September 6, 2006

Bubble, Schmubble (so far)

Note: This post was inadvertently published before completion and pulled earlier today. I apologize for that occurrence.


Here’s the definition of “real estate bubble” (or “crash”) that I mentioned in a comment at this post a couple of weeks ago:

A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in the valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic indicators, followed by decreases that can result in many owners holding negative equity (a mortgage debt higher than the value of the property). Unlike a stock market crash following a bubble, a real-estate *crash* is a slow process, because sellers just decide not to sell. Historically due to inflation, prices did not fall in nominal terms, rather they stayed *flat* for a period of 3-5 years. However, due to low inflation in most countries, future corrections may result in a fall in both real and nominal house values.

The WORMs (Worn-Out Reactionary Media, known to most as the formerly Mainstream Media, also to be known from now until early November as “The 527 Media”) have already been chronicling/celebrating a housing “implosion,” “housing chill,” “taking something of a dive,” and the like, as if it’s already in progress. One writer informed me last week that “it was a bubble in 2005 and the bubble has now collapsed.”

Oh come on. It’s worth reminding folks what the real numbers have been for home-price increases in the last eight quarters, as reported by the Office of Federal Housing Enterprise Oversight (OFHEO). Yesterday’s report is here (PDF); quarterly reports, all PDFs, can be found by going through the press releases at

2Q 2006 — Quarter, +1.17%; previous 12 months, +10.06%
1Q 2006 — Quarter, +2.03%; previous 12 months, +12.54%
4Q 2005 — Quarter, +2.86%; previous 12 months, +12.95%
3Q 2005 — Quarter, +2.86%; previous 12 months, +12.02%
2Q 2005 — Quarter, +3.20%; previous 12 months, +13.43%
1Q 2005 — Quarter, +2.21%; previous 12 months, +12.50%
4Q 2004 — Quarter, +1.69%; previous 12 months, +11.17%
3Q 2004 — Quarter, +4.62%; previous 12 months, +12.97%

One relatively flat quarter, does not a bubble make. The current quarter’s result, given the overall annual inflation rate of about 4% (1% per quarter), isn’t even flat (close, but not quite); it barely qualifies as a “blip.”

(Note: Actual 2nd quarter inflation for all items was 1.3%; excluding food and energy, it was 0.7%. So for long-term analysis, split the difference, especially considering recent energy-price drops, and 1% is a reasonable benchmark for the level of quarterly inflation that is really taking place.)

Given the definition above and the OFHEO data noted, NOBODY will be able to credibly claim that, as a nation, we’re in the midst of a “bubble” until there are at least four quarterly performances that are worse than the 2nd quarter’s, i.e., the middle of 2007. And, given that stubborn definition above that The 527 Media wants to pretend doesn’t exist, no one will be able to say that a bubble actually, really, positively occurred until 2009.

And for the heck of it, when you look at the OFHEO results by state, you find that the states bringing up the rear this quarter were NOT the “bubble” candidates everyone thinks of (California, Nevada), but Indiana, Ohio, and Michigan, all three of which were never frothy in the first place.


ALSO RELEVANT: Here are a couple of informal indicators that whatever is happening in the housing market is not a long-term problem –

  • Biz Weak (known to most as Business Week) had this to say (link appears to be free for now) in its September 4 issue, which came out before the OFHEO report, which mostly negates the article’s contention that there is a lot of “downward pressure” on home prices:

    RIGHT NOW, EVEN a passel of strong data cannot draw attention away from the weakness in housing, the economy’s most visible and most vulnerable sector. The worry is the housing slump, which appears to be getting worse, will drag down the entire economy.

    However, this housing cycle is different. In the past, housing downturns have been the result of high interest rates and broad economic weakness leading to rising unemployment. This time, housing is going through its own cycle, largely independent of wider economic conditions. The economy outside of housing remains solid: Unemployment is low, household incomes are growing, and 30-year fixed mortgage rates, at a bit over 6.5% in mid-August, are hardly onerous.

    This housing recession is primarily an inventory correction, as builders adjust to the aftermath of the demand frenzy in previous years. This is squeezing prices of new homes, with attendant effects on existing home prices. However, the sharp drop in housing starts of more than 20% so far from the January peak implies builders are moving quickly to realign their stocks of unsold properties with the lower level of demand. The faster the adjustment takes place, the quicker the downward pressure on home prices will ease.

