Tuesday, November 20, 2007

What Housing Crisis?

The media is quite fond of overblowing the size of an event in order to attract more readership. This is already well known. Yet another example of this phenomenon is the housing "crisis", as everyone keeps calling it.

A couple of years ago it became common practice in the Eastern and Pacific Time Zones for banks to offer loans to customers who weren't really a lock to ever repay them. Now, a couple of years later, those particular loans aren't getting repaid, which should come as a shock to no one. Banks are suffering. In addition to that, home prices in the Eastern and Pacific Time Zones are falling back to a level they should have been at years ago. The houses for sale therefore can't be sold at a price the seller is willing to take, so houses sit on the market longer, which makes for fewer loans. Again, banks are suffering.

But somehow, in all of this, we're supposed to believe that individuals are weathering the housing "crisis" as poorly as the banks are. Individuals don't buy houses all that often, and when they do, it's usually because they want a place to live, not a place to make money off of. Yes, there are speculators who have thrived in hot markets like Las Vegas and Miami for the last few years, and for them, their business may be suffering. But if these speculators had the ability to buy several properties at once in any given year or month, they probably have enough capital to get through just about anything without being thrown out on the street. It may mean having to cut back on luxury cars. The local Ferrarri dealer may suffer (although this so far has not been the case).

There are also the studies reported on by the media that holiday shopping will be down because of the housing "crisis". Do individuals really take out second mortgages on the value of their homes to pay for Christmas gifts? I don't actually own a home, so I can't be sure, but that sounds extremely irresponsible to me, so much so that I suspect it's made up. Probably the biggest factor in holiday spending reduction is the lengthening of the holiday season, combined with the high gas prices and people not wanting to fight crowds of traffic on Black Friday. Advertisers have been putting jingle bells in their ads since just after Halloween, and if you're like my dad, you've already completed your Christmas shopping in order to avoid the holiday herds after Thanksgiving.

The biggest problem with the reported housing "crisis" is that unlike the markets of many things (gas, food, luxury airplanes), housing markets are always local. If a house sells for $200,000 in Colorado, the exact same floor plan could sell for $100,000 in Oklahoma or $400,000 in Las Vegas. It could also vary by which school district it lies in, the closeness of transportation and amenities, the neighborhood crime rate, the number of shade trees in the back yard and any number of other characteristics that are impossible to change. So while the media hypes up building starts and housing prices on a national scale, no houses are actually purchased on a national scale. In the Mountain and Central Time Zones, housing prices have remained stable, as they had been when the housing boom was on in the Pacific and Eastern Time Zones. If we lopped off those parts of the country, the media wouldn't even be able to talk of a housing crisis because there wouldn't be one.

1 comment:

Steve said...

Isn't it great to read about how wrong I was? How little I knew (know).