MEDIA HYPE

Economists Challenge Media's Negative Drumbeat on Housing

By Kenneth R. Harney, Realty Times Columnist: Is it a housing bust or a media-driven panic? Mike Moran, chief economist for Wall Street's Daiwa Securities America, 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 under way 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 rebalancing of supply and demand" - i.e., 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 by 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."

How come you're reading about the Fed vice chairman's moderately upbeat speech here rather than watching it on the evening news or reading about it in your newspaper?

Good question.

SUPPLY & DEMAND

There has been a lot of news media in the recent past about the "slowing housing market"....

Did you know that this year ranks among one of the highest in home sales? Well, probably not, the news media isn't talking about that.....

There are times when the economy is brisk and everyone feels confident about the future. As a result, people spend money. They eat out more, buy new cars, and they buy houses!

In a slowing market where the supply of available houses is greater than the supply of buyers, appreciation may slow and prices may even fall. If you are lucky enough to purchase a home during a slow period, you will probably have lower interest rates available for financing, you can be reasonably certain the economy will begin to show strength again and along with it higher appreciation rates.

Well, we are in that SUPPLY & DEMAND timeframe, interest rates are low AND NOW IS A GREAT TIME TO INVEST IN A HOME PURCHASE!

Since 1983, we have had two failrly long expanses of hot real estate markets with only a slight recession in between each. You would not want ot wait nine years to buy a home, would you? You could miss out on a substational amount of appreciation by waiting, and end up paying much higher prices.

BUY NOW - THERE IS A FABULOUS SUPPLY - LOW INTEREST RATES - LOW PRICES!