The Housing Bubble Is Deflating! Big News in the NYT

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Monday, 23 May 2011 04:23

The NYT noticed that banks have lots of foreclosed properties and that this is depressing house prices. It warns readers that house prices could fall by 5 percent by the end of 2011.

This piece is bizarrely uninformed about the housing market. First, the decline in house prices is not new. Prices have been falling at the rate of at least 1.0 percent a month since the first time buyers tax credit ended last fall. With prices having already dropped by 2 percent through February, we would have to see a sharp slowing in the rate of price decline for the year-end drop to be just 5 percent.

More importantly, this decline is actually entirely consistent with house prices moving back toward their long-term trend in which they have just tracked the overall rate of inflation. If house prices drop by 12 percent over the course of 2011 they will be just back on this trend.

It would have been useful to readers if this article contained the insights of someone who was more familiar with trends in the housing market.