Economists and headlines are having a field day with the latest reports on existing-home sales, new-home sales and, from Case-Shiller and the federal government, prices. (See the posts below, as well as my latest newsletter.)
3-YEAR DESCENT
IN HOME PRICES
APPEARS AT END
So trumpets the New York Times in the lead story on Page 1 today. But whoa, fellas! Let’s not rush to judgment. The first paragraph strengthens the message:
“After a plunge lasting three years, houses have finally become cheap enough to lure buyers. That, in turn, is stabilizing prices, generating hope that the real estate market is beginning to recover.”
The fourth paragraph quotes Mark Flemin, chief economist for First American CoreLogic. “We’ve found the bottom,” he exclaims. (Though, truth be told, it’s hard to imagine an economist actually exclaiming.)
Not until the sixth paragraph is a scintilla of doubt expressed, when the Times says that improvements in the U.S. real estate market are “tentative.”
The Wall Street Journal’s response to the news is far more measured. The subhead on its Web site actually observes that “Double Dip Still Possible.”
Yet it quotes Yale economist Robert Shiller–he of the index and of way early warnings about a housing bubble–as saying, “The change in momentum here is very significant.” Last month, Shiller forecast sustained home-price declines into the next few years, which he said now looks less plausible. He said he expects home prices to remain near current levels for the next five years.
“Is this just a spring bounce that was partly related to the drop in distressed sales?” Thomas Lawler, an independent housing economist, asks in the Journal. One key question, he says, is whether another wave of foreclosures could come along to offset the home-inventory decline that has boosted many markets.
Admittedly, having three major gauges of the housing market moving in the same direction offers us a bit of encouragement, especially to a real estate professional. But there are a couple of caveats: What is available in the markets? Who is purchasing housing? How accurate are the market reports. And what variables such as interest and employment rates will affect the future?
Worse, I’m as cynical as always about economists’ prognostications. All they do is try to predict human behavior, and, unfortunately, human behavior is notoriously unpredictable.
As far as I am concerned, each of the measures of market vitality is deeply flawed for different reasons.
Taking one of the most quoted measures, the S&P Case-Shiller indices, bear in mind that they cover only 10 or 20 metropolitan regions. (The New York MSA, or Metropolitan Statistical Area, covers the entire borough and suburban New Jersey and Westchester County. The markets are so diverse that they consist not of apples and oranges but of apples and, say, asparagus. And not a single sale of a co-op or condo is included.)
On balance, certainly I am impressed with the apparently positive direction of the market trends. Yet I wouldn’t assume that we’re at the bottom of a V-shaped housing recovery as opposed to a W-shaped recovery in which prices bottom, rise and bottom again before going up in a sustained way.
To me, the implication isn’t that buyers should hold off on their purchases. What they need to remember is that living in a home should no more be equivalent to investing in real estate.
It’s about a lifestyle, not about a killing.
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I, on Cambodia 
Even if we have hit bottom and I don’t think we have, it will take years for the labor force, housing markets and banking industry to fully recover.
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