Monday, May 23, 2005
As we all know by now, on Friday Alan Greenspan said that he saw housing bubbles. Well, he didn't actually say that he saw housing bubbles, what he said was "it's hard not to see that there are a lot of local bubbles". So, since he has difficulty not seeing them you could conclude that he does indeed see them, unless of course he's not looking in the right place or his eyes are closed - both possible.
It would have been much simpler to just say, "we see a lot of local bubbles" - but that has an entirely different connotation.
That sounds dangerous.
Now the kind of housing bubbles he says are not hard to see are the local housing bubbles - apparently no one at the Fed sees a national housing bubble since they continue to state "we don't perceive that there is a national bubble".
This is actually pretty surprising stuff, seeing any bubbles at all, since our Fed Chief is on record saying that you can't detect a bubble until it has burst. It's unclear what the implications are of now being able to detect local bubbles before they burst (if they burst) - do they behave differently than bubbles of the undetectable variety? Is the national housing bubble really just undetectable? Could it be that it is really there, they just don't perceive it?
This bomb was also dropped:
"Even if there are declines in prices, the significant run-up to date has so increased equity in homes that only those who have purchased very recently, purchased just before prices actually literally go down, are going to have problems".That should make recent first time homebuyers feel good! It wasn't too long ago that he was praising adjustable rate mortgages and crowing about how the new lending standards access untapped borrowing potential, or some nonsense like that.
What's this about prices going down - that could be bad!
So how was this new candor reported by the media? These online news sources reported the housing bubble discussion with the following stories:
Reuters - Greenspan Sees Froth But No Nat'l Housing Bubble
Bloomberg - Greenspan Says Housing Market `Speculation' Is Unsustainable
L.A. Times - Greenspan Sees Bubbles in Housing
CNN/Money - Greenspan sees no housing bubble
So was a bubble spotted or not? It's hard to tell based on the last two headlines.
Let's first take a look at the Reuters and Bloomberg stories - pretty straightforward reporting. The content seems to be consistent between the two and the headlines are appropriate for the content. It looks like both of these sources can be trusted to give it to you straight - to not provide too much editorial content.
Now to the L.A. Times article. This one gets to the "local bubbles" angle immediately. It's not until three short paragraphs later that the "no national bubble" assurance is proffered.
Federal Reserve Chairman Alan Greenspan said Friday that some regional housing markets were showing signs of unsustainable speculation and "froth" and that there were "a lot" of local housing bubbles.The author's re-prioritization of the local/national bubble comments is completely understandable - if you've lived in L.A. for the last few years and observed the real estate market, then listened to friends at cocktail parties, you've probably been clamoring for someone in authority to throw some cold water on L.A. real estate.
The comments were Greenspan's most detailed description yet of risks in the booming real estate market, and reflected the Fed's growing concern about the need to tighten mortgage lending standards.
Greenspan's remarks, during a question-and-answer session after a speech in New York, were reminiscent of his statement in 1996 that the then-hot stock market was afflicted with "irrational exuberance."
The Fed chief said Friday that he didn't see a national housing bubble and that the economy was not at risk, an assertion he had also made in February.
And these comments from a couple local economists:
Some economists suggested that Greenspan was partly to blame for the overheated housing market. By letting short-term interest rates hit rock bottom as a means to help the economy recover from the 2001 recession, the central bank helped drive down mortgage rates. That in turn created an exaggerated demand for housing.What's with all the negativity? Sounds like their trying to shut down the California Real Estate Fun Machine ... or maybe they are just trying to help 35 million Californians understand that they are in the middle of a mania - that the world doesn't work this way under normal circumstances.
But Greenspan's remarks may be "too little, too late," said Christopher Thornberg, a senior economist at the UCLA Anderson Forecast who has been among the few economists to emphatically describe California's housing market as a bubble.
Finally we get to the CNN/Money piece. Now this website is really run by the staff of Money Magazine, and CNN is just the unwitting accomplice, so we shouldn't be too hard on CNN - yet it is their name on the top of the website.
If you want to assess how Money Magazine views the world, all you have to do is pick up a copy of their magazine - any copy. They are like the print version of CNBC - it's always a good time to buy stocks ... and real estate, apparently.
So, one look at this article and it somehow seems familiar. No byline - it says Reuters right there at the top. In fact this IS the Reuters article - verbatim. Except the headline is different.
Why did they do that?
Copy and paste the Reuters original then look at the headline "Greenspan Sees Froth But No Nat'l Housing Bubble". Hmmm... not in keeping with our approach here at Money Mag - let's drop the "Froth" and the "Nat'l" and voila!
"Greenspan sees no housing bubble" - like wishing the housing bubble into the corn field.
To really appreciate how Money Magazine feels about the real estate market, take a look at their June special issue - Your Home. Look at the article about the San Diego real estate market - Boomtown USA. Five paragraphs of caution and 25 paragraphs of success stories - we're all going to be millionaires and that's just the way it is!
The headline modification is now pretty explainable - they don't want this thing to stop, and will do whatever they can to keep people believing that it really is different this time. Housing 2005 isn't like Nasdaq 2000 - it's different this time.
The scary part here is that what they have done to the headline has made it untrue - it is now a lie. Is that what it has come to?
Shame on you CNN/Money!