August 23, 2012
The NYT had an article that was far more hesitant about the housing recovery than is warranted by the data. In fact, house prices have pretty much stabilized at a normal level, as have existing home sales.
The problem is that the NYT still does not seem to understand that we had a housing bubble, at one point warning readers that:
“She [Michelle Meyer, an economist with Bank of America Merrill Lynch] expected home prices to rise 2 percent annually in 2012 and 2013, with momentum gradually increasing later in the decade. At that rate, the average home price would regain its 2006 peak in 2022.”
Of course there is no more reason to expect house prices to return to their bubble inflated peaks than there is to expect the NASDAQ to rise back to the 5000 level it reached at the peak of the stock bubble. Eventually inflation will cause both markets to pass these peaks, but as the article notes, this will be a long time.
The current level of existing home sales, just under 4.5 million, is very much in keeping with the longer term trend. In the years 1993-1995, before the bubble began to inflate the market, existing homes sales averaged less than 3.5 million.
The piece includes a chart showing building permits that is clearly wrong. The chart shows building permits peaking at well over 2 million a year in the mid-90s and then plunging in the last decade. In fact permits were under 1.5 million annually in the mid-90s. The chart may have been off by a decade.
The piece also includes a reference to the recent rise in prices in Phoenix. It is worth noting that is largely driven by an extraordinary run up in prices in the bottom tier of the market. Prices in this segment of the market have risen at a 47.3 percent annual rate in the last three months. This looks like a speculative bubble.
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