I Want My Bubble Back!

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By Seth Jayson
June 9, 2006

The housing spin
There's nothing funnier or more satisfying (for me, at least) than watching the National Association of Realtors (NAR) change its tune these days. The latest news release from this sunny-Jim industry group finally fesses up to its past fiction, but even when it admits the bubble's going to pop, it can't muster the courage to just come out and say it.

Nope, according to the news template the NAR released to the press on June 6, "The housing boom has ended, but sales at historically healthy levels will continue."

Wow, sounds great! What about all those poor HGTV-addled suckers -- oops, I mean investors -- who've been buying property on interest-only ARMs with the hopes of flipping it for an easy profit?

Not to worry, folks -- a flop in prices is good! Here's why, according to the NAR. "Experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability."

I hope all those people out there who leveraged themselves up to their eyeballs with risky loans to get into the market are going to be greatly comforted by the "long-term affordability" their homes may offer the buyers of the future.

Who moved my bubble?
So, yeah, the NAR is full of it and will spin the numbers any way it can to keep up the pleasant fiction that all is well. But the cracks began to show in subsequent remarks from NAR "Chief Economist" David Lereah. The head outfit that ridiculed the idea of a housing bubble for years is now crying for Ben Bernanke to bring it back.

"But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable," Lereah said.

Allow me to translate:

  • Interest-sensitive housing markets = "Bubbles"
  • Vulnerable = "Ready to pop"

A more honest version of what I think he really means to say is: "Come on, Bennie! We need that cheap money! How else are we going to keep skinning 6% off all those marks out there? It's not like they can really afford these prices without the easy credit and ARM gimmicks!"

And lest you think I'm being too harsh, that the NAR is a group that cares about things like homes and families, take a close look at the terms it uses to describe the current situation: "For most of the nation, this means future home price gains will be much closer to the normal returns we expect from housing," said NAR President Thomas M. Stevens, who hails from one of the country's most ridiculously bloated markets, Vienna, Va.

Price gains. Returns. These are people who want us all to believe in housing as an investment, and they just happen to take a cut on the deals. Of course, housing, over the long run, is not a good investment, except for a very savvy few. It's a roof over your head that tends to keep pace with inflation, but not in a straight line. But if you can't afford your place because you made a bad deal based on reports of the never-ending happy housing story, that cozy home could be a personal finance time-bomb waiting to explode.

Don't be hatin'
The real problem here isn't the NAR, of course. You have to expect these people to spin the facts for their industry, even if that means they're putting their checkbook concerns ahead of yours, and even if it leaves them begging the Fed for an adherence to shortsighted economic policies that could send inflation spiking.

No, the real problem here is the uncritical press out there, which is all too happy to pepper every contrary indicator or bearish remark with an NAR official's informed-sounding bubble denial. Never mind if what the NAR folks are saying doesnt seem to make sense (or contradicts what they said just a few months back). Hey, opposing viewpoints give the appearance of objectivity, and they're an easy way of pretending to have looked for truth. It keeps your editor off your back, and if people out there get burned on account of your waffling reportage, no one can say they weren't warned. Look, here's the quote from the other guy!

It should have been completely obvious to anyone with a loan calculator and a glance at wage increases that those months of industry bubble denials were just wishful thinking.

The simple fact is that no one wants the party to end -- not the Realtors, not the companies who make a mint on loans, like H&R Block (NYSE: HRB) or Freddie Mac (NYSE: FRE), and certainly not the home builders like Pulte (NYSE: PLT) or Toll Brothers (NYSE: TOL). But at least the homebuilders, who have shareholders to face, had the guts to come clean.

And let's face it. I don't think the average retailer out there, from Wal-Mart (NYSE: WMT) to Best Buy (NYSE: BBY), relishes the thought of a consumer who can't tap marshmallow equity to keep buying iPods and PowerAde. Nor will you see a celebration from a company like GM (NYSE: GM), which made a lot off mortgages and also benefited from the illusory equity wealth by selling high-ticket SUVs until a predictable spike in oil prices took the fun out of that party.

Foolish bottom line
Unfortunately, we live in an imperfect world. The information you get on housing is confusing, often inconclusive, and sometimes, I'd argue, downright crooked, woven into a complete fairy tale by people who want to convince you that no harm could ever come from partaking of transactions in which they have a financial interest. That's why you need to be a Fool and do the math yourself.

Those home industry advertisements might feature kitties and puppies, blue skies and little girls with dimples frolicking in the home of your dreams, but the people putting together those ads measure their success by how many greenbacks they can extract from your wallet. The only person out there who's really looking out for your financial well-being is you.

For related Foolishness:

Wal-Mart is a Motley Fool Inside Value recommendation. Best Buy is a Stock Advisor pick. Take the newsletter of your choice for a 30-day free spin.

Seth Jayson hopes they just keep building. At the time of publication, he had no positions in any company mentioned. View his stock holdings and Fool profile here. Fool rules are here.