  • Supporting the contention that builders haven’t gone wild is Barron’s August 28 cover story (”Housing Ripple”; free link not available). Page 1’s first tease sentence is “As home prices sink, stocks in the sector are falling to attractive levels.” Never mind that the headline writer fell for the “falling prices” meme, which was written before the OFHEO report was released, and obviously hasn’t played out to the extent predicted — If there was rampant overbuilding, Barron’s wouldn’t be suggesting that the stocks of Pulte Homes, Whirlpool, and Countrywide Financial are good buys.

Carnival Barking (090606)

Filed under: News from Other Sites — Tom @ 2:55 pm

Newshound’s 38th Carnival of Ohio Politics is here.

The 11th weekly installment of Boring Made Dull’s Economics and Social Policy roundup is here.

527 Media Take Near-Control Today

Filed under: MSM Biz/Other Bias,Taxes & Government — Tom @ 9:43 am

From today until Election Day (and perhaps thereafter), based on the excellent arguments of Jeff Babbin at Real Clear Politics last month (HT e-mailer Larwyn), I will be referring to the WORMs (Worn-Out Reactionary Media, known to most as the formerly Mainstream Media) as “The 527 Media.”

This is because of the national travesty known as McCain-Feingold discussed at this previous post.

McCain-Feingold Free-Speech Restrictions Take Effect Today, Leaving the “527 Media” in Near-Control

Filed under: Taxes & Government — Tom @ 9:38 am

The Washington DC Examiner hits the nail on the head on the self-inflicted tragedy that will be visited on the political process beginning tomorrow (HT Club for Growth):

Thursday (is) the day when McCain-Feingold — aka the Bipartisan Campaign Reform Act of 2002 — will officially silence broadcast advertising that contains criticism of members of Congress seeking re-election in November. Before 2006, American election campaigns traditionally began in earnest after Labor Day. Unless McCain-Feingold is repealed, Labor Day will henceforth mark the point in the campaign when congressional incumbents can sit back and cruise, free of those pesky negative TV and radio spots. It is the most effective incumbent protection act possible, short of abolishing the elections themselves.

….. both parties and indeed much of the Washington political establishment are complicit in the assault on freedom of political speech for the rest of us.

None of this would surprise Alexander Hamilton, who argued in “The Federalist Papers” that written guarantees of things like freedom of the press would be purposely misconstrued by ambitious politicians and used as a pretext to do that which the Constitution banned: “I will not contend that such a provision would confer a regulating power; but it is evident that it would furnish, to men disposed to usurp, a plausible pretense for claiming that power.” That is just about exactly what has happened now with the First Amendment and freedom of political speech, thanks to McCain-Feingold.

By election day, it should be clear to all reasonable persons that McCain-Feingold was a serious mistake ……

McCain-Feingold should not simply be repealed; it ought to be replaced with a new law that uses transparency in campaign finance rather than censorship in political expression.

The sunlight of transparency is the best disinfectant in government and politics, far better than imposing censorship on those who have something to say to their fellow citizens about members of Congress and their records.

Despite the temporary respite blogs have received from the Federal Elections Commission, who really thinks that the FEC won’t step in and regulate the daily Internet broadcast industry that has begun to blossom at sites like Crooks and Liars and Hot Air once it inevitably begins to take on a role as an end-run alternative media outlet during political campaigns?

I believe in free markets. That includes the free market of ideas. It is a product of misguided notions of “fairness” by its supporters, and an extraordinary amount of cowardice by its opponents, including the President, who refused to vote their consciences in the naive belief that the Supreme Court would simply strike it down.

McCain-Feingold must go. And for that matter, so must both of them.

Valuable Research “Urban Planners” Will Try to Ignore

Filed under: Economy,Environment,Taxes & Government — Tom @ 8:03 am

John Charles in Capitalism Magazine comments on the box Portland, OR finds itself in:

The Portland City Council wants to spend at least 30% of all urban renewal dollars on housing subsidies. Their concern is that skyrocketing home prices have made it difficult for lower-income families to live in the city.

Unfortunately, Council members are boxed in by their own ideology of urban planning. A central reason why housing is so expensive in Portland (and most other Oregon cities) is that the government has created an artificial shortage of homes through zoning and other types of land-use regulation.

