The Mainstream Media Grapples with Housing

For much of the mainstream media it seems that hard statistics were required in order to sound the alarm on the nation's teetering housing market and its possible implications for the rest of the economy.

Well, the hard statistics have been coming in torrents in recent weeks, prompting an astonishing array of responses by journalists and reporters of all stripes.

To some, seduced like many of the aspiring Donald Trumps of recent years, there is still an obvious condition of denial. Others recognize that there really are no free lunches and everyone can't get rich just from owning a home.

Today we look at three recent reports displaying varying degrees of acceptance and understanding.

One look at the interview subjects in this segment appearing on the CBS Evening News over the weekend and you can tell that something significant has changed. Instead of David Lereah and Barbara Corcoran, viewers get Nouriel Roubini and Dean Baker.

Thalia Assuras: New housing sales figures out this week may be casting a cloud over the economy as a whole. Sales of existing homes fell nearly two percent last month and were off more than 14 percent from a year ago. And, the median home price dropped $5,000 over the past year. Trish Reagan has more on the housing slump and what it might mean.

Trish Regan: The bulls may have broken 12,000 on the New York Stock Exchange, but elsewhere on Wall Street, bears are growling a word that only a few months ago was considered taboo - "Recession".

Nouriel Roubini: The view is that we have a 70 percent probability of a recession next year.

Regan: Former U.S. Treasury advisor Nouriel Roubini was one of the first to mention the dreaded "R" word this summer. Now a small but growing number of Wall Street banks are echoing his fears. Among them? HSBC, US Bank, which now pegs the odds of a recession at 75 percent, and Merrill Lynch which says that recession odds could be as high as 80 percent.

Why? Blame housing.

Not in 36 years has the real estate market seen this big a price drop. The median price of a new home sold last month sank nearly ten percent to $217,000. And the housing market may get worse before it gets better.

A study by Moody's Economy.com predicts home prices will decline nationwide in 2007. It would be the first time that's happened since The Great Depression.

Dean Baker: This is going to be a very, very big hit to the economy.

Regan: Dean Baker, co-head of the Center for Economic and Policy Research says the housing bust will hit consumer spending the hardest.

Baker: People have been using their houses as ATM machines. They have been borrowing against their homes like crazy, on the order of $700 billion last year. And they're going to have to cut back their consumption and that's going to have a very large impact on the economy.

Regan: The two things that could save this economy? Falling energy prices and the Federal Reserve. If gas prices continue to decline, consumers will have a little more money in their pockets each week, and that means more money to spend. And if the Fed decides to cut interest rates, that may help steer the economy toward the soft landing everyone is hoping for.

Trish Regan, unfortunately is placing her hopeful optimism in areas that may have a difficult time delivering the goods this time around. Lower interest rates are likely, however that may cause a host of undesirable side effects, not the least of which is higher energy prices.

Low energy prices and low interest rates are part of a bygone era - the Greenspan era - and are not likely to be repeated.

Two LA Times stories over the weekend paint a differing picture of how the mainstream media is adjusting to the mounting bad news about housing.

In this brief story relating another dismal 2007 real estate forecast, this one from the California Association of Realtors, the author characterizes falling prices as a "modest decline in price appreciation".

Thinking of buying? Median price likely to dip next year

After years of steep increases, homeowners can expect a modest decline in price appreciation next year, according to the California Assn. of Realtors' 2007 California Housing Market Forecast, which was released Oct. 18 at the trade group's annual expo in Long Beach. The sales pace is expected to continue to slow as well.

The median price of a California home will slip 2% to $550,000 in 2007, compared with a projected median of $561,000 for this year.
...
"Looking to 2007, we expect that some regions of the state, including the Central Valley, San Diego and Riverside-San Bernardino regions, will experience sales declines greater than the state as a whole," said Leslie Appleton-Young, the association's chief economist, in a release. "That also holds true for several second-home markets, including the desert areas of Southern California and the wine country."

