Matthew Ferrara, Philosopher
 

Rising Home Prices: It’s called Inflation, Not Recovery

According to NAR and Radar Logic, home prices rose month-to-month from April to May in 10 cities in America, like Boston, Charlotte, Seattle and Denver. Words like “recovery” are used in the press release, because, at least from the Voice of REALTORS, the word “inflation” is off limits. Since the press release is just a snippet, it’s likely to be passed around without much analysis. Too bad, because it’s likely to mislead a lot of consumers.

Let’s just do a little math: According to the data, home prices rose around 3-5%. According to another report from NAR, the median sales price natiowide in the first quarter was around $196,600. If we take the median increase of 4% of the median price, you’ll get $7864, which is awfully close to the $8,000 tax credit for first time home buyers. Which means, if we’re really honest, the home price increse isn’t due to positive market forces, like recovery, but negative forces, called inflation. And a very specific type of inflation: market distorting, government subsidy-dollar inflation.

That’s not any sign of a housing recovery. That’s simply called smart sellers. They know that buyers have access to free Greenbacks, so they bumped up their selling price (or just didn’t lower it by the same amount during that period.) This means buyers will still be overpaying for homes (in real terms). And since 1 in 2 sales nationwide this year has also been to the first time buyer, eligible for these tax dolalrs, it will also harm other sellers, especially those whose homes are not attractive to first-time subsidized buyers. They will see this headline bounced all over the media and rebleated by uncritical agents, and think they can now go back to overpricing their homes.

Recovery?

Let’s be real. Headlines like this are hurting the housing industry, not helping.

  • Matthew, forgive me if my Economics 101 is rusty, but rather than inflation, I would use the term price control, more specifically, governmental subsidy for the recent declaration of “recovery”. Propping up prices (by $8000 allowed pent up demand to flourish) Even RIchard Nixon (that economic liberal in conservative clothing!) tried this across the board during the last period in the US when we fought a war on credit (which, I contend is one of the basic reasons our economy came tumbling down this this around). It didn’t have much effect then, followed by Ford’s pathetic WIN (remember Whip Inflation Now?). It took years of the Fed’s painful intervention to get the beast under control. Call me dismal, but I am equally concerned with deflation than inflation. However, I like your use of macro economics in real estate, we are big enough impact on the scene that it pays to have thoughtful people, ah hem, and I don’t mean the cheery folks at NAR analyzing our situation.

  • Matthew, forgive me if my Economics 101 is rusty, but rather than inflation, I would use the term price control, more specifically, governmental subsidy for the recent declaration of “recovery”. Propping up prices (by $8000 allowed pent up demand to flourish) Even RIchard Nixon (that economic liberal in conservative clothing!) tried this across the board during the last period in the US when we fought a war on credit (which, I contend is one of the basic reasons our economy came tumbling down this this around). It didn’t have much effect then, followed by Ford’s pathetic WIN (remember Whip Inflation Now?). It took years of the Fed’s painful intervention to get the beast under control. Call me dismal, but I am equally concerned with deflation than inflation. However, I like your use of macro economics in real estate, we are big enough impact on the scene that it pays to have thoughtful people, ah hem, and I don’t mean the cheery folks at NAR analyzing our situation.