Is it a housing bust or a
media-driven panic? Mike Moran, chief
economist for Wall Street's Daiwa
Securities America, Inc., says he's
surprised that virtually nobody has
challenged the constant drumbeat of
negative headlines and TV news warnings
of imminent crashes and home price
meltdowns.
"It's really been way out of line
with reality," says Moran, whose firm
specializes in the bond market. When a
1.7 percent decline in the median home
price nationwide sparks headlines about
the "housing bust," that is "just pure
sensationalism about what is going on
here," he said in an interview.
The housing market "is going
through a correction that's badly
needed" after five years of record sales
and price appreciation. "The key issue
is whether it is orderly or disorderly"
-- and it's clearly the former. Yet the
financial press and TV news programs are
"portraying it as a catastrophe."
Moran got indirect support for
that view from other economists,
including the Mortgage Bankers
Association of America's chief
economist, Doug Duncan, who said "the
rhetoric is just way overwrought" -- the
sky is not falling in the real estate
and mortgage sectors.
To the contrary, even the Federal
Reserve's vice chairman believes the
current correction will not be dramatic
or even that long-lived, and that the
housing slowdown will not have dire side
effects on other parts of the economy.
In a speech that went virtually
unreported by major media, vice chairman
Donald L. Kohn told New York analysts
that the "rebalancing" of prices to
better fit current demand that is
underway in many metropolitan markets is
a normal, cyclical event -- not an
incipient disaster. In fact, it may even
be a healthy and necessary part of the
cycle: "The reported declines in new
home prices in a number of areas should
help facilitate the |
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rebalancing of supply and demand" -- ie,
lower prices should help gradually
expand the number of serious buyers
looking for houses.
Thanks to strong underlying
demographic factors -- new household
formations and population growth -- the
current down phase may be relatively
short-lived, Kohn suggested. New housing
"starts may be closer to their (low
point) than to their peak." If one takes
mid-summer 2005 as the peak of the
multi-year housing boom, Kohn appeared
to suggest that the low point of the
cycle -- and the beginning of the
eventual turnaround -- could be just
over the horizon.
The latest pending home sale index
from the National Association of
Realtors, which showed a surprising 4.3
percent jump in the number of sales in
the contract stage, but not yet closed,
supports that conclusion.
Kohn also noted that other
economic conditions today do not point
to a deep housing price recession or
bust. For example, long-term mortgage
interest rates are about a point above
their historic lows, the Fed itself has
stopped raising short-term rates, gas
prices are falling, and the unemployment
rate just dropped to 4.6 percent.
The current "situation stands in
sharp contrast to some past downturns in
the housing market" -- in the early
1980s especially -- "that followed
actions b the Federal Reserve to tighten
credit conditions
significantly."
"Continuing growth in real incomes
should underpin the demand for housing,"
said Kohn, "and as home prices stop
rising, help to erode affordability
constraints." So, how come you're not
hearing about the Fed vice chairman's
moderately upbeat speech while watching
it on the evening news or reading about
it in your newspaper?
Good question. |
