The Year in Real Estate

The end of the year is a time for taking stock, for looking back on the work you've done and hoping, just maybe, for a bit of appreciation from bosses and customers. And if you write a column for a Web site with a big button marked "E-MAIL THE WRITER" under your picture, you can hope for some measure of thanks from readers. Unless, like me, you've spent the second half of 2007 writing about the real estate market, which I've variously described as "languishing," "plummeting," "crashing" and "moribund." With nearly every column I write, I'm taken to task by readers who insist I'm being unduly pessimistic.

"Why do you at NEWSWEEK continue to try to destroy the housing market?" writes Bill T. "All you do is report news that hurts our economy [and] destroys confidence."

"All you [write] about is the foreclosure rate," writes B. C. from Colorado. "What about the rate of people NOT foreclosing who are in a home they wouldn't be in" if they hadn't obtained a subprime mortgage?

"When are the mass media going to report on housing in areas of the country where the 'bust' really hasn't occurred?" writes Tim from Oklahoma, who says prices in much of the Midwest are holding steady.

As it says in the Gospel, ask and ye shall receive. So as 2007 gives way to 2008, let's focus on the full half of the glass—and why, even amid the worst real estate recession in anyone's memory (sorry—there I go again), maybe things aren't as bad as they seem. Let us count the ways:

Some Numbers Are Strong My colleague Dan Gross recently wrote about the National Association of Realtors' history of predictions that make meteorologists look spot-on. He's right: it's always wise to treat broker happy-talk skeptically, and that includes the NAR's prediction of a housing market rebound in 2008. But amid their blarney, the realtors do make some valid points about how much is right with the economics that support the buying and selling of homes. Unemployment remains low. Interest rates remain very attractive by historic standards. It may be a less-than-stellar time to sell a house, due to extraordinarily high inventory levels, but it sure is a great time to buy one. Since many homes are bought by first-timers, who needn't worry about selling a current house before they buy one, there is a pool of buyers who should stand ready to make offers.

Things Aren't Tough All Over I live outside Boston, where the housing market isn't as bad as it is in Florida, Las Vegas or Phoenix, but it's still far from strong. Does that color my view? Probably. But Tim from Oklahoma is right: there are places where the market is holding steady. The National Association of Realtors points to Gary, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash., as markets that continue to show healthy price gains. Radar Logic, a New York-based housing data firm, reports that of the 25 cities where it tracks home prices, five—Milwaukee, Charlotte, Seattle, New York and Philadelphia—have seen small price increases in the last year. Another two—San Jose and Minneapolis—are essentially flat. "Despite rumors to the contrary, there is no 'national' housing market," says Jonathan Miller, the firm's director of research.

Or consider Portland, Ore. "Real estate is still pretty hot here," Portland broker Kate Foster e-mailed me recently. If Foster prices a house correctly and sellers aren't greedy, she might still receive multiple offers—though that now means two or three, not 10. Prices are still rising, just more slowly. And Portland is still attracting a steady influx of out-of-staters, particularly from California. "I have met more than a few who are buying without a mortgage because they cashed out of Palo Alto, San Diego or San Francisco," Foster says.

Long-Term Owners Are Still Way Ahead Tom Kunz is the CEO of Century 21, and he's worked hard to get his sales agents to see reasons for optimism. One he's been pointing to lately is that anyone who has owned his home for more than a few years is probably still way ahead. Kunz himself is in this situation. In 2005, when he relocated to New Jersey from Southern California, he received an offer for $1.3 million on his California home. "My wife wouldn't let me sell it," he says, since she believed the price would go higher. Now, after the market has softened, Kunz figures the house is still worth $1.1 million. "I could sit back and say 'I lost $200,000'," he told me before the holidays—but that ignores the fact that he paid just $340,000 for the house way back when. Instead of looking at the hypothetical "loss" of not having sold at the peak, people should focus on the appreciation they have captured, and how much more their house is still worth today than when they bought it.

Even Pessimists Admit to Uncertainty During the housing boom, few people explained why there was an unsustainable bubble more articulately than Yale economist Robert Shiller, who rose to fame describing the Irrational Exuberance (in the book of the same name) that overtook the stock market during the late 1990s. (Here, a disclosure: though I've never met Shiller, he did provide advance praise for my forthcoming book on the housing boom.) When Shiller looked at the data in late November, he remained pessimistic; if he had to guess, he'd predict home prices will continue to fall. But he admits that the momentum of the fall in prices has begun to slow. He also points to the pricing pattern during the last housing bust, in 1989-91, as evidence that the housing market can turn around quickly. Back then, instead of bumping along the bottom for an extended period, prices hit bottom and moved quickly upward. "These things are very hard to forecast," Shiller says. "I think we're in a period of exceptional uncertainty about the value of our homes."

That's sure to produce anxiety for many homeowners, even those who are lucky to not be worrying about a mortgage that's due to reset or a monthly payment that suddenly feels unaffordable. This much is certain: in the months ahead I'll continue to try making sense of the torrent of housing market news. And whether that news is good or bad, I hope you'll keep reading.