The first is from Dean Baker of Beat the Press, “Nonsense on Housing in the NYT Magazine:”
I generally give the NYT magazine more license than the rest of the newspaper…But, I am still old-fashioned enough to think that being literary should not prevent one from being able to use logic.
The “Pop Psychology” piece in Sunday’s NYT fails the logic test badly. Roger Lowenstein…tells us that the National Association of Realtors (NAR) reports that house prices on average rise by 2 percentage points more than the rate of inflation each year. That’s a good source — the NAR would never have reason to mislead anyone. I assume that Mr. Lowenstein gets his views on the link between cancer and cigarette smoking from the Tobacco Institute and no doubt he has learned about global warming from the oil lobby.
The government’s data show that, until 1995, house prices almost exactly tracked inflation (i.e. they did not increase by 2 percentage points more than inflation every year). Robert Shiller has constructed his own index that shows house prices had tracked inflation since the 1890s until 1995. That is the reason that Shiller and I believe that the 50 percent run-up in real house prices over the last decade constitute a bubble.
Lowenstein also points out that the biggest jump in defaults has been in depressed areas that have not seen rapid run-ups in house prices, not the coastal areas where prices did increase a great deal. Let’s get out the big “DUH.” In areas where there have been big price hikes people will still have some equity in their home. No one ever defaults on a home in which they have equity — they either sell it or they borrow against the equity to keep the home.
Barry Ritholtz’s The Big Picture points out that the February housing start stats that were touted as good really aren’t:
New Home Starts came out this morning, and they were nothing to get excited about. Here’s the data:
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 1,525,000. This is 9.0 percent (±10.2%)* above the revised January estimate of 1,399,000, but is 28.5 percent (±6.2%) below the February 2006 rate of 2,132,000.
Single-family housing starts in February were at a rate of 1,220,000; this is 10.3 percent (±8.8%) above the January figure of 1,106,000. The February rate for units in buildings with five units or more was 266,000.
Note that Privately-owned housing starts, with a headline number of plus 9%, is less than the margin of error of ±10.2%, and according to Census Bureau, “is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”
Note, however, that on a year-over-year basis, Starts are down 28.5%, (margin of error of ±6.2%).
Calculated Risk tells us new home inventory levels are higher than commonly reported:
Credit Suisse has estimated the actual inventory of New Home sales based on cancellations. First, for an excellent article on the impact of cancellations on reported New Home Inventories, see Caroline Baum at Bloomberg: Think Housing’s Stabilized? See Cancellations
… cancellations are rising, and they aren’t being captured in the aggregate statistics because of the way the survey is designed. Hence, sales are being overstated and inventories understated….
The Census Bureau, which is one of the Commerce Department’s statistical agencies, counts an initial new home sale: Sales go up and the “for sale” inventory is reduced. If the sale is canceled, it isn’t reflected in revisions to previous months. What happens? When the home is “resold,” statisticians ignore that transaction.
From Credit Suisse today: “Inventory in the system is higher than reported.” ….Based on Credit Suisse’s analysis, the actual months of inventory is closer to 8 months.
Other Calculated Risk posts:
Historical: Existing Home Sales and Inventory
The Housing Optimists