National Association of Realtors Publishes Anti-Bubble Reports
The National Association of Realtors (NAR) has published a series of 130 reports that do market-by-market home price analysis reports. They conclude that no housing bubble exists. Its not hard to see why the would publish these reports - they don’t want people to stop buying homes. Realtors make their living selling homes, if people aren’t buying, realtors don’t make money. So it is important to take these reports with a large grain of salt.
I would have to agree with one of there overall conclusions - that there is no national housing price bubble. There has never been a decline in the national average of house prices since the depression in the 30’s, so there is probably little risk in that. But one of there other conclusions seems a little absurd:
These downloadable 10-page reports show that the facts simply do not support the possibility of a housing bust — not for these 130 markets and not for the nation.
To say that there is not even the possibility of a housing bust is just plain sticking your head in the sand. We have seen reports of many markets with a greater than 50% chance of price drops, and reports that show “53 metro areas representing 31 percent of the total U.S. housing market are extremely overvalued and confront a high risk of future price correction.” To ignore these types of reports is just plain dangerous.
Looking at the report for Los Angeles, they have the following summary:
Because prices have risen faster than income, the ratio of price-to-income is currently above the historical norm. This measure is frequently cited to imply that there is a housing market bubble. But this ratio is a misleading measure in assessing bubble prospects. A more relevant measure is the mortgage servicing cost relative to income. This ratio is at a very manageable level. It implies no widespread financial overstretching to purchase a home in the region.
This statement to have some major problems.
- “Mortgage servicing cost” is a lot lower than it would be because people are having trouble affording homes so they get loans such as zero-interest and short ARMs. With mortgage rates rising, these are not going to be an options soon.
- The mortgage servicing cost is also highly dependant on mortgage rates. Has the NAR not noticed that rates are climbing?
It seems very convenient that the 130 housing markets they have reports for do not include any of the top 5 overvalues markets - Naples, FL; Santa Barbara, CA; Merced, CA (72%); Salinas, CA (70%); and Stockton, CA. The NAR did not mention how they selected the markets to study.
The real reason for these reports is that the NAR is scared. While housing prices were soaring, there were a record number of new realtors, and if prices fall all these realtors are going to be left fighting for scraps.