The Washington Post, which was famous for relying on David Lereah, the chief economist of the National Association of Realtors (NAR), as its main expert on housing (also the author of Why the Housing Boom Will Not Bust and How You Can Profit from It), is still missing the housing bubble. An article that discusses aspects of the bubble and how it has hit a family in California refers to the "mortgage mess." Of course the mortgage mess is secondary. The problem stems from the fact that prices became hugely inflated and have now crashed. If house prices had followed a normal pattern of rising in step with inflation, the problems presented by the bad mortgages issued during this period would be relatively minor. The failure to understand the housing market also leads the article to exaggerate the importance of the scheduled reset of option ARM mortgages in the next few years. The median period of home ownership in the United States is less than 7 years. (It was 5 at the peak of the bubble.) A high percentage of the homes bought with option ARMs will be sold or abandoned long before the reset date. Therefore the impact of these resets are likely to be relatively limited in the larger housing picture. It would have been helpful if the Post had been able to talk to an economist who had not missed the $8 trillion housing bubble for this story. It would have been better informed. (The Post now relies on Lawrence Yun, Mr. Lereah's replacement as the chief economist at the NAR, as its main expert on the housing market.)
--Dean Baker