CR - would you publish the pointer to your earlier work comparing your forecast to NAR and the other alternates ? I'd like to get another peek and can't find it.
On that status check thing - otherwise known as the, oops where are we at now, dear roadmap do you have/had something on the point in the ARM reset cycle ?
If you can't tell I'm trying to figure out how far in reality we've got to go timewise and dropwise in the housing sector.
Much appreciated.
The way their revisions are going.. about -0.05 to -.11 a month.. if you just estimate an average revision of -.06 or so for the rest of the year.. that gets us to your estimate.
I might venture two probable estimates.. either something above 6 million due to the market un-sticking and prices dropping or maybe we could get a total lockup and have the total sales drop to 5.5 million or less.
Either way, it looks like the rest of this year will be interesting.
Gerard, I'd give Leamer some credit, Leamer changed his view to a serious housing correction, but no recession.
Anyone who tries to forecast can and will be wrong (me too!), but the NAR forecasts are 1) absurdly optimistic, and 2) get revised down every month. That approach seems wacky to me.
DaveL, you see the forecasts vs. actual through May here. As I noted, "NSA sales are 91% of 2006 at this point. If sales maintain that percent of 2006, then total sales will be 5.94 million - about at Fannie Mae's forecast." But I think sales will slump further (there is plenty of evidence this is happening right now) - so my forecast still looks about right for '07.
I understood this while I was in graduate school, and I am grateful not to have imbibed the Kool-aid, even though it probably cost me a career in academia, in retrospect one of my advisors was correct, the real world was a far better place for me than the closed shop.
One of the fellow PhD students used to call me Alan Blinder- and I always told him that he was wrong, I was even further out from the mainstream.
As I type, the PPT is dumping dry dollar bills onto the roaring fire.
Honestly, I doubt this is happening. Excess liquidity has allowed hedge funds to threaten the Fed's control over the money supply, so I think they're working to put a stop to this.
If you're talking about today's market rally, well that's more likely to be the big money trying to blow undercapitalized shorts out of the market - you start a little rally and the short covering turns it into rocket ride.
CA home price drops are largely tied to OptionARM and 3/27s that have yet to even reset. Of course there is latency associated with the eventual transfer of possession and subsequent disposal.
This should be evident in early '08 and progress from there, dragging home prices down through '09, as CA is where much of the froth and weighting is distributed.
Thanks for the link to the article about the Economics profession, AllenM. Excerpt:
There is much too much ideology, said Alan S. Blinder, a professor at Princeton and a former vice chairman of the Federal Reserve Board. Economics, he added, is often a triumph of theory over fact. Mr. Blinder helped kindle the discussion by publicly warning in speeches and articles this year that as many as 30 million to 40 million Americans could lose their jobs to lower-paid workers abroad. Just by raising doubts about the unmitigated benefits of free trade, he made headlines and had colleagues rubbing their eyes in astonishment.
Anyone who tries to forecast can and will be wrong (me too!), but the NAR forecasts are 1) absurdly optimistic, and 2) get revised down every month. That approach seems wacky to me.
Doesn't it though? You would have thought that when Lereah left the newbies would have taken advantage of the opportunity to really reset the bar in a significant way. Oh well.
Rumor going around that Moody's will be downgrading another 5 bio of cdo's at 10am tomorrow.
On a completely different note, I think if I see one more CNBC "Washington's War on Wealth" story I'm going to barf right on my desk. I'm a hard core capitalist, but billionaires out in force whining and trying to convince the sheeple that it for everyone's benefit that they pay half the tax rate of, well, their secretary, personal trainer, butler, chauffeur or even lawyer shows how broken American capitalism has become. A publicly traded corporation should be taxed as a business, end of story. If you go public, expect to be taxed as a corporation, not a private partnership. What a radical, un-American concept.
Banker,
I heard an interview with Lereah after he left the NAR. He reset his own bar, that's for sure. He sounded like he belonged among the bears on this blog, stressing the importance of putting 20% down, etc.
