Doom & Gloom or Doom & Good?

Chief economist for the California Building Industry Association, Alan Nevin, North County Times:

So why is the new housing construction and the resale housing market sagging?...I think the answer has to do with psychology and consumer confidence...I think the real answer is that at some magic moment in 2005, potential buyers looked at the highly aggressive pricing of home sellers (new and resale) and said to themselves: "That's enough. I won't pay these silly prices and I'm going to wait until they return to some form of normalcy." And that is exactly what potential buyers are doing.

In other words, it has nothing to do with Econ 101 and supply and demand. The basic demand is still there because, like everywhere else in the nation, the American Dream is to own a home. On the other hand, the dream doesn't include payments that are destructive to one's lifestyle. So what we are clearly seeing now is a back-off from the silly prices of 2005.
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What does it take for the market to correct itself? Primarily it takes a renewal of confidence and most probably a dose of optimism from the local press.

The National Association of Realtors's Walter Malony, Housing Wire blog:

The constant drumbeat of accentuating the negative in the lion’s share of news coverage, sometimes without context, is, in fact, having a negative impact on home sales. Starting about a year ago, we began to hear complaints from members that buyers were backing out of contracts after reading gloomy headlines. It appears that this is becoming a self-fulfilling prophecy, and a recession is a distinct possibility.

My background is in the news media. One of the things I have observed about a recession is that once it begins, advertizers pull back from media buys. The second thing that happens is managers are pressed to cut costs, and the first jobs that are eliminated are in the newsrooms. Has the media given any thought to that?

From the OC Register:

O.C. builder consultants Real Estate Economics are telling clients ....

"With the current market disruption still in full swing, the media machine generates news stories almost daily about the end of the world being caused by the housing industry. Based on what we’re reading, it’s pretty clear that our industry is the root cause of a stock market crash, the war in Iraq, earthquakes in South America and most forms of cancer. While some of those might be true, and the down cycles inherent in the housing market are always painful, all this media coverage seems to be heavy on 'doom and gloom' and a little light on actual analysis."

From the Redding Record Searchlight:

We were accused -- again -- of tanking the real estate market. In an Aug. 12 Letter to the Editor, developer Karen Margrave bemoaned that every day she opens the paper there's more "doom and gloom about the construction and real estate market." "Maybe the Record Searchlight should fire all its reporters and just go to online news and do a streaming feed from RealtyTrac ...," Margrave quipped.

From Time Magazine:

The last time we had this feeling of financial vertigo was when the Internet bubble popped seven years ago. But this is much worse: the value of our homes is collapsing. For generations, rising home prices have been central to our general sense of well-being.
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Since most families own their homes, the country is happier when real estate prices are going up. But it is healthier when prices are going down. Look at it this way: in the housing market, people fall into three categories. Some, mostly young folks, are trying to buy their first home. Some, at various stages of midlife, own a home but will trade up someday, or at least think about it. And some, mostly older, are trying to sell and downsize. Who is served by soaring house prices? Not the first group: rising prices make it hard for those people to get into the game. Not the second group: what it will have to pay for a bigger house is probably increasing faster than what it can get for the current one.

The only clear beneficiaries of rising house prices are those, generally older, who want to sell their home and buy a smaller one or none at all. These people, on average, have benefited the most from the spectacular rise of real estate prices over their entire adult lives. If they have to forgo part of that windfall, it is no tragedy.

If they borrowed against a value for their house that turns out to be fictitious and spent the money on ephemeral things like vacations, as the commercials urge them to do, that was foolish--in some cases, maybe even tragically foolish. People want the government to do something, and presidential candidates are beavering away at plans. But any plan that would prevent home prices from declining would be foolishness squared.