January 29, 2008

Hyping the mortgage crisis 

If I didn’t know better, I would swear that some folks in the media and the consulting firms are having fun with the mortgage crisis. Each day seems to bring a new superlative of doom. How many days in a row have we read that housing prices have taken “their biggest drop ever”?  

I mean, really: How can it be the “biggest drop ever” every single day? At what point does the median price of a home actually become a negative number?  

Based on these reports, it won’t be long before we read that homeowners are paying buyers to take the darn things off their hands. The national homeless crisis will end, as upscale mansions, as plentiful as dandelions, are open and abandoned for the taking. Instead of the usual FOR SALE, realtors will start posting signs that read FREE HOME TO A GOOD OWNER in front lawns across America. 

 

We can partially blame the folks on Wall Street. The financial sector had a large hand in creating this mess, and now the financial sector won’t stop talking about it. A certain clique of economists is engaged in a contest to see who can make the direst, most over-the-top prediction about the abysmal state of the housing market. Here’s a sample from CNN.com: 

No bottom yet Adam York, an economist with Wachovia, said the report confirms fears that the housing market won't bounce back anytime soon. 

"We're expecting sales to decline into at least mid-2008," he said. "We think housing still has a long way to go." 

Later I found a quote from another economist at another bank who predicted that the market won’t recover until 2010 or 2011. It’s as if no economist wants to lose this bizarre game of economic forecasting chicken. If the economists at Bank A predict no recovery until 2009, then the economists at Bank B feel compelled to up the ante. 

Yes, the mortgage crisis is bad. Yes, I know all about the oversupply of cheap money and speculative building that got us into this situation. But let’s keep this in perspective, shall we? The desire to buy a bigger, better house is as American as the desire to eat too much junk food and watch inane television shows like American Idol.  

If you want to restore your faith in the inevitability of the housing market’s recovery, just visit your local Wal-Mart. We have consumers who fork over good money for plastic lawn knickknacks in the shape of frogs and Little Mermaid boom boxes. These people aren’t going to be satisfied living in the same 3-bedroom ranch house forever. They are going to start buying again. The housing market is going to bounce back. Just give it time; and ask our aforementioned economist at Wachovia to use his crystal ball for making predictions about something else for a while.