Bubble that’s about to pop can’t hold air

You’ll have to look pretty hard these days to find any good news

about the value of your home. But there is good news -- if you know

where to look.

In a story that made the front page of the Business section of the

Los Angeles Times on Sept. 28, our housing boom was reported to be

peaking.

Once again, it was reported this way in an economic forecast by

the doom and gloom Bruins of UCLA. This time, the Bruins, via their

UCLA Anderson Forecast, claim that the housing slowdown is expected

to produce “weak growth” in California’s economy over the next two

years and could even trigger a recession by the end of 2007.

What’s with those UCLA people? It seems as though every time I

read some economic news from Westwood, it makes me want to run out to

buy a year’s supply of candles and freeze-dried macaroni and cheese.

“The forecast for California is mediocre at best; at worst we are

liable to dip into another recession,” the Times quoted senior UCLA

economist Christopher Thornberg as saying.

Wow. That’s a lot of doom and gloom for a guess. What I mean is,

couldn’t he at least have given us an out, some ray of hope to help

us keep going to the hardware stores and home improvement centers

without feeling like we’re sprucing up for nothing?

How about this quote instead: “This is all just speculation, of

course, but our best guess is that the market is flattening, and we

really don’t know what could happen after that. If we did know, we’d

be in another line of work, making some really big bucks on the TV

talk-show circuit.”

Here’s some more of the quote we’d like to read: “The truth is

that if we predicted that the current price reductions and still low

mortgage rates will trigger another round of buying, no one would

listen. If they did, it would be buried on page 16 of the Times’ Sunday Business section. Good news doesn’t sell.”

And finally: “Even though we believe that the end is near, we’re

not cashing out on our homes and moving to Madison, Wis.”

All of that would be refreshing, including the part about the page

16 story, because that is true. On page 16 of Times’ Real Estate

section on Sept. 25, there was actually very good, very sensible news

from two very reliable sources. I told you you’d have to work to find

it.

“Most cities in the United States showed little evidence of a

housing bubble as of the end of 2004, according to a new study

conducted by Columbia Business School and the Wharton School of

Business at the University of Pennsylvania.”

Apparently, these fine institutions came to this conclusion after

reviewing 24 years of data. They found that the recent price

increases are not a bubble but are based on “basic economic

fundamentals such as low interest rates and strong income growth

among high-income Americans.”

OK, so they lost me on the “high-income” part. But everything else

was right on.

But wait there’s more! Right next to that Ivy League story were

some predictions by the California Assn. of Realtors. “The median

home price in California is expected to increase 10% to $575,000 in

2006,” they say. The increase will be fueled by a housing shortage.

See, UCLA, that’s how it works. There are still too few homes for

too many people and as long as there are more buyers than sellers,

there is no bubble to burst -- except yours because you are wrong.

The Los Angeles Times is not the only publication trying to sell

via the bad news format. Housing bubble woes were reported yesterday

on the front page of the New York Times and the predicament is

examined in the current issue of San Diego magazine.

Back to the Los Angeles Times. This week, it reported on the front

page of the Business section that the 30-year mortgage rate is

approaching 6%, and the result is that “borrowers get less house for

their money.”

How about a little historical perspective here, even anecdotally?

In 1987, my wife and I got an adjustable mortgage at 10.15% and felt

lucky to get such a low rate.

Even the good news in the interest rate rise wasn’t reported until

the fifth paragraph, when it was noted that even the threat of an

increase could trigger a buying wave.

These economists have more job security than weathermen, who have

to make daily predictions. Economists have to be right only once

every 18 years to keep their jobs.

* STEVE SMITH is a Costa Mesa resident and a freelance writer.

Readers may leave a message for him on the Daily Pilot hotline at

(714) 966-4664 or send story ideas to [email protected].

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