Schadenfreude, Sex and House Prices
David Smith has been doing for the UK what this blog has been doing in the Australian context, drawing attention to the perverse demand for predictions of housing-related economic ruin. Predictions of this kind have been about as successful in the UK context as they have been in Australia. As Smith notes, they have also become something of an industry in themselves:
Many parts of the media have been itching for the crash to happen. From a crowded field, my nomination for most ridiculous housing headline this year goes to the Daily Express. “House prices slump”, its banner front-page headline screamed on September 30. The story was that the Nationwide building society had reported a 0.2% drop in house prices for the month. Some slump.
A whole industry has built up around the crash story, with websites, weblogs (blogs) and newsletters. I can only think this is driven by schadenfreude - pleasure in the (potential) misfortune of others.
Rather than simple schadenfreude, there is probably a more complex story of cognitive bias at work here. The main problem is the willingness of people to adhere to an asymmetric view of the future distribution of economic shocks, a bias which is then exploited by publicity-seeking forecasting firms and the media. As Smith notes, predictions of stagnation are not nearly as sexy as forecasts of a crash.
The perverse element in all this is when forecasters go looking for possible adverse shocks to rationalise their house price forecast. Nouriel Roubini did the same thing at the Cato monetary policy conference in relation to the USD (see previous post), rattling off every conceivable thing that could go wrong for the USD to justify his essentially pre-determined view that it must fall.
posted on 07 November 2005 by skirchner
in Economics
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Comments
The house price crash forums have gone into overdrive since John Symonds comments on Sunday. They all seem to think this will be the “tipping point”.
Part of me agrees with them (the house price to income ratio has risen steeply in recent years) but with unemployment at 30 year lows, an economy in pretty good shape, and low interest rates I can’t see any reason why house prices would fall.
Barring some major shock to the economy (and lets face it, the housing market shrugged off 9/11) all I see ahead is stagnation.
Posted by .(JavaScript must be enabled to view this email address) on 11/07 at 09:51 PM
BTW, three cheers for Alan Greenspan and the USD!
Keep cranking those rates Al. Aussie exporters are cheering for you every step of the way.
70c here we come.
Posted by .(JavaScript must be enabled to view this email address) on 11/07 at 10:08 PM
Look at where John puts his money, not his mouth:
http://www.theaustralian.news.com.au/common/story_page/0,5744,17064277%255E7583,00.html
“For the past year we have been watching from the bedroom window the construction of a monstrous development a couple of suburbs away. A crane sits over the site and scaffolding surrounds the project. It is the future Point Piper residence of home lender “Aussie” John Symond.
The development is about the size of the block of flats beside it and boasts no fewer than 13 bathrooms, harbour access (de rigueur, surely) and - just what every home needs - a helipad.”
Posted by skirchner on 11/08 at 10:18 AM
I’m sure Aussie John is beyond caring about the value of his property ... its pure indulgence, not an investment.
There’s little doubt that the Sunday program was pushing an angle (see transcipt link below) but there are some pretty forthright statements in there, especially coming from real estate agents:
http://sunday.ninemsn.com.au/sunday/cover_stories/transcript_1904.asp
Mind you, Aussie John says he anticipates a “gradual decline” that “will go for several years”. Hardly the crash scenario that most doomsdayers are expecting.
Posted by .(JavaScript must be enabled to view this email address) on 11/08 at 10:29 AM