A Tale of Two Titles

Midway through the process of determining whether to apply the "S" word to one Kenneth Harney after reading "Bubble's pop was akin to a slow leak" in yesterday's LA Times, an interesting change to the title was discovered.

We'll get to that in a minute.

The story was prominently displayed in the real estate section of the Sunday paper - in the upper right on the front page. Anything about real estate and the word "bubble" is an immediate attention-getter around here - it's fascinating to watch how the mainstream media deals with the subject.

Anyway, the title seemed fair enough - the LA Times has some very good, very objective writers when it comes to real estate, Annette Haddad comes quickly to mind - but not far into the story, the finely tuned "shill-detector" started to make noise:

The latest sales data show a small but unmistakable uptick in activity and declining unsold inventories. In late December, the National Assn. of Realtors reported that existing home resales were up by a hair in November — 0.6% — the second straight month of modest increases off the cyclical trough in September. On Dec. 27 the Commerce Department reported sales of new houses rose 3.4% over the previous month, while builders' unsold inventories dropped to their lowest level since last February.

All of this suggests that the 18-month market correction that followed the four-year housing boom has just about run its course. From a national statistical perspective, we're somewhere near slack tide — but no one's looking for another frothy high tide anytime soon.

Now, to the unsuspecting, doe-eyed, potential first-time homebuyer, this sounds good - everything's going back up again, it was a touch-and-go there for a while.

But to anyone who's looked at the referenced data, it's not at all as it appears above.

The rise in existing home sales in November was accompanied by a year-over-year decline of 3.1 percent in the median sales price - the first real sign of pricing capitulation by individual home sellers in the data from the National Association of Realtors.

This is important information if you are buying or selling a home.

Similarly, the increase in sales of new homes was bolstered by extraordinary builder incentives while declining new home inventory statistics do not include cancellations, now running near record highs.

Phrases like "small but unmistakable", "cyclical trough", "run its course", and "somewhere near slack-tide" are all clearly intended to influence opinion, even though the usual qualifiers are present, as in "this suggests" and "no one's looking for another ..."

The Bottom in Charts

In graph form, courtesy of Econoday, the "cyclical trough" and "correction that...has just about run its course" look like this:

This is hardly cause for sounding the all-clear for buyers if they are concerned at all about price. Though houses are increasingly sold like automobiles these days ("What kind of monthly payment are you looking for?"), buyers really should pay attention to the price they are paying.

Sellers have just begun to reduce their asking and selling prices and until inventory comes down in a meaningful way, 2003 sales volume is more likely to lead to lower prices, not higher - this may matter little to realtors, but it should matter to buyers.

Add to this the mushrooming problems in subprime lending where each week brings news of another melt-down and it's hard to imagine how someone could be so optimistic that this is indeed the bottom.

Subprime lending has been the mother's milk of recent sky-high prices.

About the Author

A quick look at the author's bio over at Realty Times reveals that Mr. Harney is the author of a nationally syndicated column "The Nation's Housing". He is also the managing director of the National Real Estate Development Center, a professional education company that presumably educates real estate professionals, and runs a consulting firm in Maryland.

There are probably some vested interests there, but without a list of clients as other housing perma-bulls often list at their website (none could be located in this case), it is hard to know for sure how Ken Harney's bread gets buttered.

So what about the title of the LA Times story - "Bubble's pop was akin to a slow leak?"

The current edition of The Nation's Housing also appears in yesterday's Washington Post carrying a title with a completely different, much more confident tone - "The Tide is Turning".

No hesitation there - no bubble, no popping, just confidence.

Apparently, somewhere between Washington and Los Angeles, someone had the good sense to turn down the optimism a notch or two.