Reporting on the housing bubble

And why you’re not going to read about it in the real estate section of your morning paper.

It looks as if the real estate bubble is starting to deflate. (The California Association of Realtors says prices statewide peaked in August, though it hides that fact under a cheerful headline.) Maybe prices are merely going to correct to more reasonable levels. Or maybe instead we’re about to see a self-sustaining crash. The “crash” story isn’t hard to tell. If home buyers stop factoring equity gains from rising prices into their calculation of how much house they can afford, if rising interest rates squeeze people with ARMs and force some of them into distress sales or foreclosure, if falling home prices turn off the spigot of home-equity finance that has been propping up consumer spending and the economy goes into recession as a result, today’s house prices may look as silly in two years as 2000’s tech-stock prices look today.

One place you’re not going to read about the housing bubble is in the real estate section of your morning newspaper, any more than the financial section of the same paper warned you about the stock bubble. Newspapers are in the business of selling advertising. Sometimes the news section can resist the resulting corruption (though the big department stores usually get treated with kid gloves). But the automotive section is directly supported by car ads, the financial section by broker and mutual-fund ads, and the real-estate section by real-estate agents’ ads. So no one who writes for the real estate section is going to write a story explaining to people that, if they have a house whose current market value is a large multiple of their net worth, prudence might suggest selling now, and that buying now (in any of the bubbly markets) represents a nearly insane act of financial berserkergang

That’s a big problem; as Atrios likes to say, we ought to discuss that problem at the next symposium on blogger ethics.

Update Jane Galt has some non-pecuniary explanations for the newspaper bebavior described above, and points out that The Economist has done better on these matters than the average newspaper. The fact that The Economist doesn’t have a separate financial or real estate section directly supported by adds for the affected sector seems to me a likely explanation for the difference.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: