Since the country, in the form of the Financial Crisis Inquiry Commission, is now officially delving into the causes of the financial collapse, it might be instructive to take a look back at who among the analysts and punditocracy thought the housing bubble — a precursor to the systemic implosion — wasn’t really a bubble at all.

A 2008 post from the blog Economics of Contempt does just that.

(For context, here’s a chart from the site Bubble Meter that shows the bubble starting to inflate around 1999 and reaching its apex in 2006.)

The Unofficial List of Pundits/Experts Who Were Wrong on the Housing Bubble

The housing bubble has precipitated a severe, and possibly catastrophic, economic crisis, so I thought it would be useful to put together a list of pundits and experts who were dead-wrong on the housing bubble. They were the enablers, and deserve to be held accountable. People also need to know (or be reminded of) which pundits/experts should never be listened to again.

(NOTE: The post includes links to each pundit’s comments.)

• Alan Reynolds, Cato Insitute (2005-06) – “Housing bubble’ worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is.”
• Kevin Hassett, American Enterprise Institute (2004) – “Mr. Hassett says there is an ideological component to the belief in bubbles. Liberals, who tend to believe that government must step in to protect people from market imperfections, will likely see more of them. Conservatives, who like their markets unfettered, will see less.”
• James K. Glassman, American Enterprise Institute (2005) – “Even in places where prices are soaring, worries of a bubble could be overblown because higher prices appear grounded in good old fundamentals.”
• Jude Wanniski, journalist and advisor to Ronald Reagan – (2005) “unless Greenspan & Company drive interest rates up in order to induce a housing recession, there really is nothing to worry about.”
• Jerry Bowyer, author of “The Bush Boom” (2006) – “Hate to burst your housing bubble, but there isn’t one”
• Nicolas P. Restinas, director, Harvard Joint Center for Housing Studies (2004) – “More Than a Bubble Keeps Housing Prices Sky-High”
• Jim Cramer, host of CNBC’s “Mad Money” (2003) – “Housing bubble? What housing bubble? The signs are in place for a further run-up in real estate. Breathe easy, mortgage holders. There’s still no place like home.”
• Christopher Flanagan, head of ABS research, J.P. Morgan (2005) – “[B]ased on what we know and see in terms of employment and interest rates, it is extremely difficult to see how five years from now we could be looking back and observing a historical 5-year growth rate of, say, less than 5%. That should be more than adequate to support the continued good credit performance of sub-prime mortgage pools.”
• Noel Sheppard, economist, Business & Media Institute

(2005) – “The increase in real estate values the past five years has not resembled the rapid rise typically seen in a bubble.”

• Neil Barsky, Alson Capital Partners, LLC (2005) – “There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: low interest rates, local job growth, the emotional attachment one has for one’s home, one’s view of one’s future earning- power, and parental contributions, all have done their part to contribute to rising home prices.
• Chris Mayer, professor of real estate, Columbia Business School, and Todd Sinai, professor of real estate, Wharton School (2005) – “For the past several years, Chicken Littles have squawked that the sky — or the ceiling — is about to fall on the housing market. And it’s tempting to believe them…”Yet basic economic logic suggests that this apparent evidence of a bubble is anything but. Even in the highest-price cities, housing is, at most, slightly more expensive than average.”
• Jonathan McCarthy, senior economist, New York Fed, and Richard W. Peach, vice president, New York Fed (2004) – “Home prices have been rising strongly since the mid-1990s, prompting concerns that a bubble exists in this asset class and that home prices are vulnerable to a collapse that could harm the U.S. economy…A close analysis of the U.S. housing market in recent years, however, finds little basis for such concerns. The marked upturn in home prices is largely attributable to strong market fundamentals: Home prices have essentially moved in line with increases in family income and declines in nominal mortgage interest rates.”
• Brian S. Wesbury, chief investment strategist, Claymore Advisors (2005) – “These nattering nabobs expect a housing collapse to take down the U.S. economy. But excessive pessimism is unwarranted: Fears of a housing bubble are overblown.”
• Samuel Lieber, president, Alpine Woods Capital Investors (2006) – “We don’t see a bubble. Historically, home prices just don’t go down nationwide unless we are in a significant recession. The last time home prices fell nationwide was in 1990. It’s employment that really counts. The underlying fundamentals of real estate are still very positive. Job creation and household formation drive housing.”
• Mark Vitner, senior economist, Wachovia (2006) – “‘Everybody is looking for evidence of a housing bubble,’ [Vitner] said. ‘There is not a housing bubble. The supply had not kept up with demand.’”
• George Karvel, professor of real estate, St. Thomas University (2005) – “‘There’s no housing bubble,’ said George Karvel, a professor of real estate at the University of St. Thomas. “This is a media-induced frenzy. If I wanted to say there is a housing bubble, I’d have Time and Money magazine camped on my door. They’ve called, and I’ve told them there’s no bubble. Panic sells.”
• Margaret Hwang Smith, professor of economics, Pomona College, and Gary Smith, professor of economics, Pomona College (2006) – “Our evidence indicates that, even though prices have risen rapidly and some buyers have unrealistic expectations of continuing price increases, the bubble is not, in fact, a bubble in most of these areas in that, under a variety of plausible assumptions, buying a house at current market prices still appears to be an attractive long-term investment.”

• Kathryn Jean Lopez, editor, National Review Online (2005) – “[T]he so-called housing bubble has yet to pop, and likely won’t as long as home ownership remains a tax-advantaged event. Even the New York Times — no parrot of White House talking points — has had to admit that the economy is ‘booming.’”
• James F. Smith, director, Center for Business Forecasting (2005) – “There is no evidence of a housing ‘bubble’ in the United States and housing demand should stay strong for years to come.”
• Jim Jubak, investing columnist, MSN Money (2005) – “Housing bubble? What housing bubble? With the 10-year U.S. Treasury bond yielding below 4% and 30-year mortgages available at 5.1%, there isn’t a housing bubble.”
• John K. McIlwain, senior resident fellow for housing, Urban Land Institute (2005) – “[T]he housing markets will cool as interest rates rise and as affordability declines, but they won’t crash. Most markets will flatten for a while or increase at lower, more historical, rates. A few may decline for a year or two. But we won’t have a crash.”

• Carl Steidtmann, chief economist, Deloitte Research (2005) – When you strip away all of the white noise around a housing bubble, what you find is a robust market for housing that is undergoing several profound changes all of which manifest themselves in higher home price indexes, none of which adds up to a housing price bubble.”

Posted on January 14, 2010 at 3:19 pm
http://economybeat.org/banking-and-finance/who-was-wrong-about-the-housing-bubble/
http://economybeat.org/banking-and-finance/who-was-wrong-about-the-housing-bubble/trackback/
Categorised under : banking and finance , economics , housing and real estate
Tagged with : housing bubble , real estate