There’s good news and bad news. Well, in this case, there’s only bad news. Surprisingly strong data about the nation’s residential real estate market was released on November 30 by the Office of Federal Housing Enterprise Oversight. Despite the media’s fascination with what it proclaimed over five years ago was a housing bubble, no TV network other than CNBC bothered to share the good news with its viewers.
But disappointing data from other government agencies and the National Association of Realtors has typically been given a lot of air time. NBC’s Brian Williams declared on September 25, “[T]he housing bubble has indeed and officially deflated.” A month later, CBS’s Katie Couric proclaimed that housing “prices are dropping like a rock.” And, a day before this OFHEO report was released, CNN’s Ali Veshi warned viewers, “[Y]our house is not gonna be the most expensive thing or the most valuable thing you own.”
Given all this attention to real estate prices, it seems impossible to believe that none of these networks cared about the most recent comprehensive report concerning the nation’s housing picture which stated, “Nationally, home prices were 7.73 percent higher in the third quarter of 2006 than they were one year earlier.” Contrary to data from the realtors about existing home sales or the government reports about new ones, the quarterly OFHEO study indicated that every state except Michigan has seen average home prices increase since the third quarter of 2005.
Sound like a bubble bursting? Economists at this government agency don’t seem to think so: “‘House prices continued to rise through the third quarter in most of the country, but generally at only low or moderate rates,’ said OFHEO Chief Economist Patrick Lawler. ‘The transition from sizzling markets to normal or weak markets has been orderly so far, and recent drops in interest rates lessen the likelihood that precipitous changes will occur.’”
Why the disconnect between this data and the more bearish information coming from the NAR, the Census Bureau, and the Department of Housing and Urban Development? As the New York Times reported on page four of its business section December 1: “That difference is a result of the way the government compiles its index, housing specialists say. It measures repeat sales of the same houses over time, while the Realtors report median prices of houses sold in a period.”
The Times’ article continued:
If a large number of modest homes are sold in a given month relative to a year earlier, the Realtors data will indicate that prices have fallen, even if the price on any specific property has not changed appreciably…Taken together, the two data series suggest that moderately priced single-family homes are doing better than more expensive properties, said S. Lawrence Yun, a senior economist at the Realtors association.
Such positive news would have certainly been welcomed by homeowners across the country who have been bombarded with pessimism. One of the worst offenders has been CBS, which began an October 26 segment of the “Evening News” with Katie Couric declaring: “The government reported today that prices are dropping like a rock and there are plenty of homes to choose from. If you're selling one, you may have problems.”
Is it accurate to characterize a 9.7 percent decline in new home prices from September 2005 to September 2006 as “dropping like a rock?” Stock market investors who watched the Nasdaq lose more than 60 percent in value, and the S&P 500 30 percent, in the 12 months following those indices’ all-time highs in 2000 might question Couric’s depiction.
Regardless, CBS didn’t stop there. Once Couric passed the story to reporter Trish Regan, the tone got even worse: “Still, some worry the bursting of the housing bubble will create a drag on the rest of the economy.” This “bursting is bad for the economy” theme has been a common one since the media first labeled rising home prices a “bubble” in 2001 as addressed by a November 2005 Business & Media Institute Special Report:
On September 3 of that year, Forbes magazine warned its readers about the consequences of home equity values starting “to wobble,” while stating, “There are ominous signs that this is about to happen.” On the same day, a BusinessWeek editorial cautioned about a “double bubble” and told its readers, “A housing bubble may be developing – right behind the Nasdaq bubble.” Both indicated that such an event would be devastating to the economy.
NBC hasn’t done much better concerning this issue. Brian Williams made this dire assessment of residential real estate on the September 25 “NBC Nightly News”: “The latest report on the housing market is out, and according to a lot of economists and analysts, the housing bubble has indeed and officially deflated. According to the numbers out today, sales of existing homes fell for the fifth straight month in August.” Williams punctuated his bearishness: “But here is the number that really got people's attention today. The median home price fell on a yearly basis by 1.7 percent.”
Horrors. 1.7 percent down in 12 months. To put this in perspective, when the stock market bubble burst in 2000, there were days when equity prices dropped a heck of a lot more than 1.7 percent. In fact, when the bear market began in March 2000, the NASDAQ plummeted by more than 30 percent – in just one week. That’s a bubble bursting. For a more recent frame of reference, the NASDAQ lost 1.9 percent just last week without the media depicting it as anything more than a healthy correction after the recent rally in stock prices.
The point of making such comparisons is by no means to ignore an expected and overdue slowing in the real estate market after a boom that began in the early ’90s, and started cooling as the Federal Reserve recently finished years of interest rate hikes. However, much as the media incorrectly labeled this bull market a bubble, they are now mischaracterizing the current data as practically apocalyptic. As BMI reported last November:
[A]n investment bubble occurs when an asset appreciates by extraordinary percentages for a short period of time, culminating in a rapid decline that wipes away most of the gains. A perfect example is the NASDAQ stock index, which went from roughly 1,400 in October 1998 to more than 5,000 in March 2000 (a 250-percent gain in less than 18 months), only to fall back to about 1,400 by October 2001 (a 70-percent decline in about 18 months).
Clearly, the current real estate market is not experiencing the kind of precipitous drop in values typically seen when investment bubbles burst – even in states that are hardest hit, But that didn’t stop CNN’s Ali Veshi from stating a tremendously bearish position on November 29 just a day before the OFHEO released its report: “You know, nobody ever asks me anymore whether the housing bubble is gonna burst. Well, we have new numbers now that will prove to you that, well, your house is not gonna be the most expensive thing or the most valuable thing you own, necessarily.”
What made Veshi so concerned? “We're talking about the average price of an existing house being $221,000 now. That is 3-1/2 percent lower than the same time last year.” A simple extrapolation indicated an $18,000 decline in value for the average home in the past twelve months; it seems unlikely this would make anything else most people own more valuable.
Surprisingly, the already referenced New York Times article nicely put all of this in its proper perspective: “The weakness in housing appears to be more muted and gradual than many had predicted.” The only question remaining is when the television media will recognize that real estate is actually doing much better than they are reporting.