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News From The Nonexistent Housing Bubble

The start of each year is prime time for economic pessimists, who try to persuade us terrible things are about to happen. A perennial favorite is the “housing bubble” about to burst, with a supposedly devastating impact on household wealth. This has been repeatedly recycled since June 2002 by bearish economic forecasters like Ed Leamer of University of California-Los Angeles and Stephen Roach of Morgan Stanley.

And the same scary story has proven handy for policy wonks who abuse it to rationalize their agendas, such as lecturing the Fed to keep interest rates too low or lecturing Congress to push tax rates too high…

In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. “Housing bubble” worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is.

-Alan Reynolds, Cato Institute senior fellow and nationally-syndicated columnist, January 8, 2005

These nattering nabobs expect a housing collapse to take down the U.S. economy. But excessive pessimism is unwarranted: Fears of a housing bubble are overblown.

-Brian S. Wesbury, First Trust Advisors economist, May 31, 2005

Housing bubble? What housing bubble?

With the 10-year U.S. Treasury bond yielding below 4% and 30-year mortgages available at 5.1%, there isn’t a housing bubble.

-Jim Jubak, MSN Money senior markets editor, June 10, 2005

Here’s the latest news on that nonexistent housing bubble, or what remains of it, at least (MarketWatch’s Ruth Mantell reports today):

Home prices in 20 major U.S. cities dropped 1.8% in September from the prior month, and they fell a record 17.4% on a year-over-year basis, according to the Case-Shiller home price index published Tuesday by Standard & Poor’s.

September’s prices were down in all 20 cities, compared to both August 2008 and September 2007, the data showed.

The largest decline in September was found in the San Francisco metropolitan area, where prices fell 3.9%. In the past year, Phoenix has had the largest decline — 31.9%.

For the original 10-city index, prices declined a record 18.6% in the previous 12 months. For the third quarter, there was a record year-over-year decline of 16.6% in the national home price index.

“The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals,” said David Blitzer, chairman of the index committee at Standard & Poor’s.

All three Case-Shiller aggregate indexes, as well as 13 of the 20 metro areas, saw new record rates of decline, Blitzer noted.

Mantell also broke down year-over-year performance by city:

Here’s how prices in the 20 cities performed in the past year:

Phoenix, down 31.9%; Las Vegas, down 31.3%; Miami, down 28.4%; San Francisco, down 29.5%; Los Angeles, down 27.6%; San Diego, down 26.3%; Detroit, down 18.6%; Tampa, down 18.5%, Washington, down 17.2%; Minneapolis, down 14.4%; Chicago, down 10.1%; Seattle, down 9.8%; Atlanta, down 9.5%; Portland, down 8.6%; New York, down 7.3%; Cleveland, down 6.4%; Boston, down 5.7%; Denver, down 5.4%; Charlotte, down 3.5%; Dallas, down 2.7%.

Sources:

“No housing bubble trouble”
Alan Reynolds
Washington Times, January 8, 2005

“Mr. Greenspan’s Cappuccino”
Brian S. Wesbury
Wall Street Journal, May 31, 2005

“Why there is no housing bubble”
Jim Jubak
MSN Money, June 10, 2005

“Home prices off record 17.4% in past year: Case-Shiller”
Ruth Mantell
MarketWatch, November 25, 2008