Not normally defending NAR, but I would think several months ago they (and I) expected that Ben might finally dump the fed rate. After all, where would we be if they only raised it 1/2 as much in the past 5 years... much better thank you.
Would be drinking vintage Scotch instead of MD 20/20.
Yes I know I capitalized the alcohol and not the institution - its about respect.
Cr: I agree the NAR forecasts are too optimistic. NAR is a lobby for the real estate industry, as you know. But a little humility is called for all around. CR has overstated the macro implications of the housing bubble collapse, as many have.
Dan: Patience is a virtue, but in the markets 2 years early is equivalent to wrong. People on this blog have generally been hysterically too bearish on the macro implications of the housing bubble collapse for quite a while now.
If I had acted on the economics view set out here, my own credit quality would be subprime. You guys got the housing story right, though, so you are about 50/50, which is typical of forecasters.
There was much discussion in the comments section over the years about how this weakness might leak out....recession, pension losses, dollar devaluation, and more - it covered the entire macro economic landscape.
In that whole time, I don't recall CR ever making a macro economic prediction...he's pretty well constrained himself to housing market predictions,
to the degree that he's occasionally gotten some grief for NOT making macro economic predictions.
In any case, how's you credit quality when priced out in Euros or Pounds?
My point is that there has already been some macro economic fallout, it's still early yet, and every time someone uses "unexpected" and "contained", or "bailout" in a press release, go look at the dollar.
The real impact from the housing bubble will come not through the immediate and direct effects of subprime defaults and/or the end of MEW, but rather through the long-term effects of the demise of the myth that real estate is a high-return, can't-lose investment.
For every person who has withdrawn illusory equity by refinancing their mortgage, there are several more who are anticipating that that equity will significantly fund their retirement in a future cash-out and down-size sale. As that illusory equity continues relentlessly evaporating in the coming years, it will dawn on those people that they are going to have to start saving a serious fraction of their income. The savings rate will return to its historic average of 8+%, and even overshoot. This will have serious macroeconomic effects not only in the US but also in those Asian nations that have built huge overcapacity for export consumer goods production.
Your reference to MD20/20 brought back memories of my misspent youth when we called it "Mad Dog". It is probably a main ingrediant in the Cool Aide occasionally mentioned by Tanta.
KnotRP said: "...In that whole time, I don't recall CR ever making a macro economic prediction...he's pretty well constrained himself to housing market predictions,
to the degree that he's occasionally gotten some grief for NOT making macro economic predictions..."
One of the macro-related predictions CR did make that I've always felt was irresponsible was his call for 400k-600k in residential construction job losses by this Summer. I suppose one could technically say that this was strictly "housing-related", except that job losses of that magnitude only occur during recessions (which CR never mentioned, to my knowledge).
Either he was making a "stealth" macro call for recession or he simply didn't understand the implications of what he was predicting.
Now, recession remains as far away as ever and so does his job-loss call. IMO, if you're going to come out and say 1/2 million people are going to lose their jobs decimating an entire sector of the economy, you'd better by-God know what you're talking about.
does anyone have the link to where Rex Nutting called out the NAR for it's string of 'real estate's bottomed, it's up from here' calls earlier this year??
Sebastian - I'm not so sure that call was wong....look at remittances to Mexico if you don't believe it, but it was still a call constrained to the residential housing sector....he has been particularly patient about not making a call on the commercial sector.
The general argument that CR has been "selling" some sort of macro economic view is just plain garbage, which responds to the original point.
We can go back to quibbling about how bad employment stats are now, if you like....
Sebastian, it cuts both ways, if you're going to come out and say there's going to be no recession or major financial market disruption in the aftermath of the most wide-ranging and fraud-ridden real estate bubble the nation has ever seen, you'd better by-God know what you're talking about.
