Thursday, August 31, 2006

Krugman: "Housing Gets Ugly"

Paul Krugman writes about the long-feared crunch in the housing market, which appears to be upon us at last:
Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down , and the company was walking away from already-purchased options on land for future development.

Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that the unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! [snip]
There's no link to the remainder of the article, unfortunately, because the New York Times doesn't really want you to read it, so they hide it away in their premium section. I'd repost the whole thing, but I'm really not interested in having the NYT on my ass.

As for the topic at hand, though, I must say that I've been looking forward to this. Why? Because I am not currently a homeowner, and I figured out a few years ago that the only way I'd be able to afford a home is if the real estate market went through a nice big crunch. So I guess I'd better start saving up for that down payment, eh? :) I used to scoff at the idea of becoming a homeowner--after all, why would I want to mow lawn, shovel snow, pay real estate taxes, and do all that pain-in-the-ass home maintenance? I'd make a shitty homeowner, I think. But yesterday I realized that with a mortgage, I wouldn't ever have to plan on rent increases. The payment may be high to start with, but it won't go up. That would be cool. Plus, I'd never have to deal with the landlord needing to let the cable-TV guy into my closet to track down a bad connection for the apartment two floors above me, or any of that kind of shite.

Anyway, back to the Krugman column--he speculates on why the bubble is bursting, why the bubble happened in the first place and so on. One point he makes is that the tipping factor appeared to be that housing prices in general finally rose high enough so that even a lot of optimistic speculators were unwilling to take the risk, plus interest rates rose a bit. He does not mention gasoline prices, though, which appear to have stabilized at a much higher cost than they were just a few years ago. Given that most new homes are far enough away from places of employment that people would have to commute every day, I'd guess that gas prices are definitely a factor. I would be interested to see if, over the long term, the bursting bubble isn't bursting quite so hard in areas closer to cities.


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