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Saturday, March 10, 2007

CR on the Media

by Calculated Risk on 3/10/2007 11:54:00 PM

After reading the comments in the previous thread, I'd like to caution about generalizations. It's easy to pick out the mistakes, like this WSJ article at the peak in July 2005:

Neil Barsky writes in the WSJ "What Housing Bubble?"

If you want to be scared out of your wits these days, you basically have two choices: go watch Steven Spielberg's latest, or listen to the hysterical warnings of economists and journalists about the imminent popping of our so-called housing bubble.
The reality is this: There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: low interest rates, local job growth, the emotional attachment one has for one's home, one's view of one's future earning- power, and parental contributions, all have done their part to contribute to rising home prices.
But at the same times there were journalists asking the right questions:

Caroline Baum: Enough About Loans. What About Lenders?
Forget the borrowers for a minute. Who's making these arguably risky loans? Why are lenders extending credit to seemingly bad credit risks?
Or Danielle DiMartino: Bubble's fallout? Two views
The inevitable pullback in construction speaks directly to housing's risks. A similar 40 percent decline in construction to that of the 1981-82 recession implies a decline of 2 percentage points in GDP.

And then there's the wealth effect. The housing bubble has added $5 trillion to household net worth, equating to about $70,000 for a family of four.
And it would be easy to blame the economists. Bernanke in July 2005: House Prices Unlikely to Decline
Top White House economic adviser Ben Bernanke said on Friday strong U.S. housing prices reflect a healthy economy and he doubts there will be a national decline in prices.

"House prices have gone up a lot," Bernanke said in an interview on CNBC television. "It seems pretty clear, though, that there are a lot of strong fundamentals underlying that.
"We've never had a decline in housing prices on a nationwide basis," he said, "What I think is more likely is that house prices will slow, maybe stabilize ... I don't think it's going to drive the economy too far from its full-employment path, though."
But some economists were warning about housing. From Bloomberg: Greenspan Housing View Seen Hazardous by Wall Street Economists
Worry, say Wall Street economists including David Rosenberg of Merrill Lynch & Co. and Stephen Roach of Morgan Stanley.

The economists say the Fed must act, for a simple reason: The U.S. has become so dependent on real estate and construction to fuel growth and jobs that an eventual, wrenching correction has the potential to sink the entire economy.

"Act now and cut off the pinky, or wait till later and risk slicing off the entire hand," Rosenberg said in an interview last week. "Either way it hurts, but you can still type with nine fingers."
Economics Professor and former Dean of the UCI Graduate School of Management Dennis Aigner wrote in the OC Register: Trouble in housing market no game, Region's house of cards ready to topple as prices reach unsustainable levels.

Over the past four years, 90 percent of the growth in U.S. GDP was accounted for by consumer spending and residential construction. Declines in the nation's biggest housing markets are likely to trigger a major economic slowdown.

It is not a question of whether this will happen but when, how dire will be the consequences on economic growth, and how long it will take to restack the blocks and begin again.
It is easy to focus on the negatives in Tanta's post, but remember Tanta also wrote:
Let us say that we cherish those reporters who are regular readers of ours and insightful commenters on the blog, enthusiastic participants in a new medium, interlocutors rather than overlords.
And we do cherish them. Blogs are a complementary good to other media outlets, not a substitute.