More "impartial" commentary on the housing bubble
I owe another hat-tip to my buddies at the Housing Panic Blog. These folks are even more up in arms about the funny doin's transpiring in the real-estate industry than I am, and I don't share all their views, but I do think they've got an interesting point today. Let's set the stage.
Harvard. Ivy League, home to Biff, Buffy, and Chet. Warm scarves and deep thoughts. A place where we can trust the research as the work of independent-minded eggheads, right?
I wouldn't be so sure. Today, we see a strange article by one Nicolas P. Retsinas, director of Harvard's Joint Center for Housing Studies (JCHS). In it, he seeks to reassure a nervous and gullible public that all is well with housing. Prices won't drop too much, he claims, and the overall economy is not at risk.
Oh, really?
Oddly enough, he doesn't cite any data to support these contentions. Well, maybe that's not so odd. Recent numbers from no less a home-selling partisan than the National Association of Realtors (NAR) show that prices are already dropping, not only in bubble-afflicted coastal areas, but in the previously believed-to-be-safe Midwest, as well.
But Retsinas shrugs past this. "Demand," he claims, was the reason for rising prices, and demand, he says, is still here.
Demand doesn't exist in a vacuum.
Let me be blunt. I find this is a stupid argument. Dangerously, irresponsibly stupid.
It's simple to see why.
Unless we examine the underlying factors that drove the demand, and judge whether or not those are sustainable, there is no support for his contention. And it's pretty obvious to anyone who has paid attention to how this bubble was financed that the party can't go on. Simply put, this housing bubble has been inflated by cheap money combined with a sense of "Get in before it's too late!" urgency supplied by the NAR, get-rich quick flippers, TV home shows, and others.
But in the end, even cheap money failed to keep demand pumping. The ascent of gimmicky "no doc" and "option" ARMs shows how desperate the industry had to become in order to maintain the farce of "affordability." And even this isn't getting the job done anymore.
If the recent housing numbers are too dry for you, take a look at situations like this one, where a 24-year-old kid did his part for demand by taking out more than $2 million worth of ill-gotten, cheap money loans. Or this one, in which many members of a close-knit community have been fleeced, possibly into bankruptcy, by a home-flipping scheme through which, it appears, identities were used fraudulently to obtain overpriced mortgages through Countrywide Financial
Yeah, that's why I've got my doubts about demand.
The fine print at Harvard
But back to Retsinas and the Harvard JCHS. Why would he pump out to the press a defense of the bubble without a single, salient data point to back it up? What's the motive?
I think the answer might be found in the cozy relationship between Harvard's JCHS and the home-building, -selling, and -supply industry. Take a look at the "policy advisory board" at the JCHS.
It just happens to be made up of a few dozen companies with an enormous financial stake in the continuation of the housing bubble, like Centex
Oh please. Don't be shocked. You knew something like this was coming, didn't you? Well, it gets even better: These companies are also cutting checks to the JCHS.
According to the JCHS Web site, "The Policy Advisory Board provides financial support and guidance to the Joint Center; this support is critical to the Joint Center's mission and advances the shared goal of making housing a priority nationally as well as locally."
Sounds like a pay 'n' play deal to me, which also goes a long way toward explaining why the board isn't limited to banks and builders, but is also populated by the likes of Home Depot
Exactly what kind of "policy" do you think these folks would advise? I'm betting it sounds a little bit like "All is well! Keep buying our stuff!"
Is anyone surprised that a director who's advised and financially supported by this crowd would come out publicly and deliver a feel-good message to home-buyers?
Cracks in the foundation
I've got a message into Harvard to find out just how much dough is changing hands here. If it's much more than a pittance, I consider that an interesting -- and by interesting, I mean scandalous -- conflict of interest.
In the mean time, I'd suggest Retsinas step away from his policy advisory board and take a more sober approach to the underlying numbers. With real income falling and the Fed intent on slowing inflation, exactly what is going to keep future demand at the artificially inflated levels we've seen since 2002?
Let's be clear. I don't claim to be infallible, and I'm not convinced the sky is falling. Frankly, as a Home Depot shareholder, I stand to gain from a rebubble. But I can separate the part of my brain that grubs for money from the part that analyzes evidence and draws conclusions. And I'll need much more than simplistic sound-bites before I can believe the fairy tale the JCHS is pushing. (And how about coming clean on your industry ties right at the bottom of your press release, folks?)
Finally, I'd suggest that you, my Foolish readers, take care before you put too much faith in the prognostications of seemingly independent "academics." Always take a look behind the scenes, follow the money, and take a look at who's pulling the strings.
For related Foolishness:
- When Bubbles Attack!
- Housing Cheerleaders Losing Pep
- Homebuilders Get Comical
- Do the math yourself with our online calculators.
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At the time of publication, Fool contributor Seth Jayson had shares of Home Depot, but he had no positions in any other company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Fool rules are here.
