Worst of U.S. housing slowdown over: WSJ poll

[lindismith]

I will look. Stay tuned….

[powayseller]

That WSJ article has so many errors, it would take me 30 minutes to address them all. I’ll tackle just the first error in paragraph 1, that the worst is over. Housing starts are dropping at a greater percentage every month, and there is no indication that trend is reversing. Next, the OFHEO index tracks the NAR resales very closely, so Calculated Risk (and I) expect the OFHEO Q3 index (to be released in about one week) to be a very sharp drop. I used to have fun debunking other people’s arguments, but it’s not so much fun anymore and it’s time consuming.

Finally, whenever I read anything that economists say, I basically ignore it, because they are lousy forecasters.

Roubini: “in March 2001 in a survey 95% of US economic forecasters predicted that there would not be a recession in 2001; 95% of them! Too bad that the recession had already started exactly in March of that year!. So, even as late as March of 2001 when it was totally obvious that the economy was spinning into a recession 96% of all forecasters were still living in the delusional dream that the US would avoid a recession. This even after the tech and investment bubble had totally busted in 2000; even after the 2000 Chrismas sales were a disaster and growth was already crawling down to zero by the end of 2000; this even after the Fed went into a panic mode on January 2nd 2001 and cut the Fed Funds rate in between FOMC meetings because of the collapse of Chrismas sales and the collapse of the NASDAQ that day
was clearly signaling a coming recession. There was systematic delusional bullish bias among forecasters, among investors and in the Fed.

The failure of professional forecasters in predicting recessions – there are always way overoptimistic and systematically miss the turn downward of the business cycle – is well known and documented in scholarly studies. Prakash
Loungani – who has written several research papers on this systematic bias – summarized the results of his 2001 paper on this forecasting bias with the following scathing remarks: “The record of failure to predict recessions is
virtually unblemished”. That sums it all. Why this ystematic failure? Because there are systematic biases and financial conflicts of interests in the economic forecasting business.””

[lindismith]

No, there’s no further info.

There was a downloadable excek file. I will post it over on our yahoo groups.

They had “selection of comments” related to their main question, which I’m posting below. It is hard to read because it is prose but in excel, so the comments are run-ons etc. I’m posting it exactly as it appears in the spreadsheet.

You can see that they’re all over the board.

What statement do you agree with?
The worst of the housing bust is behind us. 65%
The worst of the housing bust is yet to come. 35%

Selection of comments:
Without a spike in inflation or job loss housing will soon stabilize
Housing construction to fall slower. Prices to fall faster.
In terms of sales/construction, not prices
Housing activity will decline further but at a slower pace
Negative impact on consumer spending still ahead.
There is no housing “bust,” just a slowdown in sales

[cr]

Regarding prices in bubble markets I see where it reads…

“Mr. Harris of Lehman expects price declines next year to be confined to “bubble” markets, such as… California. ‘There’s no reason for prices to be falling in areas without a bubble.’”

However, the preceding paragraph states…

“Richard DeKaser, an economist at National City Corp., a big mortgage provider [surprise, surprise] …forecast a 4.4% increase in prices this year and a 1.8% decline next.”

Did he say INCREASE this year? I agree there are differing opinions, but come on, aren’t prices already down from a year ago? I also agree these same people essentially live in denial of the truth, hoping their perceived expertise will have more influence on a homeowner than their mortgage payment that just went up 35%. In short I agree with 4runner.

But I find the most outrageous statement here:

“People say all bubbles end in disaster, but this is a small bubble. Home prices are just about 20% too high. We need to take it seriously, but in the history of bubbles, this will go down as one of the smaller ones,” said Lehman’s Mr. Harris.

Hasn’t this site proven the current bubble to be the largest in history?

Generally, isn’t the bottom line income? Sure, creative lending can alter that, but only temporarily. I hear talk of low unemployment/new jobs, but a Cashier at Wal-Mart can’t afford the average house, at least not in any of the Bubble areas.

“Just about 20% too high”? Last I heard in LA, the average home was about $550k, and income was less than 50% (about $58k/yr) of the $120k/yr needed to pay that.

I contend the worst is yet to come.

[lindismith]

good points, all of them. And I agree with you.

The excel file has a list of all the economists surveyed. I don’t know for sure, but I would bet they are all connected to Wall Street, and have a vested interest in a rosy economy.

I tried to upload the video, or find it on the web for everyone, but I couldn’t. It was such a bunch of spin, and business-school-speak which is what I refer to when people start speaking like Dilbert, the comic character, that I realized I would just be wasting everyones’ time.

[qcomer]

To be honest, everyone has some kind of vested interest. This is inherent in all of us and all economists, including Roubini. e.g I was disappointed to see Roubini recently, getting obsessed about his recession prediction and I mentioned that on his blog as well. This is probably because with markets motoring along, he has been getting more criticism for his position, from folks who have vested interest to believe in a soft landing.

Once you have established or taken an economic position, it is difficult for your ego, to change it based on incoming data as the instinct is that of denial. Most often, there is some data to help the denial as well. e.g Most of folks on this forum have positioned themselves finacially for a hard landing scneario. Most economists till now, have themselves and their funds positioned for soft landing. Maybe one side is more finanically motivated than the other but fact is that both sides have an embedded bias that clouds their judgement. Sorry I don’t believe ANYONE can come up with truly objective analysis. That’s why I believe in diversifying and risk management.

[powayseller]

qcomer, Roubini stated several times that the stock market will keep rallying through the end of the year. Roubini did not say the stock market would fall now. I don’t know why people keep changing his words.

He calls it a sucker’s rally, because it’s based on a false hope that the economy will have a soft landing, and that the Fed will lower interest rates to prevent a recession. But he says, just like in 2000-2001, when GDP fell in 3 consecutive quarters before the recession, and a Fed rate cut did not prevent a recession, it will not prevent it this time either. So many people on his blog slam him because the recession is not here, but his prediction is for the recession in Q1 or Q2 2007, and for the stock market to fall sometime after the end of 2006.

[qcomer]

Poway,
Roubini’s original forecast (in 2005) for recession was in actually 2006 that he moved to 2007. Anyway that wasn’t the point. My point was that Roubini is much better at providing the brilliant analysis disecting coming reports but I was getting bored of him focussing on his recession predictions. I don’t know why you got defensive about Roubini, I didn’t mean to belittle him. I used his example to make broader point that that everyone has a financial bias in their analysis and it maybe too harsh to blame only the mainstream economists for that.

[powayseller]

qcomer, a question…since you’ve read Roubini’s blog longer than I have, could you tell us if he is generally a bear, or if his outlook changes depending on economic conditions?

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