the pre-bubble pace. That's about 5 percent fewer sales than we are actually seeing. This means that if we compare current sales levels to the pre-bubble period we are seeing somewhat more sales than we should expect, not less.

We are seeing considerably less construction than trend levels, but this really should not be any surprise to anyone familiar with housing data. Vacancy rates remain well above normal levels. With a large backlog of vacant homes it is hardly surprising that builders would be reluctant to undertake large amounts of new building.

If anyone wanted to check the credit story that Samuelson tells, they could also look at the Mortgage Bankers Association mortgage application index (sorry, no link). If homebuyers were having trouble getting mortgages then there should be a sharp rise in this index relative to sales, as homebuyers have to put in multiple applications to secure a mortgage and some may not even get a mortgage after many applications. The index actually tracked sales fairly closely through the downturn, which suggests that the percentage of people being denied mortgages had not changed much.

In short, Samuelson has a good story about how we are hurting the housing market by holding bankers responsible for reckless and/or fraudelent mortgage issuance, but it doesn't fit the data. Nice try, though. 

Comments (11)Add Comment
History & Logic Tell Samuelson GFH
written by James, August 19, 2013 1:36

Banks are beaten up by regulators is so laughagle and insulting. Banks do what they want to do and if they feel they are being pressured any way, they call their senaorts. Remember the Keating Five? That include a still high ranking GOP and a former presidential candidate.

Samuelson said, "Affordability is high." He must not talking about both east and west coast.

CNNFN.com just published an article about affordability is declining bc real wages have been stagnant while prices and rates have gone up. And the housing have gone up so much too.

His source in the article are NAR and Wall Street bankers. That's good diversified source alright.
American Banks Detect Signs of Risk in a Free Market, Demand Regulations that Force Customers and Taxpayers to Bear 100% of It
written by Last Mover, August 19, 2013 4:55
Appearances, though, are deceiving. Originating lenders (often large banks — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo) can still be forced to absorb the costs of default. After the housing bubble, Fannie and Freddie sued banks, claiming the lenders should take back bad loans that reflected negligence or fraud. Banks have repurchased or negotiated settlements on $95 billion of Fannie and Freddie mortgages, according to Inside Mortgage Finance.

“On this point, the banks are right,” says Laurie Goodman, an analyst at Amherst Securities Group and the Urban Institute, a think tank. “They feel they have residual risk [for defaults] even though they’re paying Fannie and Freddie to take the risk” through fees. Defaults pose other potential costs, including damage to banks’ reputations. To avoid these costs, banks have embraced a simple strategy: Lend only to super-strong borrowers unlikely to default.

Poor babies. The banks can't handle that free market can they. Not when there's risks involved. Not on the upside. Not on the downside. At the slightest sign of risk they run for the hills crying foul that the government interfered with the mountain of anti-competitive econonic rent that constitutes their very existence.
Bankers getting looser not tighter
written by Robert Salzberg, August 19, 2013 6:39
Seems bankers are getting looser with loans not tighter right now according to 8-15-13 report:

Mortgage Bankers Association Latest Index Report
written by Robert Salzberg, August 19, 2013 6:46
Yep, mortgage applications and purchases still tracking pretty close:

"Mortgage applications decreased 4.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 9, 2013.

The Market Composite Index, a measure of mortgage loan application volume, decreased 4.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 5 percent compared with the previous week. The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 4 percent higher than the same week one year ago."

Mortgage Application Charts
written by Robert Salzberg, August 19, 2013 6:52
For those who want to see the longer term trends:

ECONOMYAugust 18, 2013, 11:01 p.m. ET U.S. Manufacturers Gain Ground Narrower Trade Deficit on Factory Goods Is a Sign of a New Competitive Edge
written by Jim, August 19, 2013 8:48
The wsj tells us not enough skilled labor is hurting our manufacturing sector. Capacity utilization still way below average.
Housing Bubble
written by JayR, August 19, 2013 3:07
Why is Dean Baker not highlighting more the new housing bubble?
written by watermelonpunch, August 19, 2013 5:54
@ JayR
Google "dean baker housing bubble 2013"
I think you'll see a lot of highlighting actually.

I don't know what more you think one guy can do. ^^
written by NWsteve, August 19, 2013 6:17
Dr.Baker: you have been way too kind in this posting regarding RJSamuelson's WAPO column from 081813...

while your evidence based analysis and summary do a far better job of providing readers with necessary information that Samuelson has somehow forgotten to do; it appears most likely that Samuelson has merely mailed-in his copy to the WAPO for publication...

his first sentence reads: "One of today's economic puzzles is why the Federal Reserve's low interest rates haven't spurred a stronger recovery"...
which he then immediately *answers* in his fourth sentence: "Low interest rates don't matter if lenders won't lend..."

puzzle solved...
this should be the end of the column...

what's the fed (or anyone else) to do?
we can lead Wall Street to the water; but, by golly, we can't make them drink...

the remaining sentences written by Samuelson are a mash-up of unconnected statements and quotations that conclude at the end with this: "Public policy faces a contradiction. [...] What's politically convenient is economically damaging. Which do we favor."

or not...

the overriding implication, as noted by other commenters, is that the WSBanks now require a zero-risk model in order to participate in the lending for mortgages...
the more subtle recommendation from Samuelson appears to be that higher and stronger credit requirements among potential borrowers must be returned to their 2005-ish level if the housing market is to "fully recovery", a definition of which is completely missing from this column...

gee wiz: a return to *easy credit* with the addition of no risk---now that would be a bodacious bubble indeed...

thus, we recognize Samuelson's true goals:
mission is now accomplished by filling space, supporting the Wall Street Banks at all costs, and passing all *blame* onto someone else...

perhaps Mr. Bezos will find such cheerleading unacceptable in the not too distant future...
one can hope...

in the meantime, Dr. Baker and others here, surely have focused the discussion more precisely:
qualified buyers are not being denied...builders are matching their estimates of acceptable inventory levels...

which might suggest that the "missing *stronger* recovery" is actually the result of: reduced demand...


Samuelson could have named one of the "super-strong borrowers"
written by John Wright, August 19, 2013 9:24
Samuelson writes: "To avoid these costs, banks have embraced a simple strategy: Lend only to super-strong borrowers unlikely to default."

Of course, he neglects to mention that one of those "super-strong borrowers" is the Federal Reserve itself that is paying 0.25% on the excess reserves of banks.

See http://www.federalreserve.gov/releases/h3/current/

Perhaps when the Fed signals to the banks the water is safe, by refusing to pay interest on excess reserves, maybe the banks will wade back into the market and loan to other more risky borrowers.

written by Lrellok, August 20, 2013 3:01
related to the article. I am curios what Prof Baker thinks of this video. www.youtube.com/watch?v=XcGh1Dex4Yo

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

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.