2007 Housing Bubble Update: 10 Economic Indicators to Watch

Comment:: 2007 Housing Bubble Update
Posted by: Acumenical on Fri, 25 Apr 08 15:42:47 +0000

The obvious problem for this Issue Brief is that it was written in February 2007. This comment is being written in April, 2008, and the intervening year has rocked both the housing and credit markets as well as the overall U.S. economy. The author's basic assumptions stated on page 1 have been shown to be over-simplified. However, the paper still meets its goal to list many well-known public data sources (economic indicators) with brief description of the uses and limitations of each. In so doing, Baker provides a useful service for readers from varied backgrounds.

We all know, but sometimes need to be reminded, that statistics do not present undisputable facts. Baker does well to point out questions that should be asked about each of the data sources. For instance, the New Home Sales data provided by the Census Bureau excludes condominium sales (p. 2) while Existing Home Sales data produced by the National Association of Realtors has a finer filter that includes condominium and other home types (p.4). Moreover, New Home Sales data is based on contracted prices and does not reflect the dollar value of extras provided by builders (p. 3).

While this report is not particularly innovative, it does serve as a primer for readers new to the field of housing economics. It is also a good reminder to more experienced researchers to question all sources carefully. In fact, we should remember that a short paper cannot point out all the strengths and pitfalls of these sources, and that some of Baker's comments are themselves open to question. For instance, he comments, "While some of the more rapid increase in house prices in the coastal areas probably does reflect the increasing desirability of these areas, they will probably still see the sharpest price decline when the housing market adjusts to more normal levels." (p. 5) His argument in support of this claim is not established.

In sum, Baker provides a valuable list of sources and a wake-up call to those of us who use them. This paper might be useful as a secondary resource for courses in real estate economics, investment, or entry level research and statistical reasoning. The media writers should read it, too, before creating their sound bites!