In a story by Floyd Norris in The New York Times Business section November 24, Norris warns of a recession due to housing worries.
At first glance, his logic appears to make sense. However, he ignores some of his own points that–in and of themselves, in my opinion–create a different answer to the question: Will the housing problems lead to a recession?
First, he cites that builders are building at a level half of what they were two years ago. Precisely–when supply and demand work as they should, recessions can be held off.
Second, he cites that if we don’t have a recession due to housing, it will be the first time in history that a housing slowdown hasn’t resulted in a recession. Exactly. This will be the first time in history. Why? The very nature of this “housing bubble” is unlike anything we’ve ever had in history. I’ll explain more in my final paragraph.
Third, he notes charts–one of which shows that housing starts declined with the mortgage crisis. And? I’m not sure when this revelation hit Norris, but that is one factor in the current housing crisis, and it means that we, as a nation, got a double housing whammy. It doesn’t mean market conditions won’t prevail.
As long as jobs remain plentiful, people are making money (and who would have thought we even had a housing “crisis” with the retail numbers from Black Friday?) and investors feel confident in the Fed’s decisions, I don’t see the reason for such alarming headlines–unless there is a New York Times circulation recession, too.
Why is this different?
- This housing decline is being compared to others in U.S. history, when it clearly is different. Why? We had an incredible increase in prices, with some states seeing 200 percent increases in as little as two years. We had investors in the market like never before. It isn’t like other housing conditions ever before.
- This was a bubble in some areas coupled with easy-to-acquire mortgages (which by the way was a great help toward the average Joe realizing a part of the American Dream) and low interest rates.
- Bubbles don’t lead to recessions. They lead to price declines–and fast. Did the tech stock bubble and burst lead to a recession? Nope. Why is housing different? This isn’t a general overall decline in housing. This is housing returning to normal and homeowners still thinking they can get 2004 prices for their houses.
- Excess inventory will shave off as prices decline along with interest rates. When inventory reaches 6.5 months, we’ll be back in business.
Dani Babb
This entry was posted on Sunday, November 25th, 2007 at 10:25 pm and is filed under Uncategorized, Investing, Looking Ahead, Statistics, Homebuilder, Foreclosure, New York Times, Recession. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
10 Responses to “Why The New York Times Has Housing All Wrong”
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November 26th, 2007 at 1:28 pm
Dani, I think you are wrong and just looking to sell something. Be honest. This market will not recover for 10 or more years.
Start doing the math. Apply the buying rules of the past. 28% of net max for a house payment. Even that is too high with inflation.
Stop trying to make a quick buck and look after your customers. They need to understand what they can afford, not what someone may lend them.
Houses are expenses, not ATMs!
November 26th, 2007 at 1:43 pm
Actually Im not trying to sell anything for the homebuilders and I DONT sell homes! So Im really not trying to sell anything. I think this is a great time to buy — and I don’t just say that, I believe it and I’m doing it myself. I am actively searching (and putting offers in) on bargains.. we just see it differently.
Dani
November 26th, 2007 at 5:18 pm
Yes! I am a Real Estate agent in Fort Lauderdale, Florida. I have to agree with you. This is a burst like no other. But I do feel that we are within the best 2 years of bargain hunting. What most people do not understand is that after buyer’s market comes a flat market where prices just stay flat for a few years, sellers get down to reality and creates a balance. A balanced market is a balanced market. The balance right now is heavily on the buyer’s side that is what we want if we are buying: everything in our power to get the best deal: best finance, lowest price, tons of incentives, and yes! the furniture included along with a christmas gift.
In a balanced market you get the price where is not going any lower.. but interest rates may start to go up and sellers have no more reasons to offer incentives because now the buyers are coming out and they know how to correctly price their house.
Good post.
November 26th, 2007 at 10:06 pm
Like the fools who bought NASDAQ stocks at 100 times earning, the housing fools bought real estate at 100 time rental income.
Home prices need to decline atleast 30-40% before NET rental yield turn positive !
Don’t believe me ? Look at this chart of historical price/ rent ratio for cities across America…….
http://money.cnn.com/magazines/fortune/price_rent_ratios/
November 27th, 2007 at 12:07 am
I’ve seen that chart Real Estate Rat, but appreciate you sharing it. If you can buy something at 30% under value, then technically you are buying TODAY for the price that you believe it will be worth before the bottom is near!
So in my opinion, people should go for it. That is what Im doing, and that is my opinion. 
I certainly respect yours and know where you’re coming from…
Dani
November 27th, 2007 at 12:38 pm
The dot-com bubble didn’t lead to a recession because it coincided with the introduction of easy-money policies which initiated the current housing bubble. Basically, the government was robbing Peter to pay Paul — if we had taken our figurative medicine earlier in the decade, we wouldn’t be in this mess.
November 27th, 2007 at 6:40 pm
Hey Disbeliever….you’re somewhat correct, but you missed that there was an 18 month period from 2000 until September 11th, 2001, when the World Trade Center attacks occurred that provided more of the impetus of having the aggressive reductions by the Fed. Prior to that, you’d seen a series of increases….no medicine to be taken, except that underwriting standards were relaxed far too much.
November 27th, 2007 at 7:59 pm
If you’d like to see Mr. Norris’s blog with our debate (once he approves my comment) you can take a look here:
http://norris.blogs.nytimes.com/2007/11/26/a-positive-spin-on-housing/#comment-4756
No doubt we won’t settle this debate anytime soon, but it does make for some interesting reading.
Dani
November 28th, 2007 at 11:47 am
I do believe in cyclical markets, but if you look at other areas beyond the housing market, it’s almost like the perfect storm for a long recession. A weakening US dollar that is losing its grip as the worlds currency along with higher energy prices are adding to the recessionary worries. Less foreign investment in the US = less jobs in US = less spending = less demand for housing = lower prices in housing. Its a trend that is almost instoppable.
January 7th, 2008 at 11:44 am
The hysteria has just started. Did anyone else see the Jesse Jackson speakout on subprime mortgages, on Sat. Jan 5th 2008, at the New York city Council? I did, it was wild, here is my report: http://www.harlemface.com/2008/01/more-on-new-york-hearings-on-wall-st.html