Convergences

Amazing!

The papers this morning express surprise over an increase in home sales in Dec. of 6.5%, triggered by a decline in home prices. Gee, what an amazing idea! Prices decline and people buy more! A new concept -- shall we call it supply and demand?

Also interesting -- the National Association of Realtors says:

National median existing-home price: (for all housing types) was $175,400 in December, which is 15.3 percent below December 2007 when the median was $207,000. There remains a significant downward distortion in the current median from a large number of distress sales at discounted prices, currently 45 percent of transactions; the median is where half of the homes sold for more and half sold for less. For all of 2008, the median price was $198,600, down 9.3 percent from $219,000 in 2007.

A 15%  decline does not seem too serious. As I recall, that is about the decline necessary to restore real estate prices to their long term trendline. What happened to all the predictions about prices being in free fall, yada, yada?

The Housing Speculation Fiasco

Reading Stan J. Liebowitz (Ashbel Smith Professor of Economics at the University of Texas at Dallas) is always educational, because he explains convincingly why something one knew to be true is in fact wrong. His latest is Anatomy of a Trainwreck: Causes of the Mortgage Meltdown (Oct. 3, 2008), where he notes:

The recent rise in foreclosures is not related empirically to the distinction between subprime and prime loans since both sustained the same percentage increase of foreclosures and at the same time. Nor is it consistent with the “nasty subprime lender” hypothesis currently considered to be the cause of the mortgage meltdown. Instead, the important factor is the distinction between adjustable-rate and fixed-rate mortgages. This evidence is consistent with speculators turning and running when housing prices stopped rising.

Steve Malanga continues the discussion in Foreclosure Myths: Can the Media Handle the Truth?

But many buyers don’t qualify [for federal aid] precisely because they made speculative loans or were intent on flipping their homes, and they instead walked away from their mortgages at the first sign of home depreciation. These folks aren’t current on loans that haven’t even reset yet, and aren’t about to tough it out on a loan even if they can negotiate a lower monthly payment, because it will take years for the value of some of these homes to get back to the original selling price.