Air To Leave Bubble Slowly by Broderick Perkins
You won't hear the housing bubble pop, but you could begin hear it give off a slow hiss. Median home prices were up only 1.8 percent during February, March and April compared to a year earlier, according to Deloitte Research's Leading Index of Consumer spending. That's a sign the real estate market is slowing as well as a signal it probably won't come to a screeching halt. The index says as recently as December 2004, real home prices were rising at double-digit rates. Not any more. "There has been much discussion recently about a housing bubble, but the truth is that home price appreciation has slowed considerably in the past three months," said Carl Steidtmann, chief economist of Deloitte Research and author of the monthly index. He also says forecasts of doom and gloom in the real estate market are passé. "The time to talk about a bubble was last December," says Steidtmann. "Consumer spending growth in the summer months will be largely dependent on the direction of home prices and job growth," continued Steidtmann. "As job growth continues to accelerate, we should see a corresponding pickup in real wage growth," he added. That's the opposite of the message in "The California Report: Beware The Froth," recently released by the highly accurate University of California-Los Angeles Anderson Forecast. The forecast accurately predicted the last recession and California's slump in the 1990s. While the forecast credit's the hot housing market with fueling a lackluster economy in California and the nation, consumer spending based on home equity gains is an addiction to phantom wealth. The economy is too weak to sustain any softening of the housing market. A softened housing market could begin to dry up the home grown stash of equity consumers have been squandering on cars, furnishings, appliances, home repairs and other items historically purchased with incomes and savings. Also, given the high rate of discount loans and interest-only mortgages, much of the equity is market based with consumers contributing less equity by way of paying down the mortgage. The forecast calls for the economy to weaken and experience another recession as early as 2006. "Prices don't have to go negative to have an impact, just 15 percent to zero percent is enough to start the dominoes falling," said "Froth" author UCLA economist Christopher Thornberg. Despite Steidtmann's bullish comments, his index, reveals a mix of conditions that look more like the economy the Anderson forecast sees. - Home price appreciations have slowed sharply, despite volatile housing markets on the East Coast and in Florida.
- After a year of modest declines, real wages now appear to be declining at an accelerating rate, as rising energy prices push up the cost of living and rising benefit costs hold down wage increases. In May, real wages were down 1.1 percent from a year ago.
- Initial unemployment claims fell in May by approximately 10,000 claims per week. That helps offset the weaknesses revealed elsewhere in the index.
- The tax burden has risen slightly since March 2004 as continued economic growth pushes some households into higher income brackets.
| 
