Wednesday, March 08, 2006
Realtors Become Bubble Deniers
The National Association of Realtors has issued a series of "anti-bubble reports" that provide talking points to realtors across the country who want to convince homebuyers that their investments are safe and sound. Individual reports are written for each metropolitan area in the country.
This wouldn't be so bad if the reports took a realistic look at each area, but instead they are almost carbon copies of one another. The report for Houston, which certainly has no bubble, is word-for-word nearly identical to the one for San Francisco, which has a huge bubble.
The reports both say that "the mortgage servicing cost relative to income" is "at a very manageable level." This is true for Houston, the report for which says that a median-income family could pay off a thirty-year mortgage on a median-priced home by dedicating just 10 percent of its income to the mortgage. But a family in the San Francisco metro area (which includes Marin and San Mateo counties) must spend 37 percent of its income on its mortgage. That is manageable?
The San Francisco report adds that home price appreciation was "weak" in the 1990s so recent price increases of 14 percent per year do not indicate a bubble; prices are just "catching up." Yet San Francisco prices are three times the national average, so what are they catching up to?
The biggest howler is the claim that "home price declines are very rare." Hardly. The FDIC has identified numerous housing busts across the country in the last few decades. One of the biggest ones was in San Francisco, which saw prices fall by about 20 percent from 1989 to 1994. (That's what the realtor association means by "weak" price appreciation.)
It is considered unethical if not illegal for stock brokers to advise clients that prices are going up and they should buy when the brokers know prices are more likely to fall. It should be the same for realtors. Reputable analysts such as PMI and HSBC Bank say there is a high probability that housing prices in places like Boston and San Francisco will fall in the near future. Yet the realtor association writes that "there is little danger of this" and goes on to claim that "the local housing market is in excellent shape with a
potential for significant housing equity gains."
Instead of acting like bubble deniers, the National Association of Realtors should figure out what is causing the bubbles -- government regulation -- and fight it. For more about this, see the article on Edward Glaeser above.
This wouldn't be so bad if the reports took a realistic look at each area, but instead they are almost carbon copies of one another. The report for Houston, which certainly has no bubble, is word-for-word nearly identical to the one for San Francisco, which has a huge bubble.
The reports both say that "the mortgage servicing cost relative to income" is "at a very manageable level." This is true for Houston, the report for which says that a median-income family could pay off a thirty-year mortgage on a median-priced home by dedicating just 10 percent of its income to the mortgage. But a family in the San Francisco metro area (which includes Marin and San Mateo counties) must spend 37 percent of its income on its mortgage. That is manageable?
The San Francisco report adds that home price appreciation was "weak" in the 1990s so recent price increases of 14 percent per year do not indicate a bubble; prices are just "catching up." Yet San Francisco prices are three times the national average, so what are they catching up to?
The biggest howler is the claim that "home price declines are very rare." Hardly. The FDIC has identified numerous housing busts across the country in the last few decades. One of the biggest ones was in San Francisco, which saw prices fall by about 20 percent from 1989 to 1994. (That's what the realtor association means by "weak" price appreciation.)
It is considered unethical if not illegal for stock brokers to advise clients that prices are going up and they should buy when the brokers know prices are more likely to fall. It should be the same for realtors. Reputable analysts such as PMI and HSBC Bank say there is a high probability that housing prices in places like Boston and San Francisco will fall in the near future. Yet the realtor association writes that "there is little danger of this" and goes on to claim that "the local housing market is in excellent shape with a
potential for significant housing equity gains."
Instead of acting like bubble deniers, the National Association of Realtors should figure out what is causing the bubbles -- government regulation -- and fight it. For more about this, see the article on Edward Glaeser above.
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