In today's Wall Street Journal I find this gem:

Maybe home builders should knock off work until spring.

Pillory OPEC for not raising oil production and pillory home builders for producing too much?! And another:

"If people stop cutting prices, that's actually good [for builders]," says David Goldberg, an analyst with UBS Investment Bank. "If everybody does it, it works. If one builder does it, it doesn't."

If OPEC conspires to raise oil prices, it's evil, but it's OK to conspire to keep housing prices up? This is bad reporting.

It's in each builder's interest to keep building as long as their cost to build is lower than the expected sale price and the cost of capital for keeping the house on the market for longer than historical averages (and at higher interest rates than before the credit crisis). They will continue to build and prices will continue to fall. It probably won't be a sellers' market in housing in many parts of the country until 2009 or 2010. While builders continue to build, the 10-month supply of houses will only slowly drop and prices will also only drop slowly. If it made sense to build houses at 50% of current prices in some markets, there will be building for a while especially with labor and materials less scarce given that the peak of the housing boom is over.

Lower housing prices will make houses more affordable and stoke demand. That is what media should anticipate: a smoothly functioning market because the market price isn't too high to sell anything. Not a way to repeal the Law of Supply and Demand.

Get with the program, Rand. Markets are always freewheeling, crashing, skyrocketing and plummeting. Except when they are rising and falling or going up and down. This is Journo Jargon 101. For example, today's WSJ points out that yesterday the Dow plummeted 1.7% while oil rose 80 cents [0.83%]. Tomorrow, oil could plummet 80 cents while the Dow rises 1.7%. Remember, the meaning is all in the nuance and delivery! Mere numbers don't mean anything, and how could we proles understand the markets unless we get our news pre-digested by 30-something graduates of the finest liberal-arts programs.

Sam Dinkin wrote the post.

"Maybe home builders should knock off work until spring."

Maybe Justin (the author of this idiocy) should go without income until spring - as he is suggesting for the plumbers, carpenters, electricians, etc., who do the actual WORK for the builders.

Or he could just shut up and go on a serious (though, in his case, undoubtedly futile) quest for some common sense.

Maybe Justin has looked at the massive glut of unsaleable houses on the market and joined the dots. That would be idiocy though, so Justin wouldn't have done that.

Now, preschool economics. If you have a huge number of unsold houses despite rapidly falling prices in most US markets, would it be correct to say that homebuilers are going to be out of work for a while? What if a whole lot of ARMs are going to reset over the next year and additionally force over a half million into forclosure?

No, Justin is an idiot.

BTW, I'm the AC and I live in Sydney which has a very limited supply of coastal housing, and thank god for that.

I'm scared as hell of the US economy going into a decade long cycle of stagflation, but I think that's where this is going to lead once the dollar heads south. Thankfully Russia, the ME, SEA and China have been kind enough to import our (US, Eurozone, UK, AU, NZ) inflation for the last ten years. I hope this arrangement lasts as I've got a mortgage only 65% paid off and don't need a 500bp rate increase right now.

Lower housing prices will make houses more affordable and stoke demand.

If housing is the same nationwide, as the few markets I'm aware of, this isn't going to happen. Here in central NC, young home buyers are being squeezed out not only by higher interest rates, but by square feet too. Not to many young marrieds, and fewer still singles, want to, or can afford to, go from a 900 sq ft appt, to a 2500 or 3500 house. And the associated rise in cost. The big houses that are going unsold here will NOT have prices cut to a level that will get them sold.

When I was a kid, my parents first house was a small 3 br at about 1200 sq feet. Nobody builds anything like those now. It's stupid.

I'm scared as hell of the US economy going into a decade long cycle of stagflation, but I think that's where this is going to lead once the dollar heads south.

But I thought the U.S. was only a source of evil. Won't the world be a better place if we're on our backside for 10 years?

If home builders cannot sell newly constructed homes for more than it takes to build them, then of course they should stop building them; indeed, they have no other choice. This is the free market in operation, and is the case even absent an OPEC-like cartel.

Another thing to remember is that the cost of a "home" is actually the cost of the home and the land it rests on. I gather we're not seeing a corresponding drop in generic land prices, but it is possible that land zoned for housing is declining. In any case, as long as the house plus land minus the cost of building the house, sells for more (adjusted for inflation, risk, time value of money, etc) than the cost of the land, then it'll still be worth building the house.

And if the builder thinks the decline in prices is short term, it may still be worthwhile to keep a core group employed even if he's losing some money, just because the builder will be better positioned (and pay less) to take advantage of an improved housing market.