Comments for The NYT Gives Space to Bubble Deniers at http://www.cepr.net , comment 1 to 9 out of 9 comments http://www.cepr.net Sat, 25 May 2013 21:20:23 +0100 FeedCreator 1.7.3 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-2773 Tucked away in our [url=http://www.timberland4you.co.uk/]timberland for you[/url] subconscious is an idyllic vision. We see ourselves on a long trip that [url=http://www.timberland4you.co.uk/Men's-6-Inch-Timberland-Boots/Men's_Blue_Timberland_6-inch_Boot.html]timberland 6 inch[/url] spans the continent. YQ - timberland shoes store Fri, 10 Sep 2010 22:28:57 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-503 "the notorious University of Chicago economist is arguing that there was no housing bubble in the NYT Economix section." In the news biz we call these fluffs when they are in heds (headlines) and running of track when in the text. There never was, or could be, a housing bubble IN the NYT Economix blog. Proper way to render: "the notorious University of Chicago economist, in the NYT Economix section, is arguing that there was no housing bubble." - David Cay Johnston Sat, 08 May 2010 08:09:28 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-489 Another factor is simply that housing prices are sticky on the down, since people try not to sell their houses when prices are falling. Only those who have to sell do so unless they're in the small number of markets where prices aren't falling. - PeonInChief Fri, 07 May 2010 07:02:47 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-465 Let me restate my original point a bit differently. At the peak of the housing boom, the US economy was at an equilibrium where desired investment was just sufficient to absorb desired saving. (The economy was near full employment, and there was little evidence of inflationary pressure.) That's when house prices were high. Today the US economy is far out of equilibrium: desired saving is much too high to be absorbed by desired investment at full employment, and there has been clear disinflationary (or deflationary) pressure. If the collapse of house prices brought the US macroeconomy from equilibrium to disequilibrium, how can it be said that the today's housing prices are closer to equilibrium than those that prevailed earlier? (The only way that would make sense is if some other asset price is now far out of equilibrium in the other direction. If you think that house prices have further down to go before they are fairly valued, then you need to specify which asset prices need to go up -- way up -- to the the economy back to equilibrium.) - Andy Harless Wed, 05 May 2010 19:20:07 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-464 @izzatzo House prices diverged from rental prices because the equilibrium interest rate declined. That's actually quite straightforward. The value of a house is the discounted value of all future rents. If there is a decline in the rate at which those future rents are discounted, then the value of the house rises. If anything, during the "bubble" years, prevailing interest rates overstated the appropriate discount rate (compared to the interest rates we're seeing now), so if anything, house prices during the bubble years were too low relative to rents, based on the fundamentals. But if you look at TIPS yields as a proxy for expected real interest rates, the change that occurred between 2000 and 2005 can explain the change in house prices (relative to rents) that occurred over the same period. The recession was driven primarily by a collapse of the financial system rather than a loss in housing wealth. But the element of loss in housing wealth, in any case, has nothing to do with house price fundamentals. Bubble or not, homeowners were no wealthier during the boom years than they had been previously: they owned houses; they lived in those houses; they were getting the same housing services. (To put it another way, because everyone needs a place to live, we are all "short" the housing market unless we own an house, and then we are neutral.) Even if they expected high house prices to continue, this did not make them more wealthy and should not have induced them to spend more. Therefore, if consumer spending subsequently collapsed due to a supposed loss of wealth, this was the result of irrational consumer behavior, not irrational house pricing. It's also possible that consumer spending collapsed because of a newly introduced liquidity constraint (the inability to borrow against home equity). That implies nothing about whether houses were fairly valued. (It is not in dispute that house prices have fallen.) - Andy Harless Wed, 05 May 2010 18:57:35 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-463 If there wasn't a housing bubble, someone needs to explain why house prices diverged from rental prices as Baker has explained repeatedly. Vacancy rates also rose with house prices as rental prices remained on a lower track. If market fundamentals were in effect, excess supply via vacancies would put downward pressure on prices like they do now, instead of continuing upwards as they did then despite the vacancies. The rising bubble prices stimulated an oversupply of housing which resulted in rising vacancies, which in turn put pressure on rental rates not to rise and follow house prices. Owners of housing expected supra-normal returns from lenders and future buyers, not renters. Absent the bubble and extra vacancies, fundamentals could have pulled rental rates upwards at the same rate of house prices to reflect increased real relative cost of both, but that's not what happened. Further, the claim that there was no bubble requires an explanation of how the deep recession was not driven by a huge loss of consumption demand via lost trillions in housing wealth. If it wasn't from falling house prices as the bubble burst, wonder what it could possibly be? Chicago? That's it, it was eggplants, as in the song, The Eggplant That Ate Chicago. History will eventually show that the Deep Recession was driven by eggplants. - izzatzo Wed, 05 May 2010 17:40:17 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-461 Oh, and neighborhoods change and the center of economic activity changes. Who could have guessed that houses in Detroit would one day cost less than the cheapest car one could purchase? That house may provide necessary shelter in the abstract, but in terms of providing necessary shelter to someone who works nearby, it doesn't always do so, even if it did in the past. - djt Wed, 05 May 2010 14:54:30 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-460 There is a need for risk premium since the value of the house portion of the asset can be destroyed through lack of maintenance. Many tract built homes have a limited life of perhaps 40-50 years and are not built in a way that they can be rehabilitated. Older homes, built of sturdier materials, can last centuries. A house will not always provide shelter. It requires constant inputs of money to maintain that capacity. - djt Wed, 05 May 2010 14:52:19 +0100 http://www.cepr.net/index.php/blogs/beat-the-press/the-nyt-gives-space-to-bubble-deniers/#comment-459 I think there is a pretty strong case that housing prices never rose above fundamental values. To wit: 1. The equilibrium interest rate is the one that equates saving with investment at full employment. 2. Clearly no non-negative interest rate will do that, so the equilibrium interest rate is negative. (You can object that this situation will change in the future, but looking at Japan's experience, I'm not convinced that's the case.) 3. When the interest rate becomes negative, the value of long-lived assets goes to infinity. 4. Houses are such an asset. (You can quibble about depreciation if you want, but I doubt the depreciation of houses happens quickly enough to make the difference -- and the land underneath is truly a virtually infinitely-lived asset.) 5. There is no need to apply a risk premium, because, in terms of real utility, houses are the safest of assets. Even with T-bills, there is reinvestment risk, but a house will always provide necessary shelter, no matter what happens to asset prices or asset returns. All this is not to say that house prices will actually rise again soon. But under the circumstances, I object to the notion that we can establish some finite fundamental value that implies they were overvalued during the so-called bubble. And I particularly object to the idea that their fundamental value can be assessed based on historical value benchmarks. That error -- looking at historical data without modeling why the data behave the way they do and why the future might be different -- is precisely the one that sub-prime investors made. - Andy Harless Wed, 05 May 2010 13:24:20 +0100