A recent study by the Brookings Institution found this to be true on a national scale as well. The authors examined land-use polices among the nation’s 50 largest cities, and found that those cities with the least amount of zoning – Dallas, San Antonio and Houston – had the cheapest rents and the lowest home prices of all cities. Not only that, the three Texas regions had lower concentrations of poverty, higher home ownership rates, and larger concentrations of college graduates than cities with strict growth controls such as urban growth boundaries.

Remember that Brookings is a liberal think thank.

Whether intentional or not, hyper-restrictive zoning ends up benefitting existing homeowners and discriminating against those attempting to buy or move up. It also contributes to the very urban sprawl that urban-planning types so abhor.

A Misleading Headline Obscures a Building EU Controversy

The controversies are over immigration and respect for traditional values. The AFP headline doesn’t reflect in any way what the man discussed, while the article itself gives a few clues about the author’s distaste for him (bolds are mine):

France Has Too Much Freedom: Lech Walesa

VIENNA, Aug 30, 2006 (AFP) – Poland’s former president and legendary head of the Solidarity union, Lech Walesa, hailed the role played by the country’s current political leaders, the twin brothers Lech and Jaroslaw Kaczynski, within the European Union as a counterpoint to the “French model”.

In an interview to appear Thursday in the Austrian daily Der Standard, Walesa said that “the French model, which is based on freedom, has not been effective and is bad. (But) if there did not exist people like Lech and Jaroslaw Kaczynski, that is what would be chosen” for the future of the EU.

“France has built an open society, inviting Africans and Arabs to its country, building mosques, and not churches. And after there was fire in the streets,” the conservative former head of state and Nobel peace laureate said.

“You have to thank God there exist people like the Kaczynskis.”

The attitude of the new Polish government dominated by President Lech Kaczynski, and his twin, Jaroslaw Kaczynski, the new prime minister, has raised concerns within the EU, especially regarding their positions in favor of the death penalty, opposition to homosexuality and alleged anti-Semitism.

Walesa is clearly objecting to France’s relatively open-borders attitude towards immigration (though there are signs that’s changing), and its secular, uber-tolerant society.

And I would bet lunch that when the AFP writer claims that Walesa spoke of too much “freedom,” the Nobel laureate really was referring to “license.” It’s the only context that makes sense. I would add a side bet that Walesa said “wrong” where the author claims “bad.”

After so many years under numerous oppressors, I tend to doubt that the Poles will allow themselves to be rolled over by a values-barren EU bureaucracy any time soon. This controversy can’t be wished away by Europhiles who would rather not deal with it.

Bad News for Peak Oilers; Good News for the Rest of Us

Filed under: Business Moves,Economy,Marvels — Tom @ 7:53 am

Gulf oil discovery may be bigger than Alaska’s Prudhoe Bay” — 15 billion barrels at a minimum.

Also, though this is obviously a bit on the sensationalistic side, the idea that there might be  2 trillion barrels of oil (350 years at the USA’s current usage rate), extractable from sands in Colorado and Utah is more fun than we should be allowed to imagine.


Euro-Dhimmitude Watch

Filed under: Business Moves,Taxes & Government — Tom @ 7:48 am

From Holland: Minister Okay with Madonna’s Cross Routine.

Never mind the arguments about whether or not some kind of action against the business-opportunistic diva would have only succeeded in gaining her more attention or notoriety. Do you think a Koran-based stunt would have been similiarly okey-dokey?

Positivity: Hero “Barman” in Blaze Rescue

Filed under: Positivity — Tom @ 5:59 am

From Scotland:

1 September 2006

BRAVE publican Alistair McAuflan told last night told how he dragged a man with severe burns from a blazing building.

Alistair battled through thick black smoke to pull the man out of the burning tenement above his city centre bar.

He said: “I went out with a friend to see if we could help.

“We kicked the door down and there were two guys on the first-floor landing. One was was screaming about his dog being upstairs.

“I was breathing in pure black soot and had to turn back. The guy on the floor had burned his legs and feet and couldn’t walk. He was really upset about his dog and didn’t want to leave but we dragged him down the stairs.”

The fire above the Auld Clachan pub in Fountainbridge, Edinburgh, started after two men used petrol to fuel a paraffin lamp.

Ten residents were rescued. Four people, including Alistair, were treated for injuries ranging from severe burns to smoke inhalation.