The truth is that the official numbers on house prices the last refuge of soothing information about the real estate market on the coasts are deeply misleading. That’s the key point in David Leonhardt’s excellent piece this morning in the NYT. The reality, says Leonhardt, is much worse that the official stats show. In other words, millions of ordinary, middle class families are in worse shape than the official numbers are reporting. There’s less home equity to fall back on if anything goes wrong. But the bigger problem is coming up. For every family (and every investor) that took on a creative mortgage planning to refinance if they couldn’t make the payments when rates escalated down the line, there will be no refinancing if market values are lower. Instead, the only options will be forced sale or foreclosure. As more families and more investors get caught in that situation, more housing will be listed for sale, and prices will be pushed down even further.
Perhaps the reason the housing market seems to be making a soft landing is that our ears are stuffed with cotton. One example: Officially Boston prices are up about 1% over the past year. Leonhardt’s experts say values have actually declined about 20%. The official numbers are off in part because they reflect only sales, not the growing number of homes in inventory for which the owners have no offers. Leohardt points out that the they are also off because some sales are reported only for certain subsets of the market. Whenever the hard economic data are called into question, there should be a quiver run through the economy. Mark Zandi says the current state of the housing market is the the most significant threat to global expansion. For millions of American families, however, the impact will be much more immediate: their assets will be wiped out, the home will be gone, and they will be left deep in debt.
