Columnist Defends View on Housing Market

Just check out the comments section of last week's column. They don't just disagree with me, they're enraged at me. And believe me, you don't want to see the hate mail I get. Or hear the threatening phone calls.

The perma-bears want to burn me at the stake just because I noted that the sharp decline in house prices, in relation to per capita disposable income and prevailing mortgage interest rates, makes housing very affordable right now. So maybe we're somewhere near a bottom, I said. Is that so bad?

And I noted that the economy has already shed about 1.5 million housing-related jobs, returning employment in that sector back to the levels seen before the housing bubble got started. So maybe the slump in payroll jobs is somewhere near a bottom, I said. Is that so bad?

Apparently so. For perma-bears, it seems to be an article of absolute faith, that housing is in an ever-deepening crisis that will drag down the whole economy. And in a classic case of circular logic, they think that the bad economy is dragging down housing.

I don't want to be misunderstood as taking a symmetrically dogmatic position. I'm not pounding the table saying the severe housing slump really is at an end, right here and right now. The sector is obviously under tremendous stress, and it faces serious headwinds. But it can't keep going down forever, and when affordability hits all-time highs (which it has) and when housing-related employment goes back to preboom levels (which it has), one has to wonder whether the worst is over.

With that qualification, let me address some of the points made by my critics. My SmartMoney.com editor pointed me to an online rebuttal to last week's column, posted on the Market Oracle web site. The author of the rebuttal may disagree with me, but I appreciate that he refrained from ad hominem attacks and confined his arguments to matters of judgment. So I'll use his article to frame my response.

First, the author argues that housing has yet to correct from a very serious run-up. He says, "Housing prices rose 100% in many big markets from 2002 to 2006. Even more in some places. We have now seen a 30% decline. We need to see a 50% decline and that is just to get back to a point at which houses were already expensive."