MSNBC debunks myth that record high home prices are tied to job growth

http://www.msnbc.msn.com/id/8586344/

In his first major policy address as President Bush’s chief economic adviser, former Fed Gov. Ben Bernanke devoted a few moments to discussing the current housing boom sweeping the nation. “For example, states exhibiting higher rates of job growth also tend to have experienced greater appreciation in house prices,” he said. Can it really be that simple? Can rising home prices be explained as a natural outcome of a growing job market?

To check on Bernanke’s assertion, I looked at state-by-state data on employment and home prices and discovered that yes, many of the states that have seen the strongest home price gains over the past year have also seen some of the best job growth, including Nevada, Florida, Arizona and Virginia. But job growth and other economic fundamentals can only go so far in explaining the surge in housing prices, especially when you take a longer-term view.

For one thing, home sales and prices have been rising steadily for five years, breaking records year after year, even throughout the recession of 2001 and the jobless recovery that followed. If home price gains now are explained by rising employment, how do we explain the gains of 2001 to 2003, when the economy lost more than 2 million jobs and the unemployment rate was rising?

Home prices have soared in many states over the past five years, including some that have seen little job growth. In the mid-1990s, job growth was much stronger, but home prices rose at a moderate pace. Here are figures for the 10 most populous states.

FIRST number: Job growth 1995-2000
SECOND number: Home prices 1995-2000
THIRD number: Job growth 1999-2004
FOURTH number: Home prices 1999-2004

California
17% 40% 3% 103%

Texas
17% 23% 3% 23%

New York
10% 29% -1% 71%

Florida
18% 24% 9% 81%

Illinois
7% 22% -3% 39%

Pennsylvania
8% 14% 1% 46%

Ohio
7% 23% -4% 23%

Michigan
8% 41% -5% 26%

Georgia
15% 31% 0% 30%

New Jersey
11% 26% 2% 76%

temporarily up and thus stocks, because the workers are offshore, cheaper, low wages and no benefits, but there are far fewer jobs here. So they are using a lie to frame their arguement?

From THIS MORNING's Bush radio address:

This past week, we received more good news on the economy. The 2005 deficit is projected to be $94 billion less than previously expected. I told the Congress and the country we would cut the deficit in half by 2009. This week's numbers show that we are ahead of pace, so long as Congress acts wisely with taxpayer dollars.

This good news on the budget is coupled with other news that shows the economy is strong and getting stronger. Our economy is growing faster than any other major industrialized nation. The unemployment rate is down to 5 percent, lower than the average rate of the 1970s, 1980s, and 1990s. We have created more than 2 million jobs in the past 12 months. More Americans are working today than ever before in our nation's history, and home ownership in America is at an all-time high.

To keep our economy growing and creating jobs, Congress needs to continue working in the upcoming weeks on our pro-growth economic agenda. First, for the sake of our economic security and our national security, the Congress must complete its work on a good energy bill that will reduce our dependence on foreign sources of energy.

http://www.whitehouse.gov/news/releases/2005/07/20050716.html

that home prices and the larger real estate bubble are largely the result of lower interest rates?

Here in Pittsburgh, everything is shrinking - population and jobs - but housing prices are still going up.

It's Greenspan's way of propping up the Bush presidency...

...with emphasis on speculation.

It's people who buy houses, wait for the price to go up, sell quickly and walk away with $50-100K or more in profit. They never live in the house for a single day. They call it "house flipping." They drive up the prices and laugh all the way to the bank.

We'd get a buy-sell from the same client in one day. I mean the buy-contract had not yet been signed and yet we'd be working on selling the same property with all the signatures on that contract, for about 15% higher (at least) than the purchase price.

Investors from around the world are speculating because of the low dollar. Buying real estate is a discount for foreigners.

the excess capital that was going into the dot-com boom is now going into real estate

The fact that there is too much capital chasing limited investment opportunities is a consequence of policies favoring the wealthy over working people. The radical mal distribution of income and wealth we have seen over the last 30 years has resulted in labor's share of the national economy shrinking relatively (and standing still in real terms) while capital's share has exploded.

Marxist economists have a slightly different interpretation of the same phenomenon.

At those low interest rates, people have been taking out loans on their homes (either existing or new purchases) to cover the financing of their lifestyle, to pay off credit cards, school tuition, hospital bills, vacations, etc. Although theoretically inflation is low, inflation is going through the roof as concerns the price of homes. And the rising value of home equity and the low interest loans taken on it is fueling in part consumer spending. And consumer spending is 2/3 of the economy.

housing prices with job growth.

If anything, housing prices are linked to income, and those well above the median are experiencing great income gains, while everyone from the median down is getting screwed.

Flipping and seculation are a real problem, but that only works of there's an underlying demand. Because there are enough people around who have the money to pay pretty much anything they have to for the "right" place to live, prices go up.

And, that tax break they got means a few more bucks a month available for the cheap mortgage on the new, bigger, crib.

In his first major policy address as President Bush’s chief economic adviser, former Fed Gov. Ben Bernanke devoted a few moments to discussing the current housing boom sweeping the nation. “For example, states exhibiting higher rates of job growth also tend to have experienced greater appreciation in house prices,” he said. Can it really be that simple? Can rising home prices be explained as a natural outcome of a growing job market?

any economic pronouncements from this administration are not what I would consider "serious."

I don't see the econometrics reports any more, if they even exist like they used to, but I find it difficult to imagine that anyone would be forecasting along those lines. Job growth does mean a lot, but it's income numbers that mean more.

Close a union factory and fire a thousand making $25 an hour then hire 2,000 making $7 an hour just isn't going to make anyone happy even if the job creation number looks fantastic.

"I don't think anyone seriously linked housing prices with job growth"...

The man is on the Bush payroll, and it's literally what he said. It's not my interpretation of what he said, it's what he said.

The point of posting the article was to show that a man on George W. Bush's payroll is "seriously linking housing prices with job growth."

It's exactly what he's doing. I'm not talking about economists or the reality behind any statements made by Bush or his lackeys. This post is about the lies and spin coming from the Bush administration and words...actual words...on paper, and on your computer screen.

I'm not trying to be a prick about this. I just want you to understand the very, very narrow and intentional focus of my post.

:toast:

we are in agreement that anything emanating from the Dark Castle that used to be the White House should be looked at with deep suspicion.

Unfortuntely, as you seem to recognize, much of the rest of the world may not be so discriminating.

:toast:

if they keep repeating that the job numbers are great & nobody challenges them, then people start to believe it. Why Kerry never challenged Bush on that during the debates ("1.9 million jobs in 13 months!" like that is an amazing accomplishment when all Kerry had to say was that an average 13 month period under Bill Clinton brought you over 3 million jobs!)

You know the spiel: take out this interest-only mortgage and you can get more house for a lower monthly payment.

Okay, fine. So let's say John can afford a $1000/month mortgage. Let's also say that the $1000/month will net you a $100,000 30-year conventional mortgage. Now let's pull a number out of my ass and say a $125,000 interest-only mortgage costs $1000 per month.

Say John plans to move in five years. The difference between conventional and interest-only really doesn't matter to him--being able to get a $125,000 house rather than a $100,000 house does. So why NOT raise the price of the house from $100,000 to $125,000?