Is Negative Housing Outlook Unfair?

The prospective of a housing crash has been all over the newspapers and television since the beginning of the 2006 year. The current real estate market in the U.S. has been less than stellar after five consecutive years of unprecedented inflation.

But has the media blown the slowing market out of proportion? Professional and independent real estate investors have been expecting the worst from the future of the housing market, perhaps even a crash.

Kenneth R. Harney, columnist for Realty Times, explains how the media is starting to receive some heat for inaccurate broadcasting of the real estate market, in his October 16, 2006 article, “Economists Beginning to Challenge Media's Negative Drumbeat on Housing.”

“Is it a housing bust or a media-driven panic? Mike Moran, chief economist for Wall Street's Daiwa Securities America, Inc., says he's surprised that virtually nobody has challenged the constant drumbeat of negative headlines and TV news warnings of imminent crashes and home price meltdowns.”

The real estate market is always changing and is pretty much impossible to predict, so reporters in the media can come to a variety of conclusions without being in the wrong. There is no evidence that the market will not crash, while there is no evidence that it will.

“‘It's really been way out of line with reality,’ says Moran, whose firm specializes in the bond market. When a 1.7 percent decline in the median home price nationwide sparks headlines about the ‘housing bust,’ that is ‘just pure sensationalism about what is going on here,’ he said in an interview.”

After all, many economists have been predicting this housing correction for the past couple years. Where inflation has affected prices and sales from 2000 to 2005, the market has to go backwards a little to give buyers the chance to catch up and support the economy. There is a correction in progress with no evidence pointing to a crash.

“Moran got indirect support for that view from other economists, including the Mortgage Bankers Association of America's chief economist, Doug Duncan, who said "’the rhetoric is just way overwrought’ -- the sky is not falling in the real estate and mortgage sectors.”

“To the contrary, even the Federal Reserve's vice chairman believes the current correction will not be dramatic or even that long-lived, and that the housing slowdown will not have dire side effects on other parts of the economy.”

This correction is necessary to redevelop a balance in the real estate cycle. This prompted many people to apply for subprime loans for financing, which eventually lead to more foreclosure due to higher rates and lesser terms.

“In a speech that went virtually unreported by major media, vice chairman Donald L. Kohn told New York analysts that the ‘rebalancing’ of prices to better fit current demand that is underway in many metropolitan markets is a normal, cyclical event -- not an incipient disaster.”

Kohn also reported saying that the “down phase” of the market may be short-lived as the low point of the correction cycle may be in the very near future, with definitely no crash, only a slightly bumpy landing.