Real Estate and Astrophysics

It’s been recently reported that an act of galactic violence never before witnessed by astronomers is occurring a few galaxies over, and while reading the story, I couldn’t help but think of the housing market.

According to astrophysicists tracking the event, a massive black hole at the center of a distant galaxy is attacking a smaller nearby galaxy using a jet of highly charged radiation. (How rude!) Black holes are areas of highly concentrated mass that exist in space. Just as the Earth has a gravitational pull that keeps us firmly planted on the ground due to its mass, black holes have a strong gravitation pull as well. There is one slight difference here though: escape velocity – the speed required to “escape” the gravitational pull of the mass in question. The Earth has an escape velocity of 25,000 mph. In order to launch an object into space from Earth, the space shuttle/rocket/paper airplane, has to go 25,000 mph or faster. The moon, a much smaller mass, has an escape velocity of 5,300 mph. A black hole’s escape velocity is faster than the speed of light. Therefore, nothing, not even light, can escape a black hole.

How are black holes created? The gravitational collapse of a star is the most common origin for this phenomenon, but scientists say black holes can be created using a particle accelerator. While experts say the chances of planetary annihilation resulting from an artificially induced black hole are miniscule, alarmist organizations such as the Lifeboat Foundation claim the danger is so imminent, we should establish “self-sustaining colonies elsewhere.” I’ll add that to my “To Do” list, but first, I’ll explain what all this has to do with real estate.

The ability to “artificially induce” a black hole makes me think of an economic concept we’ve heard a lot about lately: recession. I think that there are two types of recessions: naturally occurring recessions as economies go through normal cycles, and induced recessions, caused by fear and panic that something bad will happen.

While it is heavily reported that we are teetering on the verge of recession, this is a media succubus manufactured by scaremonger tendencies that drive content on slow news days. “Let’s see…no new information on Israel and Palestine? Hmmmm…we could report about the 375 people running for president…no, no…Wait! The housing market! Let’s talk about how bad it is! Go get an old lady who just lost her home! She’ll be great on camera!”

If you don’t believe me, you’ve never been in a newsroom staff meeting pitching story ideas.

On Thursday, December 20, 2007, the U.S. Commerce Department made an astounding discovery: things aren’t as bad as we thought. The final numbers on third quarter GDP have been reported, and the Gross Domestic Product increased 4.9%. This number is unchanged from the estimate made a month ago.

Meanwhile, media pundits are scratching their heads, asking, “Well…how did that happen? Are you sure about those numbers? Let me see that report again…”

As a result of this “surely you must be kidding” reaction from the press, the GDP statement has been reported with much skepticism and the good news is buttressed by “howevers” and “be that as it mays.”

The Associated Press article on the GDP release is a brilliant example of how to deliver good news in a way that hurts: “The U.S. economy sprinted ahead at its fastest pace in four years during the summer, although it is expected to limp through the final three months of this year as the housing and credit debacles weigh on individuals and businesses alike.”

The confusion over the 2007 third quarter good news dates back to late in 2005, when reports of housing market Armageddon started appearing.

December 8, 2005 – USAToday: “Sustained decline forecast in U.S. housing market”

February 28, 2006 – ABCNews: “Homes Sales Down: Is the End Near?”

May 5, 2006 – FORTUNE Magazine: “Welcome to the dead zone” Real estate survival guide: The great housing bubble has finally started to deflate, and the fall will be harder in some markets than others.

August 24, 2006 – The Big Picture: “Is a Housing Crisis Approaching?”

August 27, 2006 – The Washington Post: “The Housing Crisis Goes Suburban”

September 7, 2006 – USAToday: “Realtors forecast what home builders know: Home sales this year will tumble.”

September 14, 2006 – USAToday: “More Fall Behind on Mortgages”

November 2, 2006 – CNN Money Magazine: “Slow-market crisis: Stuck with two homes” Imagine you buying your dream home only to discover you're unable to sell your current one.

January 25, 2007 – MSNBC: “Has housing market bottomed out?” The final housing numbers for 2006 are in, and they confirm what anyone who bought or sold a home last year has suspected: It was the worst housing slump in nearly two decades.

April 2, 2007 – The Boston Globe: “Housing Crisis Comes Knocking”

March 11, 2007 – The New York Times: “Crisis Looms in Market for Mortgages”

While there is no doubt that many factors may have contributed to the deflation of confidence in the housing market, there is one constant factor in this supposed “crisis”: people who keep saying we’re in a crisis. If you tell everyone something is real enough times, they will start to believe it. The Earth is flat, women can’t do math, and the housing market is crashing.

So what exactly is the escape velocity that we need to propel ourselves out of the clutches of this artificially induced black hole? How do we fight a fake recession? Education at light speed! Stephen Hawking hypothesized that black holes can eventually evaporate. Maybe this fake recession will evaporate if we refuse to acknowledge that it exists.