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August 16, 2011

Bad predictions about housing and the bubble

Over at Big Picture, Invictus has an impressive gallery of (mostly) bad predictions about the housing market and the U.S. economy from 2002 up to now. A small sample:
Alan Greenspan, September 26, 2005:
“In summary, it is encouraging to find that, despite the rapid growth of mortgage debt, only a small fraction of households across the country have loan-to-value ratios greater than 90 percent. Thus, the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices.”
Phil Gramm, July 9, 2008:
“You’ve heard of mental depression; this is a mental recession. We may have a recession; we haven’t had one yet. We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline…”

Here is one of my own:

Jay Hancock, Jan. 28, 2004:

In June 2002 this column predicted "home-price inflation in the next five years like we haven't seen since the 1980s, with multiyear, double-digit percentage pops."
It came true. Area homes appreciated 14 percent in 2002 and will probably show an even greater gain in 2003 after all the results are in. The median price of a Baltimore-area home likely hit $208,000 last year - according to projections by the National Association of Realtors - nearly double prices of the mid-1990s and requiring household income of at least $60,000 to support.
Perhaps this is the top. Are Maryland homes poised to mimic the stock market in 2001? The Chicago Bulls in 1999? Napoleon in 1812?
Not by a mile. Pessimists worry about a U.S. housing bubble - the same one they worried about two years ago - and for some regions they're probably right. But not in Maryland, and not in Baltimore. Perhaps more than any other part of the country, this region enjoys the kind of sunny economic outlook and relative under-pricing of shelter that promises continued gains for home values.
However:
Jay Hancock, May 2005:
OK, now we have a housing bubble. How do we know? Real estate professionals, who aren't even allowed to think that homes might be, uh, overpriced, are publicly worried.
Speculators snapping up homes they won't live in and may not be able to rent have given the market a new tier of foam and raised chances it will all end badly, pros say.
Speculators can destabilize any market by bidding prices to unsustainable levels. Fed Chairman Alan Greenspan has said a housing bubble is less likely than the 1990s stock bubble because homes are harder to buy and sell than, say, Amazon.com stock, and most people acquire houses to live in, not make quick money.
But if the housing day-traders truly have arrived, look out. With big mortgages, scarce tenants and an eye on net worth, they'll be even more eager to sell on the way down than they were to buy on the way up.
Jay Hancock, June 12, 2005:
With 24 percent of Maryland mortgages starting as interest-only, says LoanPerformance spokesman John Lewis, this state has emerged as an overachiever in a category that many believe signals a too-hot housing market and trouble down the road.
Interest-only mortgages don't build equity. They don't force homeowners to save. And when they're the only way you can qualify for a loan, sometimes they signal that you can't afford the house you're trying to buy. It's no accident that no-principal loans are concentrated in areas where home prices have soared, that they're closely associated with what many are calling a bubble.
Interest-only loans are an effect of high home prices, as buyers stretch to swallow large pieces of debt. But they're also a potent cause, luring marginal purchasers into inflated markets to bid prices even higher, so that loans for tomorrow's buyers will be even bigger and riskier.
Posted by Jay Hancock at 9:50 AM | | Comments (0)
Categories: The Great Recession
        

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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