In Unmaking the Myths [CNN/Money]  the author tries to explain why several items of conventional wisdom are not holding up under changing market conditions.
Here are some thoughts, although I don’t think these are strong elements of conventional wisdom to begin with.
Scarcity of buildable land on the coasts ,Ã„Ã® protects the balance of supply and demand an keeps housing prices high. We hear this discussed in Manhattan quite a bit (I plead guilty myself), where its an island and the lack of land has pushed development to the other boros due to high land prices. However, recent re-zoning efforts by the Bloomberg administration make this argument less plausible. Without this change, the argument is still weak since the lack of sites is more of a phenonom of land sellers responding very quickly to improving conditions, thereby ratcheting up the cost of site assemblage.
Big builders learned their lessons from prior booms and only build when they have firm buyers in place – I am not sure I agree with this as a myth to begin with. I think this argument applies more to commercial development than it does to residential development. A glut of office development characterized the last building boom. I believe that builders know how to build and its naturally difficult to stop doing so once the momentum gets going.
Home prices don’t drop in areas where employment is rising. – The article reports this as happening in Boston, although I believe that Boston’s economic prospects and employment are weaker than Washington, DC, which may make for a better argument. Washington, DC has some of the best employment prospects in the northeast but a signficant over supply of condo housing and investor activity.
Hot markets will glide to a soft landing. ,Ã„Ã® Thats the spin by NAR these days after 6 months of denying a market change was even happening. This is an overly simplistic rational. The missing element here is investor activity. I think markets with heavy investor activity are the most vulnerable. Many investors don’t have the deep pockets to carry their properties indefinitely. Again, each local market behaves differently so its misleading to hard sell the point that all is well. Even the phrase “soft landing” is comforting in its terminology. Some markets will be unaffected, some will be moderately affected and some will be severely affected. CNN quite aptly calls them Dead Zones, Danger Zones and Safe Havens .
One of my favorite myths is that:
- The media caused the housing boom to end ,Ã„Ã® Thats simply not true. The media may have piled on when the market began to show weakness, but it didn’t cause the change. On the other side of the argument, it could be said then that the media caused the housing boom. That is giving the media too much credit.
I think that the most significant myth is that:
- The housing boom was caused by a change in lifestyle demands. – The housing boom and all the peripheral was stimulated, jump started, caused, etc. by low mortgage rates and loose underwriting standards. Lifestyle changes and demographic changes became options as housing payments dropped. Cheap money bred an explosion in development and sales activity. These other factors took the boom further but it all began with low mortgage rates.