Sunday Edition: October 28, 2007
Alarm Bells For America
The freedom of the press is one of the great bulwarks of liberty, and can never be restrained but by a despotic government.
-Thomas Jefferson, 3rd U.S. President and Declaration of Independence author
In my 11 years of public sector employment, I worked with a number of civil servants who always placed the public interest first. Then again, I also had the displeasure of working alongside some incompetent and unprofessional individuals who looked out only for themselves. Thinking I had seen everything, I was upset to learn from the Washington Post this weekend that the Federal Emergency Management Agency (FEMA) staged a fake press conference last Tuesday as FEMA employees posed as reporters and asked questions, while real members of the press listened in on a telephone conference line and were unable to ask questions. According to the Post, FEMA announced the news conference about 15 minutes before it was to start, making it unlikely that reporters could attend. However, to “accommodate” the press a telephone conference line was set up so reporters could listen (but not ask questions).
During the briefing, Vice Admiral Harvey E. Johnson Jr., FEMA’s deputy administrator, called on questioners who did not disclose that they were FEMA employees. Johnson answered questions regarding the recent California wildfires with an emphasis on FEMA’s improved response since Hurricane Katrina in 2005. For example, one question was, “Are you happy with FEMA’s response, so far?” Johnson replied, “I’m very happy with FEMA’s response so far. This is a FEMA and a federal government that’s leaning forward, not waiting to react. And you have to be pretty pleased to see that.” After the stunt had been discovered, White House press secretary Dana Perino said on Friday that “it is not a practice that we would employ here at the White House. We certainly don’t condone it. We didn’t know about it beforehand… They, I’m sure, will not do it again.” I’m not so sure. According to the Salem-News (OR) yesterday, in 2005 a political operative was busted after asking President George W. Bush simple and easy questions while posing as a White House reporter.
This action was a little too Stalinesque for my taste. In present-day America, it seems the public interest is increasingly becoming subjugated to self-interest. For our purpose, let this incident serve as a reminder that the next time you hear “don’t worry, be happy” from Washington or Wall Street when it comes to our economic health- be wary. Do your own research, filter out the “noise,” and make up your own mind.
Washington and Wall Street will continue to pursue their best interests, which may not always be the same as yours and mine…
Chicago Immune To Housing Woes?
Last Thursday, the Illinois Association of Realtors announced that the average price paid for an existing home in the Chicagoland area rose 5.9% in September. On Friday evening, four members of the local media appeared on “Chicago Tonight” and discussed the topic of “Slumping home sales unnerve the real estate market here.” One of the guests, Daniel Miller, business editor of the Chicago Sun-Times (number ten U.S. newspaper based on daily readership), said that if you’re a prospective homebuyer in the Chicagoland area- now is the time to buy. One of the other panelists nodded his head in agreement with the comment. In this morning’s real estate section of the Chicago Tribune, a piece made reference to a recent report from the Headrick-Wagner Consulting Group out of Naperville, Illinois, that says Chicago home values increased 2.8% from last year.
After seeing all this, am I supposed to believe that Chicago is immune to the housing woes afflicting other major metropolitan areas in the United States? Or, are these guys just reminding the world why we’re called the “Windy City”? (Note: some believe Chicago got this nickname not because of the weather, but rather Chicago politicians and their propensity to “blow a lot of wind.”)
Here’s what I know. Jan Hatzius, chief U.S. economist at Goldman Sachs in New York, told the Wall Street Journal last Thrusday that home values, as measured by the S&P/Case-Shiller U.S. National Home Price Index, are likely to fall about 7% this year and a similar amount in 2008. The Journal’s quarterly survey of housing-market conditions in 28 major U.S. metropolitan areas shows that inventories of unsold homes are still rising in most of them, prices are generally falling, and overdue loan payments are piling up. This applies to Chicago as well. The most recent data for the S&P/Case-Shiller Home Price Indices shows that U.S. home prices in major cities were falling at their fastest rate in 16 years. For 10 major cities (including the Chicagoland area), home prices fell 0.6% in July and were down 4.5% in the past year, the sharpest decline since 1991. Robert J. Shiller, Chief Economist at MacroMarkets LLC and a creator of the index, said on September 25 that:
The decline in home prices clearly continued into the summer months. The year-over-year decline reported for the 10-City Composite is the lowest since July 1991… The further deceleration in prices is still apparent across the majority of regions, with 16 of the 20 metro areas showing a drop in their annual growth rate from what was reported in June.
Focusing solely on Chicago, from June to July home values increased 0.1%, according to the S&P/Case-Shiller data. This followed a rise of 0.2% from May to June. However, when we look at the previous 12 months, the value of a Chicago home declined by -0.9%. According to the Wall Street Journal, housing inventory in the City of Chicago also increased 5.4% year-over-year in September.
My own research leads me to believe that the Chicagoland residential real estate market is not as rosy as some would like you to believe. This may be due to my use of the S&P/Case-Shiller Indices. Back in February, O. Emre Ergungor, an economist at the Federal Reserve Bank of Cleveland, said, “Despite their potential weaknesses, the Case–Shiller Indices are still an improvement over other house price indices commonly cited in the media, one published by the Office of Federal Housing Enterprise Oversight (OFHEO) and another by the National Association of Realtors (NAR).”
As Daniel Miller said, it is a buyer’s market in Chicago. Just not right now, or else you’ll probably lose money.
Parting Shot
CNBC talked to Swiss investment analyst Dr. Marc Faber on October 22 about the U.S. economy. Faber is famous for advising his clients to get out of the stock market one week before the October 1987 crash. Discussing the outlook for the U.S. housing sector with Dr. Faber, CNBC said:
Manhattan is the great exception to U.S. trends, continuing to rise in price even when strong U.S. regions show signs of decline. But Faber says that in the bigger perspective, New York property is as vulnerable to a credit bust as any major metropolitan areas, such as “Hong Kong, Zurich and Frankfurt.”
His real-estate advice: “Buy a farm and learn to drive a tractor.”
Have a wonderful week,
Christopher E. Hill
Editor
editor@boom2bust.com
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