The stopped-clock theory of economic prognostication says that if a dead timepiece is still accurate twice a day, making the same prediction over and over is bound to come up right eventually. The straight-line extrapolation approach relies on taking data points, drawing a line through them and predicting said trend will continue. The contrarian philosophy relies on the dumbness of crowds, postulating that if everyone is charging in one direction, the smart thing to do is go the other way.
All three approaches have proven to be miserable failures in calling the start, the length, the depth or the end of Washington’s housing slump.
If there’s been one revelatory lesson from the recession, it is just how reliant we became on housing and housing finance to support our economy. As important sectors go, housing’s not a bad one to have. It employs a lot of folks directly, the ripple effect in other businesses is considerable and the end product is useful not only to its purchasers but also to society at large. The problem, as with anything else we like in life, is what happens when wretched excess is introduced.
Is that too harsh a term to describe what happened?
Maybe it’s too kind.
With technology sidelined as an economic driver after the dot-com bust, housing was the most promising motor, so it was revved up beyond red-line limits. Not that anyone objected. Borrowers and buyers liked the cheap money and easy terms. Sellers liked the escalating prices. Lenders liked the steady flow of loans that they could quickly flip to Wall Street, which liked having a huge supply of raw material with which to construct financial “products.” Government liked the tax revenue generated by real-estate transactions. And by using straight-line extrapolation, everyone knew there was no limit to the speeds housing could reach.
Just as with any engine run so hard for so long without coolant, the housing market seized up. And it’s not just housing sitting on the side of the road with dark smoke spewing from underneath the hood. Lumber mills, banks and mortgage companies, furniture and appliance retailers, construction companies and now government have been wobbly for several years, if they’re moving at all.
From the moment it became apparent that housing was about to go into recession and take the rest of the economy with it, everyone has been asking, “How bad is it going to be?” We now know the answer to that one: very bad.
But the answer to the follow-up—“How long is this going to last?”—is proving tough to pin down. Neither contrarian predictions, which claim that if it’s this bad, it’s time for a turnaround, nor continuous forecasts of a housing rebound (the stopped-clock approach) have worked.
You can peruse the latest numbers from the Northwest Multiple Listing Service, the Washington Center for Real Estate Research, the Mortgage Bankers Association, or whomever you like, and find enough evidence to support whatever case you want to make. Housing is coming back, except where it isn’t.
What’s not in the data are the intangibles, the attitudes and the anecdotes that may be even more important than statistical evidence. Listen to the chatter among neighbors, friends and coworkers about recent sales that have lopped a decade’s worth of price appreciation off home values or about houses that have sat on the market for months with no takers no matter how slashed the price. Take a drive around neighborhoods in the Puget Sound region, count the number of houses with the telltale signs of foreclosure and ask yourself if that looks like a recovery in the making.
When the subject of those conversations shifts to tales of crowded open houses, multiple bids, quick sales and escalating prices, then you’ll have a decent indicator that the housing market has indeed turned. And when you know that, you’ll have a much better sense of when this recession will truly be over. Housing still matters, in good times and bad. Call the housing market and you’ll call the 2012 economy.
Bill Virgin is the founder and editor of the subscription newsletters Washington Manufacturing Alert and Pacific Northwest Rail News.