Thursday, July 27, 2017

Housing: Part 246 - Funny Real Estate Quote from 3 Days Ago

This recent post at Calculated Risk is a good example of Our Problem.

He links to a quote from 10 years ago, June 2007 when home prices in most places were still pretty stable but sales and starts had been in steep decline for more than a year:
Ten years ago, NAR's senior economist said: "It is too early to say if home sales have already passed bottom," said Lawrence Yun, the senior economist for the group in the report. "Still, major declines in home sales are likely to have occurred already and further declines, if any, are likely to be modest given the accumulating pent-up demand."
That silly senior economist!  Didn't he know that the future was already written?

Here is a graph of housing starts.  Housing starts (which trend with existing home sales) had been in decline for about a year and a half when he said that, and they hit and fell through the bottom of the long term range around the end of 2007.  (And, by the way, even in 2005, housing units per adult or per capita were similar or lower than at any time since the 1980s.  Outside of some depopulating Rust Belt cities, no city had too many homes.  No city needed a collapse in homebuilding.)


If only Mr. Yun could have been the senior economist for the realtors of Canada or Australia, which also have had a housing "bubble".  Then, he could have been a brilliant prognosticator.  But, alas, he was the senior economist for the US National Association of Realtors, which means he was a silly, silly man, because the US housing collapse was years from turning back up.  And, this was already pre-determined.  Smart people know that.  The coming collapse of the private mortgage securities market, the federal takeover of the GSEs and its extreme tightening of credit standards, the decision by the Fed for 6 months after this prediction to continue to refer to housing market trends as an ongoing "correction" and to broadcast fears of inflation, its discretionary tightening in September 2008 because of inflation fears - two weeks after the feds forced the GSEs to take massive write downs in anticipation of future foreclosures.  None of those things had anything to do with the continued collapse.  Those were simply reasonable policies enacted because smart people should have known in June 2007 that the worst was yet to come.  It would have been irresponsible of us to expect anything else.  And, you and me, we're not silly like that senior economist.  We know a bubble when we see it.  Policies based on an expectation and acceptance of a collapse are simply the only prudent response.  The witches were triggering hallucinations.  I suppose you wouldn't have burned them at the stake?  It's easy for you to complain after we solved the problem.

We never had too many houses.  That's not our problem, by a long shot.  You know what our problem is?  Our problem is that we've got a country full of smart people - not those silly people.  A country full of people that know the value of things.  A country full of people who feel a smug self-satisfaction when markets collapse, prices decline, and those irresponsible, silly speculators, lenders, and builders go bankrupt.  Bill McBride at Calculated Risk is a smart guy.  Most of my neighbors are smart.  Most economists (unlike that NAR guy) are smart.  The Fed is smart.  Teachers and doctors and plumbers - smart people all over.  So many people are so smart that when I suggest all of this mess wasn't inevitable to strangers on a plane or acquaintances at school functions, I usually get a slightly confused look and then a comment about those terrible bankers that did this to us.  I think they just think they misunderstood me, and they assume if they reply with something that smart people all know, the misunderstanding will clear up.

A country full of people ready to claim "I told you so" whenever everything breaks is a country destined to break.  How can it be any other way?

Hey, you working class families in New York and San Francisco, and Los Angeles!  Remember in 2007 when that silly economist claimed there was pent up demand for housing?  Remember that silly guy?  You know better, don't you!  You know they're practically giving houses away!  Got so many, they don't know what to do with them!  Silly economists.  "Pent up demand."  What planet was he on?  We hadn't even begun to enforce the correction.  Good thing we've got some smart people in charge to keep these things from getting even more out of control than they did.  We'd be like that green line or that red line in the graph instead of the black line.  In Canada and Australia - countries apparently full of silly people - they literally are buried in houses by now.  Opening a checking account?  Here, have a house!  Oh, you want 4 scoops of ice cream?  That comes with a house!  That's what it's like in those countries.  That's what you get when you don't let the smart folk keep things honest and prudent.  They are soooo going to feel dumb when they realize they've got waaay too many houses.  They'll probably beg us to take them.  But, we're not chumps.  We're prudent.  We know the value of things.  Things are too expensive.  Have been as long as I can remember.  We don't want their bubble houses.  Prudent people go without.  Prudent people make others go without.  If you don't, next thing you know the silly ones are running the show.


Imagine what a world it would be if instead of thinking "I told you so." we had a country full of people who, upon seeing that quote from June 2007 and the graph of housing starts since then, thought, "Good Lord, what have we done?"


  1. Love the post.

    I do wonder about those New Zealand house prices. No, not a bubble. But jeez, how do Kiwis afford to live? Are they undergoing declines in living standards?

    If houses are $2 mil average in Vancouver, Canada, but it is a low-income region, what gives?

    OT but here is an interesting note from OECD:

    “Money, while it cannot buy happiness, is an important means to achieving higher living standards. In Japan, the average household net-adjusted disposable income per capita is USD 27 323 a year, less than the OECD average of USD 29 016 a year.”

    International comparisons are vexing, but when you consider how expensive housing and medical care are in the US vs. Japan, it becomes a good bet Japanese real-world living standards are higher than that of Americans.

    The Tokyo vs. L.A., or NYC comparison in particular….

  2. you and me, we're not silly like that senior economist. We know a bubble when we see it. Policies based on an expectation and acceptance of a collapse are simply the only prudent response. The witches were triggering hallucinations. I suppose you wouldn't have burned them at the stake? It's easy for you to complain after we solved the problem.
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