Bubble, Bubble, Its the Media in Trouble
Sound like sage advice? Well, it certainly should sound familiar. If youre like most people, youve heard it all before, dozens or hundreds of times. The term housing bubble is so common that it can choke a normal Lexis-Nexis search and can be found on all broadcast TV networks and in every one of the nations major newspapers.
Theres just one small problem. Reports of a housing bubble have been cropping up for more than four years!
So, if you took your investment advice from your TV or newspaper or newsmagazine, you would have missed out on enormous gains. The national median value of existing homes has grown from $139,000 to $215,900 since 2000. Theres nothing ever-so-humble about that math. Thats a 55-percent increase or 34 percent if you count inflation.
Lets turn back the clock to 2001 just days before the September 11 terror attacks. On September 3 of that year, Forbes magazine warned its readers about the consequences of home equity values starting to wobble. On the same day, a BusinessWeek editorial cautioned about a double bubble, and told its readers, A housing bubble may be developing right behind the Nasdaq bubble.
Here we are more than four years later and little in real estate has changed except for house prices. Existing home sales for October this year dropped 2.7 percent from huge numbers in September and CNNs Tony Harris on Live Today sounded the same alarm November 28: Has the housing boom gone bust? Just in this morning, existing home sales fell in October more than 2 and a half percent.
The very next day, Harris and his viewers got the answer to his question. Sales of new single-family homes hammered the previous record with a 13-percent increase, the largest percentage gain in more than 12 years, according to the Associated Press. But the AP still managed to paint this as negative news, calling it what could be a final spurt from a housing market that is expected to slow after five record-breaking years.
If you say something loud enough or long enough, sooner or later you might even be right. After all, the housing market has defied the experts because the bubble has lasted so long, hasnt it?
That answer might depend on which expert you count on. Fed Chairman Alan Greenspan has repeatedly denied even the existence of a bubble. In 2002, while testifying before Congress, he said, Weve looked at the bubble question, and weve concluded that it is most unlikely, mainly because, one, we have a very diverse real estate market throughout the country.
Hes repeated that point on other occasions, instead issuing his famous warning that there might be froth in localized markets, but he has denied that there is any nationwide problem. This isnt just anybody singing a remake of Don Hos Tiny Bubbles, this is the chairman who has led the Fed for 18 years. And it doesnt stop with one Fed Chairman. Ben S. Bernanke, who takes over for Greenspan early next year, has said the same thing.
Somehow the media missed that official memo. About a year ago, CNNs Kitty Pilgrim looked at one months downbeat home sales and sent up flares. Economists say that the drop in sales, weak construction numbers that could be a warning sign of trouble ahead in the real estate market.
Turns out that was just a blip. Its almost a year later, real estate is still strong and the media are still warning that we are all destined for a bubble bath. But the only bath guaranteed would have been given to those who listened to the doomsayers in 2001, or 2002, or
House prices wont continue to boom forever, but that doesnt mean they will bust either. Unlike most other places to put your money, a house provides something that you need a roof over your head, a place to live. For most of us, its more than just a financial decision; its a lifestyle. And this old (or new) house should continue to be a successful choice for millions, despite warnings to the contrary.
While the media continue to prophesy doom, Im going to keep on repeating to myself: Theres no place like home. Theres no place like home
Dan Gainor is a career journalist and The Boone Pickens Free Market Fellow. He is also director of the Media Research Centers Business & Media Institute www.businessandmedia.org.