Can you really call falling prices "a decline in appreciation" - it sounds so much better than de-preciation or negative appreciation, but when appreciation declines to the point where it is less than zero, surely the word no longer applies.

And, just the thought of all this hand-wringing with the median price home in California well north of a half million dollars makes you wonder what the heck has happened in this new century. If someone were just waking up from a half-decade long coma in San Diego and took a look around at the asking prices of homes for sale, they would be shocked.

This story from the much more practical, reality-based LA Times staff writers Bill Sing and Annette Haddad puts the situation into perspective. The big news from last week's report on new home sales was not that sales have ticked up slightly, but that builders are now slashing prices in a big way.

Prices of new homes sink 9.7%
Unit sales rebound 5.3% in the U.S. as buyers are
lured by price drops and extensive incentives.

Deeper price cuts and other incentives are finally producing the desired effect for home builders: After months of sitting on the sidelines, buyers are nibbling again.

The median U.S. price of a new home sold in September fell 9.7% from a year ago, the biggest annual decline since 1970, the Commerce Department reported Thursday. The result: The number of sales rose an unexpectedly strong 5.3%, the second month in a row of increases and the largest jump since March.

However, the rebound in sales came with substantial pain for builders, analysts said. Increasingly popular incentives — such as free landscaping, bigger bathrooms, fancier kitchens, no closing costs, cash rebates — actually make the price declines deeper than the government data indicate. Buyers are getting much more house for the same, or less, money.

Also, the government's sales figures might make the market look stronger than it really is because they don't account for cancellations after sales are made, said Patrick Newport, economist for research firm Global Insight Inc. Two of the nation's largest home builders, D.R. Horton Inc. and Lennar Corp., report that cancellations are running at 30%, about twice the normal rate, he said.

Well done Bill and Annette - you've covered the three key points in the first four paragraphs:

1. Lower prices have induced higher sales
2. Incentives paint a misleading picture on prices - it's worse than it appears
3. Accounting for cancellations makes inventory artificially low
   

Maybe some others in the mainstream media can learn a thing or two from reading this story.

Bill and Annette then go on to make clear the distinction between new and resale homes before providing a countering view from none other than the former Fed Chairman.

Oh well, nobody's perfect.

Prices and sales for resale homes, which represent about three-quarters of the market, also have been weak. Resale prices in September fell 2.5% below year-earlier levels, the National Assn. of Realtors reported Wednesday. That was the largest year-over-year decline since the organization began tracking prices nearly four decades ago.

The economy's strength overall could help the housing market avoid much more damage.

"Most of the negatives in housing are probably behind us," former Federal Reserve Chairman Alan Greenspan said Thursday. "The fourth quarter should be reasonably good, certainly better than the third quarter."

Without widespread job losses, many homeowners will not be forced to sell and buyers will be waiting in the wings.

"There is still plenty of demand for new housing units as this country of 300 million continues to grow, but today's buyers are only demanding what they can afford," said Patrick Duffy, director of Hanley Wood Market Intelligence.

Whatever happens, and despite the prognostication of the former Fed Chief, the adjustment from the housing market that Alan Greenspan left behind will take years to play out.

This is a slow-moving train. Whether it is a train wreck is yet to be seen, and the mainstream media now seems to be keenly aware of this possibility.

The tone of the reporting has changed markedly over the last few months. The mainstream media is now being blamed by realtors for making things worse, when in fact less cheerleading for the real estate industry and more due diligence on lending practices and appraisal fraud would have helped to prevent some of the worst of what is about to happen to many doe-eyed homeowners, now in well over their heads.

Of course freakishly low interest rates and little regulation of the mortgage lending industry would have prevented nearly all of the coming adjustment, but we are where we are.

The wealth-effect that has enabled spending and the equity-cushion (as Alan Greenspan used to call it) that has bolstered confidence are starting to vanish as home prices fall.

The media can do little other than provide the play-by-play.