[And the final housing story from 2006 (I should be back tomorrow) focuses on how the mainstream media was dealing with the early stages of the bursting of the housing bubble, originally appearing at the old blog on October 30th, 2006. Even I was surprised at how quickly home prices tumbled in 2007 and 2008 and then kept falling, but, there were folks far more sanguine than me.]

ooo

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”.

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[Now here's an interesting one from 2006 where I wondered about the different scenarios for home prices in the Phoenix area regressing to the mean. Originally published back on October 17th, 2006, there are some guesses at the end about how much pain might be involved in the move down in prices and it's interesting to compare the scenarios to the latest Case-Shiller home prices in Phoenix from earlier in the week. In short, Phoenix home prices regressed to the mean very quickly after a drop of 15 percent in 2007 and a 34 percent plunge in 2008. The roughly 20 percent decline since then is mostly overshoot.]

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Recent statistics have confirmed what many have long feared – the end of the housing boom in many parts of the country. There is now increasing talk of “a return to normal” in the nation’s real estate markets – a return to “normal levels of appreciation” some say.

Does it really work that way?

If the boom is indeed over, after a huge run-up in prices in recent years, why would price appreciation return to normal?

Isn’t it more likely that prices would return to normal, as in a regression to the mean?

In probability and statistics, regression to the mean describes the tendency for things to return to normal, whatever it is that normal might be. In the case of housing, a regression to the mean would imply a return to long established price trends based on historical levels of appreciation.

Regression to the mean is something that many homeowners and homebuyers are likely to learn about in the years ahead since most things behave this way. Despite the best efforts of homebuilders and originators of mortgage credit, housing is not likely to be an exception.

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[It's not surprising to read about how ill-prepared the Federal Reserve was back in late-2006 for the aftermath of the bursting of the housing and credit bubbles that, by that time, wasn't much they could do about even if they wanted to. In this item from October 12th, 2006, the Fed meeting minutes noted that "considerable uncertainty was expressed regarding the ultimate extent of the downturn in the housing sector" as central bank policy makers were the proverbial lambs being led to slaughter (along with millions of homeowners).]

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Yesterday’s release of the Minutes of the Federal Open Market Committee from last month’s Fed policy meeting showed continuing concern over rising prices, members indicating a “substantial risk” that inflation may not decline with a slowing economy.

Members were also concerned about housing, though apparently they’re falling a little behind in their reading.

In their discussion of major sectors of the economy, meeting participants focused especially on developments in the housing market. Although the situation varied somewhat across the nation, housing activity was continuing to contract in most regions. Home sales had slowed considerably, and anecdotal reports suggested that more buyers were canceling contracts for purchases. Participants noted that inventories of unsold homes had climbed sharply in many areas and that builders were taking a number of measures to reduce inventories. Both permits for new construction and housing starts had declined significantly. Available measures of home prices suggested that appreciation had slowed considerably but prices in most areas were not falling, although some sellers were reported to be providing various inducements to potential purchasers that reduced effective prices.

Apparently they haven’t seen last month’s report from the National Association of Realtors where both new and existing home prices have fallen from year ago levels – it was in many of the papers. It’s plain to see in the chart from Northern Trust below.
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[By late-2006, after it had become clear that home prices don't necessarily rise in perpetuity, government regulators began to take their first feeble steps at, if not actually regulating the mortgage market, at least making it clear that they've noticed what was going on. Below, five years ago in this piece from October 10th, 2006 it was noted, "Once the default risk was shifted from government sponsored enterprises to Wall Street, government regulators hit the snooze button". As it turns out, that's a pretty good summary of what happened.]

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Amid news that home prices are now falling across the nation, in some places rather precipitously, comes word that a few government regulatory agencies have arrived on the scene, ready to help the process along.

What does this mean for the future retirees of America who have become comfortable with the notion of spending more than they earn, sure that the rising value of their real estate will provide for them, not only in the present, but in the future as well – in their golden years?

It looks like we’re going to find out.

According to this LA Times story yesterday, mortgage lending standards are being tightened and lenders are being advised to ensure that borrowers can actually repay their loans.

A Novel Approach

The standards come in the form of “guidance” from the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision, the Federal Reserve, and other regulators. This is the same regulation that has been flopping around in seemingly endless review and comment cycles since late last year.

Federally chartered lenders are now strongly urged to evaluate borrowers’ ability to repay their loans based on more than just the low payments enabled by interest-only, option-ARMS, and low introductory interest rates.

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[This was a fun post to write five years ago as Stephen Colbert had recently left The Daily Show to begin his own fake news program on Comedy Central and all the new housing bubble blogs were seeing the housing bubble participants just start to get their long awaited comeuppance. Originally published back on October 5th, 2006, this piece is notable for many reasons, one of which is the call for home prices to bottom in 2011, a date that, surprisingly, now looks like it may be a little early.]

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Hi, this is Stephen Colbert of the Colbert Report. I’ve been bugging Tim for a while now about doing a guest post here at his blog, and he finally got me all set up with an account yesterday. It was a bit odd when we spoke on the phone – he mumbled something about oil prices and black helicopters and then the line went dead. I hope he’s OK.

Anyway, he wanted me to talk about housing. I’ve been reading up on housing and this so-called “housing bubble” and I have a few thoughts on the subject.

First of all, housing can’t be “in a bubble”. Houses are much too big for that or bubbles are much too small – take your pick.

Second, those who are calling it a bubble are mostly people who don’t own a house and they just want the bubble to pop so that prices will come down and they can afford to buy one.

Everyone wants to own their own home, in fact, almost everyone does now – at least one … sometimes two, three, or four.

These people who talk about a housing bubble – people who either just sold their home and now rent, or those who never bought real estate because they thought it was crazy to spend so much of their income on housing even though prices were skyrocketing and banks were bending over backwards to lend any amount, for any house, to anybody – these people have taken a keen interest in the nation’s housing market now that prices are going down.

Which brings us to today’s word – Schadenfreude.

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