I've not even once seen you link to any concrete data that solidly supports your arguments* -- you just keep referring vaguely to indicators you follow, mentioning specifically only the "Wright Model B". But Googling a little on that I come across the Nov 2006 article Fed Model Suggests Recession which begins "The odds of a recession in the United States in the next year are now greater than 50-50, according to a simplified version of a model developed by an economist at the Federal Reserve," and in Wright's own paper we can see clearly from Fig. 1 that in most cases his Model B indicator peaked ahead of the recession and was back to a low level before the recession officially began, so it won't do you much good to argue that that is history. (More succinct presentation with same graphs here at Econbrowser.)
*Last time you linked to concrete data -- the Census' home ownership rate tables -- everyone who looked at it agreed that it didn't support your argument at all.
Once again NAR seems to be denying reality!
Prices wil rise in 2008!
All is well!
All is well!!!
Bah, I will believe it when I see it, the only thing going up in 2008 is my property taxes.
Someday this war is gonna end...
But this IS the bottom . really.
here:
12:48 US TREASURY'S STEEL SAYS SUBPRIME MORTGAGE-RELATED ASSETS "SEEM TO BE SETTLING AT NEW PRICES" - Reuters
STEEL SAYS THERE IS STRESS IN SUBPRIME MARKET BUT IT IS NOT A SYSTEMIC PROBLEM
We have a Gary Watt's sighting here in Orange County. It's in the bag, baby!
Lansner on Real Estate : The Orange County Register
Insanely delusional.
Calculated Risk: Dr. Leamer: Housing Has Peaked, Recession in '06
The above gets you to a pretty good headline too.
CR - would you publish the pointer to your earlier work comparing your forecast to NAR and the other alternates ? I'd like to get another peek and can't find it.
On that status check thing - otherwise known as the, oops where are we at now, dear roadmap do you have/had something on the point in the ARM reset cycle ?
If you can't tell I'm trying to figure out how far in reality we've got to go timewise and dropwise in the housing sector.
Much appreciated.
Patience, Gerard, patience...
Their forecast isn't 'wacky', it's 'adaptive'... Give the guys some credit for being innovators!!!
CR,
The way their revisions are going.. about -0.05 to -.11 a month.. if you just estimate an average revision of -.06 or so for the rest of the year.. that gets us to your estimate.
I might venture two probable estimates.. either something above 6 million due to the market un-sticking and prices dropping or maybe we could get a total lockup and have the total sales drop to 5.5 million or less.
Either way, it looks like the rest of this year will be interesting.
U.S. FDIC chief looking at banks' CDO exposure
They've nearly sold 100mm shares on the NYSE in the last hour. Lots of people interested in buying at these prices, I see.
Now is a good time to lower margin requirements. We can do one better than 1929, I have the utmost confidence in our leaders.
"Our depression is bigger and badder than your depression, nyah, nyah, nyah."
Way to go, Ben!
As I type, the PPT is dumping dry dollar bills onto the roaring fire.
That should help contain it.
Gerard, I'd give Leamer some credit, Leamer changed his view to a serious housing correction, but no recession.
Anyone who tries to forecast can and will be wrong (me too!), but the NAR forecasts are 1) absurdly optimistic, and 2) get revised down every month. That approach seems wacky to me.
DaveL, you see the forecasts vs. actual through May here. As I noted, "NSA sales are 91% of 2006 at this point. If sales maintain that percent of 2006, then total sales will be 5.94 million - about at Fannie Mae's forecast." But I think sales will slump further (there is plenty of evidence this is happening right now) - so my forecast still looks about right for '07.
Best Wishes.
Well, my 5 million prediction isn't looking quite so crazy, now is it?
I always love it when a nonconcensus prediction is on target- because it means a whole lot of people are wrong, and fundamentally so.
Great Article about the heretics of the economics profession in the NY Times In Economics Departments, A Growing Will to Debate Fundamental Assumptions - NY Times
I understood this while I was in graduate school, and I am grateful not to have imbibed the Kool-aid, even though it probably cost me a career in academia, in retrospect one of my advisors was correct, the real world was a far better place for me than the closed shop.
One of the fellow PhD students used to call me Alan Blinder- and I always told him that he was wrong, I was even further out from the mainstream.
Someday this war's gonna end...
As I type, the PPT is dumping dry dollar bills onto the roaring fire.
