I’m so sick of the poor conclusions put out by the Anderson Forecast. For example, they say, “Without severe job losses forcing home owners to sell houses, home prices in California in five years will be about the same as today”. To this I say, “with *severe payment shocks* forcing home owners to sell houses, home prices in CA in 5 years will be 30% – 50% less than today”. Because they exclude exotic lending from their vocabulary and analysis, they think that housing prices can only drop in a recession.

The big BS about them is they do not consider exotic lending at all! To them, home prices can drop ONLY if people lose jobs in a recession, and according to them we will NOT have a recession because: 1) a recession involves big job cuts in 2 sectors, manufacturing and one other, and 2) we don’t have a lot of manufacturing jobs anyway so we can’t have enough job cuts in manufacturing to cause a recession.

Well, Anderson Forecast, take some notes from me: Home prices fall when supply exceeds demand, regardless of the reason! It doesn’t matter whether a job loss or a resetting ARM is the cause of being forced to sell a home: both result in distressed sellers and a lot of inventory. ANY situation causing distressed sellers and high inventory will cause price drops. Job losses are only ONE reason this could happen!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Geez, I am so annoyed with these people. They are supposed to be damn economists, but they don’t mention at all the one big reason for this housing bubble: exotic lending. They just ignore it completely. Let’s move along, nothing to see here….

Second, we will have severe job cuts, because construction and MEW-related job will be eliminated and cause a recession. Even Leamer’s housing market/recession charts show that every single housing market bust has caused a recession (except when we had the Vietname or Korean War). Even the IMF is predicting a global recession due to US housing market bust.

Now get this: their forecast brochure contains a chart which misleadingly shows San Diego home prices in the 90’s did NOT DROP, but stayed level!!!!!! That is the only chart in the entire forecast brochure that did not have a source, and it is obviously wrong!!!!!!

Last, the San Diego conference was opened by Wachovia CEO Ernest Rady, who announced the next week that he bought out Golden West, the biggest subprime lender in So. CA. I suspect their banking industry ties keep them from saying what needs to be said about the exotic loans.

I asked Thornburg about loan resets and payment shock at the conference, and he got so made, he started waving his arms around and people were just aghast. The San Diego Labor Department spokesperson told me a month later, in a phone call, “Was that you who asked the question about the loans? I couldn’t believe how badly he handled your question!” He was very defensive. Now he left the UCLA Anderson group, to start his own company.

So the data they use, and the analysis they have, is very good and impressive. They talk about MEW and construction and retail jobs driving the economy, our dependence on China to fund our deficit, the problem with our federal and trade deficit, the lack of savings, the problem with flat wages, and so on. But then they leave out exotic lending and say housing prices will NOT go down, they will merely stop rising.

I’m with Roubini. His analysis is much better than Anderson Forecast! Any economist who considers exotic lending and payment shock is worried about a recession. Here’s my spoof: “Hey, let’s just pretend there are NO exotic loans, and then we can bury out head in the sand and tell everyone including our banking sponsors that banks will be fine and safe and there is no recession. Then we can get more money from Wachovia and our other buddies, and when things get really bad we’ll just say we changed our mind in light of incoming data. Signed, UCLA Anderson Forecast”