Wednesday, December 3, 2008

A housing recession!

From The New York Times, December 2, 2008 - Click to enlarge

The above graphs depict various key factors contributing to the nature, length and depth of seven recessions over the past 40 years, including the current downturn. The recession that began officially last December has not been marked (so far anyway) by a relatively sharp drop in either GDP or personal consumption. For that matter, the declining employment figures on which the National Bureau of Economic Research relied heavily to "date" the recession still look pretty good, compared to those of several earlier downturns. Of course, we may be in the early stages of a deeper and longer recessionary period like that of 1980-82.

But the most striking thing about these data is the way falling housing prices practically leap off the page and smack you in the face. In every prior recession, the median price of a single-family home continued to go up or at least hold firm in almost every recessionary month. In sharp contrast, we see a steady, depressing drumbeat of sharply lower housing prices month by month over the past year.

To be sure, there was a huge housing bubble, inflated by years (maybe decades?) of easy credit and bad habits -- and every bubble must eventually burst. But if there is a serious argument against working to put a floor under housing prices as a way to prevent the downturn from becoming a disaster, I've yet to hear it.

UPDATE -- 12/5/08 -- I guess they heard me! The Fed now wants to help homeowners fend of foreclosures while the Treasury is working on a plan to subsidize new long-term mortgages at rates as low as 4.5% to stimulate home buying.


  1. Return to middle-class affordability, perhaps? I'm in Chicago, where home prices have been escalating rapidly for the last decade, and median is now on the order of 4.5X median income. Developers have built too much, and many individuals have bought more house or condo than they could afford. Lots of folks made pound-foolish choices in the context of the recent credit boom. Appreciation ran unsustainably fast and prices are now returning to historic means, which is all to the good.

    My wife and I are in our early thirties, both with solid but relatively low-paying ("cultural field") jobs. Still with a family income of $100,000 and our little nest egg, I think our comparative rectitude ought to be rewarded. The housing market should serve people like us--treating housing as an expense to be managed--instead of flippers inflating RE values as a purported investment device. Finally--beyond my crude self-interest, there are plenty of poorer people for who an instrumental "floor" on housing prices is unwelcome.

    Are you the Publius who used to write frequently in Slate's Fray? If so it's good to see you've struck out on your own. Thanks for the site.

  2. Yes, I'm Publius from Slate. Thanks for your comment.