naked capitalism

A MarketWatch story “Home prices aren’t tanking everywhere,” has the all the earmarks of being a National Association of Realtors plant. Note that it’s even told from the perspective of supposedly well-meaning (as opposed to commission-motivated) brokers trying to educate clients that the press is wrong, things really aren’t that bad.

Here’s the gist of its bullish message:

The housing problems largely aren’t national but regional in nature, said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School.

“The interesting thing is that there are parts of the country where housing prices are doing fine, thank you,” she said. In fact, only five states are in what she would consider a housing recession: California, Arizona, Nevada, Florida and Michigan.

In the fourth quarter of 2007, 73 out of 150 metropolitan areas showed an increase in the median existing single-family home price compared with the same quarter in 2006, according to statistics from the national Realtors group.

Now why is that factoid, that average prices are rising, utterly misleading? Well, consider the nature of the crisis we are in. A lot of people overextended themselves (per Tanta’s “We are all subprime now”) but it’s the most marginal borrowers that have been hit the hardest. And in most cases, they aren’t buying the biggest ticket houses.

So if you have a lot of low priced sales disappear, the average price goes up, even if average prices among the more costly houses falls.

Further confirmation that the article is hogwash: the average price figure was the ONLY metric cited to support the assertion that housing is doing just fine in a lot of markets. You’d expect them to be able to marshal other indicators of market strength, such as declining inventories or shrinking average time on the market. But those indicators were notably absent.

Now that isn’t to say that there aren’t pockets of strength in the US. No doubt there are, most likely due to local incomes holding up well and a lack of overbuilding. But to imply that nearly half the markets in the US are doing better than last year is patently ridiculous. Housing, even in markets that did not run up like the boom areas, still rose to levels considerably out of line with incomes and rental prices. A reversion is inevitable.

And some of the areas the article highlights as being strong are not terribly populous states:

Utah — where home prices rose 9.27% in the fourth quarter of 2007 compared with the fourth quarter of 2006 — was the state with the highest appreciation rate, according to the Office of Federal Housing Enterprise Oversight. Utah was followed by Wyoming, where prices rose 8.27% over the year, North Dakota, where prices rose 7.87%, and Montana, where prices rose 6.90%.

And for the one market I can verify directly, Manhattan, the article is utter rubbish:

Manhattan, however, tends to be a real-estate juggernaut all its own.

The average price of a Manhattan apartment was up 47% in the first quarter, compared with the first quarter of 2007, according to Brown Harris Stevens, a provider of real-estate services in the area. The boost was largely due to an increase in high-end sales that occurred at two luxury condo developments.

But the median price of a Manhattan apartment, which is less impacted by high-end activity, also rose 13% over the year, according to the firm.

One driver of the market: A rising demand for three- and four-bedroom units in Manhattan, said Jim Gricar, executive vice president of Brown Harris Stevens. More families are opting to live in the city as opposed to seeking larger homes in the suburbs, as was common in the 1980s and early 1990s, he said.

One of those “two luxury condo developments” was guaranteed to be the Plaza, which is a special situation.

For at least the last two months, if not longer, the Sunday New York Times real estate section has said loud and clear that the market is softening. And given brokers’ propensity to always say now is the time to buy, the fact that they are ‘fessing up that things are bad says they are REALLY bad. I see many blocks with more than one townhouse for sale, a clear sign of stress at the top end (townhouses became popular as more families wanted to stay in the city, particularly among the Wall Street set that would be quite affluent by anyone’s standards save that of the highly restrictive boards of tony Park and Fifth Avenue co-operatives).

I simply went to the most recent Sunday section and found this example, “Take My Condo, Please“:

They’ve offered buyers swimming pools, stretch limousines, movie theaters and automated parking garages. Lately, they’re even covering closing costs.

But the condominium developers at “Luxury Living” in SoHo, a recent sales event sponsored by The New York Observer that combined elements of a trade show and a Tupperware party, used a cheaper and lower-tech gimmick to hawk their products: candy.

Safety-orange M&M’s filled a glass bowl at the booth for 45 John in the financial district. Gumballs, in rainbow hues, sat ready to be dispensed for 80 Metropolitan, in Williamsburg, Brooklyn. Not to be outdone, the Harrison on the Upper West Side offered both a dish of foil-wrapped bonbons and a masseuse, who sympathetically kneaded stressed-out backs.

Brokers, perhaps mindful of first-quarter reports showing that sales volumes have slipped, lined up for back rubs.

“I needed this because I just started my job,” said Tony DiPietro, 39, of University Heights in the Bronx, who has been a sales agent for Mara & Company for one month. “But even if the market’s turning, people will always be looking for housing.”