One-Sided View of Housing Bubbles to Surface
One-Sided View of Housing Bubbles to Surface
CBS Evening News relies
on anti-Bush economist to portray housing boom as a threat.
To people who heard Fed
Chairman Alan Greenspan speak in Jackson Hole, Wyo., at the end of
last week, the housing boom will simmer down. But to those viewers
at home watching CBS Evening News, housing is in a bubble and
bubbles typically burst.
The August 27 CBS
broadcast began with a scary introduction by reporter Bob Orr
asking, Is the roof about to fall in on the hot condo market?
Later, a segment on house hunting opened with a graphic entitled
Condo Bubble and a brief restatement of what Greenspan said.
Anchor Russ Mitchell then turned the story from a discussion of
housing growth to more bubble time by dwelling on the condominium
bubble showing signs of being overstretched.
Greenspan addressed
housing in a more reasoned manner, but that didnt earn him much
attention in the CBS report. The August 28 New York Times explained
Greenspans position. In Mr. Greenspan's view, the housing market
will inevitably simmer down, and sales and prices are all but
certain to slow. House turnover will decline from currently
historic levels, while home price increases will slow and prices
could even decrease, he said.
Orr took over and had a
quick conversation with two would-be condo buyers who had failed in
their hunt. The doom-and-gloom report pointed out that there are
signs the condo market is cooling off and that the market actually
fell in July.
To reinforce this
position, he talked with Dean Baker, an economist with the Center
for Economic and Policy Research. Baker didnt let him down. He
immediately used the B word. We are seeing a bubble, said Baker.
Baker criticized
investors who were buying condos to resell or flip them. It's
very, very risky. You know, it's just like buying into the Nasdaq in
1999, Baker added.
Orr didnt mention that,
while houses can drop in price, they are real assets and seldom lose
all or most of their value. Comparing the housing market to the
stock market is faulty. Housing markets are regional there is no
centralized trading floor where national prices might drop sharply.
Though housing prices may change, most homeowners will retain their
homes as a source of savings, continuing to build equity.
Orr never let on that
Baker was not a neutral observer. Baker is co-director of CEPR and
has claimed the United States has had a housing bubble since 2002.
According to an article Baker wrote on Aug. 5, 2002, the economy
has now developed a third bubble, the collapse of which also poses a
serious danger to the economy. The third bubble is in the housing
market.
Baker has written
numerous times on the topic since then, continuing to argue that
there is a bubble even as both single-family homes and condos have
seen major growth in their value each year. Now he claims that there
is a bubble and it will cause serious economic harm. According to
the CEPR Housing Bubble Fact Sheet: Given how far out of line house
prices have grown from fundamentals, there is no way to avoid
enormous economic damage when the bubble collapses. Baker supported
a fall in prices in the fact sheet. However, the quicker house
prices revert to more normal levels, the less
damage there will be.
In a
recent Business & Media Institute commentary, economist Gary Wolfram
disputed that position. The only time we can say that the price of
a good or service is too high is when there is a lot of it piling
up and no one is buying it, he stated.
The CEPR Web site said
Baker has written numerous books and articles, including Social
Security: The Phony Crisis. It also said he has a forthcoming book
with left-wing economist Paul Krugman. Baker has been a long-time
critic of President George W. Bush and wrote a piece in May 2002
called Attack of the Clowns: The real Bush is back where he
accused Bush of crony capitalism and said the White House is
running a scam for his rich friends. But the housing bubble remains
a popular issue for Baker and even has its own special section on
the organizations Web site. Despite his strong, published views on
politics and the economy, CBS simply identified Baker as an
economist.
Although Orr interviewed
a representative from the National Association of Realtors who
talked about the strength in the condo market, the report stayed
downbeat. Orr explained that talk of a crash is premature, but
even by saying premature he gave the impression that such
potential looms. To emphasize that, he ended his story as he began,
with comments about a bubble.
