The NYT told readers this morning that: "Home building and home prices, which had fallen for almost three years, appear to have almost no place to go but up." This one is very seriously wrong. It is probably true that home building has no where to go but up. Construction had fallen to just one third of its bubble peak rate. It may not zoom upward, but the rate of building is unlikely to fall further in the next six months or year. Prices are an altogether different matter. The basic story here is that real house prices are still 10-15 percent above their long-run trend level. Since the country still have a record housing vacancy rate, it is hard to see how this gets corrected with prices rising. Furthermore, virtually every economist in the country expects unemployment to rise and stay high over the next year. Also, mortgage interest rates will trend upward. If this is a recipe for rising house prices, then I'm missing something.
-- Dean Baker
