Apparently, the media's housing crisis is like an unsolved murder: the statute of limitations on finding out about it, and beginning the investigation never runs out. If so, this one is surely a cold case.
As we watch it "worsen" with nails bit down to knuckles, lets inject a note of sanity. Falling prices means that homes will come within reach of new buyers who could not and would not touch the unrealistic prices. New home production will slow and inventories will eventually drop. That means that there are at least two groups of people who are not hurt: new buyers and long-term holders. The latter are experiencing a normal return on investment regardless of the paper gain fluctuations. In the meantime, we can learn something.
When prices were rising to levels that would have struck Salvator Dali as too surreal, few people sounded the alarm. Instead we heard platitudes like, "Buy real estate now, the best investment in the world; they ain't making any more of it," and "Don't be left behind. Turn it over and get rich." Everyone played musical chairs to the tune of "Pop Goes The Weasel," and when that bubble popped, the last buyers were the biggest losers. Remember the lyrics, "the monkey chased the weasel." When was that ever a sensible pursuit? Yet somehow when people were being conned into thinking they could afford the enormous debt, the word crisis wasn't applied. Or at best, in 2006, we saw the following headline from Barrons, "Is a crisis approaching?" And we only got that when they noticed the first "downward surprise." Am I the only one who finds it naïve that so many money mavens were so surprised? Lenders and tiger and bears. Oh my!
The rising prices, the burgeoning bubble itself, should have been described as a housing crisis before the downturn, and it never was. The experts, including our Fed chairman, got it wrong at every turn, and are on to a new phase of getting it wrong now. How many articles today, talking about "the steepest decline ever" provide any information on how it was preceded by the steepest rise in home prices ever? None that I can find. Surely we are in a housing crisis, but in the later stages of one. It cannot reasonably be measured from the time the first wave of defaults was noticed or even when prices began their long drop. I would measure it by the start of rapid price rise, out of proportion with growth of the ability to pay, or the moment lender's standards relaxed to a state of criminal irresponsibility.
Of course it is not so much a matter of what words are used, as that the reporting is indicative of a fundamental misunderstanding. Again in 2006, the Washington Post referred to an altogether different housing crisis, the issue of affordable housing, essentially misidentifying the underlying problem with an all-over-the-map indictment of "the market," and "snob zoning," while never once mentioning unconscionable and unsustainable credit.
The falling prices of today are the harbinger of the healthy economy to come. If there was panic to be had, someone should have panicked in 2006, perhaps the congress we elected that year, after the congress of 2004 ignored it. Instead, we're panicking in 2008 when we are two to four years closer to a healthy economy. Americans understand this better than the media. That's why this congress is reviled more than the President. While that dream team was hitting the minimum wage button over and over—the only thing they saw out of order on the domestic front—the extra dollar an hour wasn't going to cover the latest hundred thousand dollars added to a home price tag.
