The HBB Rates The National/ International Media
The first look at the HBB review of the media and reporting on the housing bubble starts with International magazines, news web sites and newspapers. The total body of work these organizations put together can’t be summarized here, but included are a few examples.
The Best:
1. The Economist - “Average house prices in Sydney.. fell by 5.4% in the second quarter. Other sources suggest a steeper decline. The Commonwealth Bank of Australia reckons that house prices nationwide fell at an annual rate of 13% in the first half of 2004.”
“In other words, houses are more overvalued today than at previous peaks, from which prices typically fell sharply in real terms.(T)wo-thirds (by economic weight) of the world that we track now has a potential housing bubble.”
“The ratio of prices to rents is a sort of price/earnings ratio for the housing market…To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall.”
2. The Financial Times. “British and American policymakers appear to regard the recent period of house price inflation in their countries with equanimity. As long as neither inflation nor unemployment soars suddenly, we are told, the current level of house prices is sustainable and economic growth is not threatened.”
“But not all central bankers are so insouciant. Nout Wellink, president of the Dutch central bank, last month warned that a hangover from the property boom could well exacerbate the next downturn. Both the Dutch experience and the history of housing booms suggest that this counsel deserves to be taken seriously. However, it is probably already too late for the leading Anglo-Saxon economies to escape lightly from the consequences of their property bubbles.”
3. Bloomberg. “China’s rising property prices pose a threat to the stability of Asia’s second-largest economy. Excessive growth in housing prices has directly undermined the ability of city residents to improve their living standards, affected financial and social stability.”
“Local officials who fail to take measures to rein in growth will be held to account…’The State Council’s tone is very harsh,’ said Fan Weiwei, a Beijing-based economist. ‘People’s expectations of future property prices will definitely be changed. The likelihood of further price surges is becoming minimal.’”
Honorable Mention:
Times Online. “Five years ago Halifax, the UK’s biggest mortgage lender, would grant an interest-only loan only after inspecting the policy documents of an endowment or other investment vehicle. Borrowers who were relying on rising house prices or an inheritance to pay off the loan would not have passed the application process. But Halifax changed its rules in 2000. Now the bank, in line with many other lenders, does not check any paperwork, but regularly reminds borrowers that it is their responsibility to set aside enough cash to repay their loan.”
The worst:
1. New York Times. “‘South Florida, he said, is working off of a totally new economic model than any of us have ever experienced in the past’. Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted.”
“‘I just don’t think we have what it takes to prick the bubble’, said Diane C. Swonk, chief economist at Mesirow Financial. ‘I don’t think prices are going to fall, and I don’t think they’re even going to be flat’.”
“It just seems like everyone is doing it,” Laurie Romano, a 26-year-old self-described real estate investor, said with a giggle.
2. Wall Street Journal. “”Real-estate prices can’t tumble on a flurry of panic selling, as happens when a stock-market bubble bursts. After all, everyone needs a place to live. ‘Stocks have a single market, low transaction costs and the capability of people to pile on nationally,’ Robert Curran at Fitch Ratings, ‘Housing markets are all local. Transaction costs are large. To sell your assets you have to move.’”
“Homes may not appreciate as quickly, or at all, for a while. Nobody likes that.”
The market observers, the good:
“Danielle DiMartino writes for the Dallas Morning News…’Let’s say for a moment that all of the credit that’s being extended to purchase homes at inflated prices isn’t of the highest quality. The proof here locally is that foreclosures have gone through the roof. Now extend that scenario to the really hot markets that have yet to suffer flat, not falling, just flat, home prices and you get to what keeps me up at night. Maybe even Alan Greenspan, too.”
“How will federally established Fannie and Freddie and all the other mortgage debt holders react to the inevitable rise in delinquencies and foreclosures?”
“I worry about housing so much because of its potential to harm so many families. Stock market bubbles impact those who can afford to buy stocks. When that bubble burst in 2000, that included about 45 percent of Americans. But a record 70 percent of Americans now own a home. So housing bubbles have the ability to inflict much more pain on communities and our broader economy.”
“The powers that be insist there’s no housing bubble. They have to, mass delinquencies and foreclosures are simply not an option, not with the risks built into the mortgage-finance system. The general concern about these instruments is that they’ve yet to be ‘tested’ by an inevitable market downturn. Is there risk in today’s lax lending standards?”
Bill Fleckenstein. “It might be hard for folks to step back and see a speculative housing environment for what it is — especially when the frenzy has furnished a lifestyle beyond their means. But we all can’t live forever in dream homes financed by dangerous debt levels. The “math” suggests that this tenuous fantasy ultimately will fail. Not everybody in this country can live in a $1 million house or some higher-priced mansion. The income necessary to support the debt service just isn’t there.”
