What Would be Evidence of a Housing Bust?

One should never make too much of a single month's data, but yesterday's report of a sharp falloff in existing home sales, price declines throughout most of the country, and record inventories of unsold homes, might be seen as supporting the view that a bubble is bursting, but not in the NYT.

The Times article on the report included no comments from people expecting a serious downturn in the market. It also included this choice quote from Joshua Shapiro, chief United States economist with MFR [sorry, I don't know what it is]: "the trend here is one of stabilizing prices after the sharp gains seen for many years... While certainly a change in trend, so far the official data are not corroborating some of the more alarmist stories being bandied about recently.�

The Times article also earns another BTP goat prize. Apparently no one noticed the concesions being offered by sellers (some in full-page ads). These non-price concessions (e.g. help on buyer-side closing costs, subsidized mortgages, buyer-side realtor bonuses) do not appear in the contracted sales price. This means that contracted sals prices are higher than the true sales prices, so that house price indices will be missing some of the real price decline.

--Dean Baker

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