Affordable Housing Institute : US

“There is a tide in the affairs of deals

That taken at the flood, leads on to asking prices.”

  – Brutus, managing partner of Brutus, Cassius, and Messala

 

 

Fear sells, no matter how often proved groundless or premature.  For weeks if not months now the print media have been pounding the drums that US home prices have peaked, are peaking, will peak, or might peak, and with unerring instinct for the self-reinforcing sound-bite, there is ever-more talk of a housing bubble, such as this special from the New York Times (subscription probably required):

 

After a torrid first quarter that spun the sales prices of Manhattan apartments to breathtaking highs, anecdotal evidence suggests that the headiness has started to dissipate. While the jig is hardly up, brokers are saying that the tempo resembles a more seasonable waltz, and that there are signs of growing price resistance among buyers.

 

The spring slowdown - variously referred to as a correction, softening, pause, seasonal adjustment, breather and normalization - was typically discussed in tones of relief rather than alarm. “In a way, it had to happen,” said Ms. Kory, noting that the market since 2002 “got a little out of hand - it got crazy.”

 

Contrast that with what prices are doing:

 

Pamela Liebman, chief executive and president of Corcoran, adding, “What tells you if prices are going up is the price per square foot.” She said that data from the firm’s signed contracts show condo and co-op prices per square foot of $1,003 in March, $1,016 in April and $1,009 in May.

 

Yes, $1,000 a foot.

 

One Grover Cleveland, one square foot

 

Indeed, because markets move in a pointillist fashion, each sale represents one measly data point inn a graph of possibly infinite dimensions (one for each significant independent variable), leading to ’statistics-by-anecdote’ stories and the slightly-less-credulous upgrade, statistics by compilation of anecdotes:

 

 

 

“People have to hear it from several people about how things are different now, and then they change their minds,” said Robert J. Shiller, the author of “Irrational Exuberance” (Princeton University Press; second edition, 2005) and a professor of economics at Yale University. Mr. Shiller shared the results of a Lexis-Nexis search he conducted among major newspapers:  In May, 77 articles contained the words “housing bubble,” nearly double the 40 logged in April.

 

Well, that’s certainly the sophisticated objective data I’d use ….

 

However, the talk-to-action ratio of real estate closings is always extremely high, which gives the observant herd plenty of time for anxiety:

 

And, like others, he said he believed the spate of media coverage of a frothy housing market stoked anxiety during what is really a natural, seasonal slowing heading into the summer months.

 

That’s the thing about anxiety and panic: like yawning, it’s psychosomatically contagious:

 

Dottie Herman, president and chief executive of Prudential Douglas Elliman, like some others, declined to categorize the shift as a slowdown. “People do not feel the same feeling, and that has a lot to do with the papers,” she added, referring to a mounting news media chorus about a possible housing bubble.

 

Though observant, the herd is, in fact, not uniform:

 

Still, Ms. Herman noted, “Anything at the low end of the market is always going to sell because there’s always more people at that end of the pyramid.”

 

Any market is a continuum of submarkets that abut one another, either physically or economically, with some interdependence, although this is phase-delayed and only partially transmitted from one submarket to the next.

 

Meanwhile, some participants choose to drop out of the game and play something else:

 

The pricier one - a two-bedroom 1,600-square-foot “condop,” a hybrid between a co-op and a condominium, on the 40th floor in a full-service building on East 89th Street near Fifth Avenue - went for its asking price of $2.35 million on April 1, in a two-way bidding war. But both bids fell through later that month, and the apartment has garnered no further offers, despite a price drop to $2.1 million. Rather than carry it vacant, the investor-owner is considering taking it off the market and renting it out for $9,000 a month. 

 

The constant movement of properties into and out of the market means an ever-changing display of goods and browsers:

 

Other brokers, reporting a post-Memorial-Day rise in activity, were hopeful that the bubble coverage had worked its way through buyers’ psyches. But the experience may have empowered buyers.

 

Lastly, there is the inescapable but scare-deflating reality of the market’s annual cycles.  To buy a house, you have to go to it — it will not come to you.  So you go out of doors, and see the property as the weather chooses to show it to you, and succumb to the pathetic fallacy (that your mood influences the weather, when in fact the weather influences your mood). 

 

Houses sell best in the springtime: not the winter (especially where it snows!), not the fall (who wants to move in winter?), and even not in summer (when half the nation is on vacation with their children):

 

In fact, [Mr. Minskey] said: “I never got four or five bids a week in June. So where’s the bubble?”

 

Oh, but the idea that this is all a smooth-flowing cycle sells no newspapers, so let us leave the subject with the ever-cheerful Mr. Shiller:

 

“Look, everybody doubted me, too!”

 

“I think there’s a good chance that this is the end of the boom,” he added, “because it can’t go on forever.” 

Omitted, all the voyage of their life
Is bound in shallows and in miseries. On such a full sea are we now afloat;And we must take the current when it serves,Or lose our ventures.                                                                                                                                                                                                                     (Required disclosure in purchase and sale) 

“I’m not getting my deposit back, am I?”

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