Reading this morning’s stock market report on MSN, the Dow decline, a confluence of higher jobless claims, some lower corporate earnings, and a decline in existing home sales, yielded what the reporters termed ‘the perfect storm.’
This expression is apt so far as it goes, but the implication is that, as with the hurricanes in the late summer of 2005, these are rare economic events, as in the 100 year storm that will happen only once in a normal lifetime. As someone who attempts to avoid clichés, it appears that ‘the perfect storm’ as ‘once in a lifetime’ has come to mean ‘not typically seen’, or more accurately ‘not too often’- either that, or perfect storms are more common and lifetimes have become significantly shorter than they used to be.
Is it, though, ‘the perfect storm’? The so-called housing crisis was made very much worse by developers who got plenty of money and built houses not strategically, but wherever they could get cheap land. Naturally enough, the cheapest land is the furthest from any existing development and urban infrastructure- by this I mean, where there is no public transportation and people have to drive long distances to work or find basic services. Big surprise, home buyers find car commuting an expensive proposition and want to find something close in. My nephew and his wife, looking to purchase a home to house their expanding family, are shocked to find a dearth of housing in Los Angeles with the features they want- a neighborhood with good schools, and close to work for a short commute to his job. The flight to even the closest suburbs is a thing of the past. The empty nesters who are selling their large suburban homes with huge gardens and a pool, to be replaced with an in-town condo of reasonable proportions, are not finding younger couples with growing families to take their place. In our own highly urban neighborhood of Jackson Square, a huge number of formerly small, and not so small, office buildings are being changed over into condominiums- and selling quickly.
It is difficult for me to feel terribly sorry for builder-developers whose ignorance of fairly pronounced demographic trends led them to build in places where no one really wanted to live. Not sorry, but not surprised, either: home builders are something of a one-trick pony- if they can get the money to do so, they build houses. So, in fact, banks and investors who provided capital are all in the same intellectual boat as home builders. It is seldom that our president says anything particularly apt, but he did the other day- apropos of the freely flowing capital into the home building and mortgage markets over the last few years, ‘Wall Street got drunk.’
Some, of course, of the fairly recently built houses in remote suburbs, either sitting empty or now bank owned will be sold, and sold at a discount. One wonders to what extent these sorts of declines are skewing existing house price and sales statistics. Even bearing this in mind, my view is that the modest declines overall from a year ago suggest a correction in the market and not exactly the cataclysm of the perfect storm. Unfortunately, present activity is generally compared to events over the last however many years, without any statistical consideration that the last five, with explosive sales and price growth, represented an anomaly that was, in an apt use of the cliché, something seen once in a lifetime.