Housing prices suck. In fact, they suck worse than they did last month. But the good news is that the rate at which the suckitude is increasing is slowing (this is the second derivative). From The Washington Post:
Home prices fell again in April, but at a slower rate, suggesting some parts of the housing market could be stabilizing, according to the Standard & Poor's/Case-Shiller Home Price Index released today.The closely watched home index found that, nationwide, prices declined 18.1 percent compared with April 2008. That was slower than the 18.7 percent decline seen in March.
"The pace of decline in residential real estate slowed in April," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement. "While one month's data cannot determine if a turnaround has begun; it seems that some stabilization may be appearing in some of the regions. We are entering the seasonally strong period in the housing market, so it will take some time to determine if a recovery is really here."
If you squint really hard, you can see some glimmerings of light. Or maybe that's just the aftereffect of squinting really hard.
Seriously, this kind of hope--which isn't really hope at all, but wishful delusion--obscures what is required for a turn around in housing prices: a broad rise in incomes for the middle and lower-middle class.
There is, of course, the question of whether we should care if housing prices stay low. Perhaps, instead of dumping our earnings into housing (it's the same damn house whether or not it's worth thirty percent less), we should foster policies that invest earnings into rebuilding infrastructure (human and physical), greening our economy, and, once the recession ends, savings.
Just a thought.
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Your last paragraph is right on. Home prices only suck if you are selling. Or if you think the high prices we had were good. If you think they were badly out of whack then lower prices yet would be better.
If you squint really hard, you can see some glimmerings of light. Or maybe that's just the aftereffect of squinting really hard.
It's actually quite easy to see the light at the end of the tunnel. The problem is that it's from the headlamp of an oncoming train.
Home prices only suck if you are selling. Or if you think the high prices we had were good.
Tell that to the homedebtor who can't refinance out of his toxic loan because he's underwater. Or the investor who needed to chase yield and bought mortgage-backed securities that are worth, if he's one of the lucky ones, pennies on the dollar. Or the restaurant owner whose lunch clientele has evaporated because real estate isn't selling.
Perhaps it's just me but growing up I always thought of a house primarily as a place to live, a secure place to sleep, hang your hat, receive mail and visitors, a place to raise kids and hang out. Its role as status symbol and investment vehicle were understood but they were always secondary.
It always struck me as odd when a house became fundamentally an instrument for investment. I thought it quite odd when a friend told me how he bought homes, held them, made minor improvements, and sold them for a profit. About how he had no fixed address because he lived in one of the houses he was flipping and how he made good money doing it. It just struck me as somehow unnatural to look at a house and value it based entirely upon what someone would give you for it. To make a house into an interchangeable commodity.
Then again looking at most homes built in the last twenty-five years perhaps it isn't so odd. Oversize, under built shacks that are all eye candy. So poorly constructed that they will have to be extensively rebuilt, if not replaced, in just a few years. Houses as shoddy as the mortgages used to finance them. Mortgages written by smooth talking but vacuous bankers and financiers who run everything wide open and leveraged twenty to one.
Homes sold to consumers who are living on revolving credit, time payments and their ability to make a payment by taking out another loan. On paper they own a house, two cars (one an SUV, a boat and enough geegaws and gadgets to keep them entertained in style. They will continue to 'own' these things as long as they make the payments. Failing that they own the clothes on their backs and a huge amount of debt.
Same as the automobile executives, the financiers, the bankers and the vast majority of the rest of the population of the US. I'm just not sure when the term 'own' became a synonym for 'hold until you miss a payment' and the difference became a non-issue.
Is it the second derivative or the first derivative? If you graph housing prices over time, what they're saying is that the slope is becoming less negative, and slope is the first derivative.
Is it the second derivative or the first derivative? If you graph housing prices over time, what they're saying is that the slope is becoming less negative, and slope is the first derivative.
The first derivative is still negative, but it is becoming less negative = the rate of change of the rate of change is positive. 2nd derivative is positive even though the rate of change is still negative.
I question whether we should even grant that the second derivative is positive in this situation. You can't differentiate two data points in a noisy time series. Smooth a large sample of the data with some kind of low-degree polynomial and then differentiate that.
That said, there are other signs that the economy may be leveling off. I wouldn't be surprised at this point if we even registered some modest positive GDP growth before the year is out. But that's after knocking 4-5% off our GDP in the first place, so it'll hardly be enough to restore us to full employment.