Business Week: Losing It on the Home Front

Losing It on the Home Front
Posted by: Dan Beucke on November 9, 2011 at 2:15 PM

The housing crisis just keeps grinding on. Home prices fell in three-quarters of U.S. cities in the third quarter, by double digits in some places, according to the latest data from the National Association of Realtors. The median U.S. house price, $164,500, is now 28 percent below its 2006 peak and about where prices stood in Feb. 2003. Fewer people plan to buy a home over the next six months, according to the Conference Board. And another survey of homeowners finds that nearly as many think of owning a home as a “nightmare” as consider it an “American Dream.”

It’s hard to put a happy face on that — but boy, do the Realtors try. NAR President Ron Phipps, who runs his own brokerage in Warwick, R.I., says: “Existing-home sales are little changed from the second quarter but are notably higher than a year ago.” The Realtors’ Housing Affordability Index, he says, is near its record high. “For people with secure jobs, good credit and long-term plans, today’s conditions will be remembered as a golden opportunity to enter the housing market.”

That well-qualified statement pretty well answers itself. Even if you have a job, chances are you don’t consider it too “secure.” Long-term plans? See previous. The NAR’s affordability index seems designed to make every day a buying day, as financial blogger Barry Ritholtz has explained: “from 1989 - 2009, the NAR showed housing as ‘unaffordable’ for just one month.”

This eagerness to call a housing bottom is nothing new. My colleague Mark Gimein, writing for Slate’s The Big Money in April, 2010, noted that the Realtors were trumpeting “stabilizing” and “steadying” prices at a time when the percentage of people who couldn’t pay their mortgages was climbing in the worst-hit markets. At the time, fewer than half of U.S. cities were reporting a price increase. NAR Chief Economist Lawrence Yun said back in February, 2010, that the “price recovery process appears durable;” in fact, the following spring prices rose in less than a third of cities.

The Realtors aside, many people are into the process of resetting their psychology about wealth and real estate. For a reminder of the magical thinking that pumped up the housing bubble, read this piece in today’s New York Times about one homebuyer’s road to ruin. It’s all there: the “what we can afford” price climbing with no relationship to income; pressure to buy before prices go up further; banks willing to lend over the purchase price; refinancing to support a bloated lifestyle. It’s hard to believe it ever happened, unless you’re still trying to climb out of the hole.

http://www.businessweek.com/finance/occupy-wall-street/archives/2011/11/losing_it_on_the_home_front.html