“Housing got a boost in the stock mania because people rolled their gains into real estate. That was on shaky ground, as we dealt with the aftermath of the stock bubble. But then we got on “firmer” ground in the last 15 months or so, via all the government stimulus and low interest rates that sparked a speculative frenzy in housing, which continues to this day.”
“One of the most obvious would be to raise short rates to a level higher than the underlying rate of inflation (i.e., 5% to 6%) and take back some of the absurd stimulus that Alan Greenspan has foisted on the economy repeatedly over the last decade.”
“This would simultaneously increase savings, reduce consumption and hurl us into recession. But we are headed there anyway. So let’s get on with it before even more damage is done.” Stephen Roach : “The longer we wait, the more treacherous the endgame.”
“Stephen Roach. “The Fed is not only hard at work in the engine room in keeping the magic alive, but is has also become the intellectual architect of the New Macro.”
“Time and again, since Alan Greenspan rolled out his New Paradigm theory in the late 1990s, senior Federal Reserve policy makers have taken the lead role as proselytizers of a new macro spin that condones the saving, debt, property bubble, and current-account excesses of the Asset Economy.”
“Chairman Greenspan has made light of traditional measures of household indebtedness, even going so far as to urge consumers to move from fixed to floating rate obligations. Fed governors have also borrowed a page from the Roaring 1990s in denying the possibility of a housing bubble. Governor Bernanke has also led the charge in coming up with a new theory of national saving, that the United States is actually doing the world a favor by absorbing a so-called glut of global saving.”
The Bad:
Barbara Cocoran. “I think it’s a much scarier world that we live in. When kids are scared, where do they run? They run home. People are staying home more..it’s really reassuring for people to know they own the walls around them. People have also become more distrustful. People don’t trust the government, they don’t trust Corporate America, they don’t trust the stock market. They trust their house.”
“I think the bubble theory is nothing more than an intellectual expression of people’s typical worry that good times can’t last forever.”
David Lereah. “My view is there’ll be air coming out of a balloon rather than a balloon popping because markets are too healthy right now. Once I start to see inventories increase in a meaningful way in some areas, then I’ll start to see where these balloons might be,’ Lereah said. ‘Right now I can’t find them.’”
“The NAR’s chief economist said, ‘What we’re seeing is that real estate is no longer just a place to live. It’s a viable alternative to stocks and bonds..Sept. 11 changed real estate forever.’”
“Federal Reserve Chairman Alan Greenspan…told the House Financial Services Committee in testimony that he sees ‘no reasonable basis’ for the two giant mortgage companies to hold massive mortgage portfolios, which together top $1.5 trillion. Noting that the problems ‘are almost inevitable,’ Greenspan warned House lawmakers that Congress ought to consider forcing the two to slim down their portfolio holdings as they ‘potentially create ever-growing potential for systemic risk down the road.’”
“Greenspan added: ‘Enabling these companies to increase in size…we are placing the total financial system of the future at a substantial risk.’ He added that while the risk now is ‘virtually negligible,’ he doesn’t believe that scenario will last if Congress allows them to continue to expand.”
“Former Federal Reserve Chairman Alan Greenspan said he has ‘no particular regrets’ and that the deepening slump in the U.S. housing market isn’t a result of his policies. ‘Markets are becoming aware of the fact that the decline in house prices is not stopping,’ Greenspan said today in Oslo. ‘I have no particular regrets. The housing bubble is not a reflection of what we did, as it is a global phenomenon.”’
“The collapse of the U.S. subprime market ‘was a shocker because no one expected it,’ Greenspan said.”
“After the 2001 recession, the Fed cut its benchmark rate to a four-decade low of 1 percent. That move, along with a hands-off approach to regulation, has brought Greenspan under fire as the bursting of the housing bubble and the subprime mortgage crisis threaten to sink the economy.”
“Former Federal Reserve Chairman Alan Greenspan ignored warnings about the Fed’s low interest rates that fueled real estate speculation and the current housing recession, said Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh. ‘I think he lets himself off much too easy,’ said Meltzer, author of a 2002 book on the early history of the central bank, in an interview. ‘He acknowledged maybe his policy had a little bit to do with it. But he found all kinds of other reasons’ to blame for the housing and mortgage problems today.’”
“He said the Fed was worried about deflation. Meltzer said he met then with Greenspan at the former chairman’s invitation and disagreed with the concern over deflation.”
“‘I said, ‘Alan, we have had six or seven deflations in the United States in the history of the Federal Reserve, and only one of them ever had terrible consequences, and that was 1929 to 1933,’ he said. ‘That was because deflation was not only bad, but because the money growth was lower and lower and lower, so the expectation was deflation would continue. In all the other six, nothing happened.”’
“Greenspan ‘continued to believe that deflation was the problem. He was wrong about that, simply out and out wrong,’ Meltzer said.”