Honestly, I doubt this is happening. Excess liquidity has allowed hedge funds to threaten the Fed's control over the money supply, so I think they're working to put a stop to this.
If you're talking about today's market rally, well that's more likely to be the big money trying to blow undercapitalized shorts out of the market - you start a little rally and the short covering turns it into rocket ride.
CA home price drops are largely tied to OptionARM and 3/27s that have yet to even reset. Of course there is latency associated with the eventual transfer of possession and subsequent disposal.
This should be evident in early '08 and progress from there, dragging home prices down through '09, as CA is where much of the froth and weighting is distributed.
No improvement in HPA until 2010.
Thanks for the link to the article about the Economics profession, AllenM. Excerpt:
Anyone who tries to forecast can and will be wrong (me too!), but the NAR forecasts are 1) absurdly optimistic, and 2) get revised down every month. That approach seems wacky to me.
Doesn't it though? You would have thought that when Lereah left the newbies would have taken advantage of the opportunity to really reset the bar in a significant way. Oh well.
Rumor going around that Moody's will be downgrading another 5 bio of cdo's at 10am tomorrow.
On a completely different note, I think if I see one more CNBC "Washington's War on Wealth" story I'm going to barf right on my desk. I'm a hard core capitalist, but billionaires out in force whining and trying to convince the sheeple that it for everyone's benefit that they pay half the tax rate of, well, their secretary, personal trainer, butler, chauffeur or even lawyer shows how broken American capitalism has become. A publicly traded corporation should be taxed as a business, end of story. If you go public, expect to be taxed as a corporation, not a private partnership. What a radical, un-American concept.
Banker,
I heard an interview with Lereah after he left the NAR. He reset his own bar, that's for sure. He sounded like he belonged among the bears on this blog, stressing the importance of putting 20% down, etc.
He sounded like he belonged among the bears on this blog, stressing the importance of putting 20% down, etc.
There is no saint like a reformed sinner.
Not normally defending NAR, but I would think several months ago they (and I) expected that Ben might finally dump the fed rate. After all, where would we be if they only raised it 1/2 as much in the past 5 years... much better thank you.
Would be drinking vintage Scotch instead of MD 20/20.
Yes I know I capitalized the alcohol and not the institution - its about respect.
Cr: I agree the NAR forecasts are too optimistic. NAR is a lobby for the real estate industry, as you know. But a little humility is called for all around. CR has overstated the macro implications of the housing bubble collapse, as many have.
Dan: Patience is a virtue, but in the markets 2 years early is equivalent to wrong. People on this blog have generally been hysterically too bearish on the macro implications of the housing bubble collapse for quite a while now.
If I had acted on the economics view set out here, my own credit quality would be subprime. You guys got the housing story right, though, so you are about 50/50, which is typical of forecasters.
Gerard,
There was much discussion in the comments section over the years about how this weakness might leak out....recession, pension losses, dollar devaluation, and more - it covered the entire macro economic landscape.
In that whole time, I don't recall CR
ever making a macro economic prediction...he's pretty well constrained himself to housing market predictions,
to the degree that he's occasionally gotten some grief for NOT making macro economic predictions.
In any case, how's you credit quality when priced out in Euros or Pounds?
My point is that there has already been some macro economic fallout, it's still early yet, and every time someone uses "unexpected" and "contained", or "bailout" in a press release, go look at the dollar.
The real impact from the housing bubble will come not through the immediate and direct effects of subprime defaults and/or the end of MEW, but rather through the long-term effects of the demise of the myth that real estate is a high-return, can't-lose investment.
For every person who has withdrawn illusory equity by refinancing their mortgage, there are several more who are anticipating that that equity will significantly fund their retirement in a future cash-out and down-size sale. As that illusory equity continues relentlessly evaporating in the coming years, it will dawn on those people that they are going to have to start saving a serious fraction of their income. The savings rate will return to its historic average of 8+%, and even overshoot. This will have serious macroeconomic effects not only in the US but also in those Asian nations that have built huge overcapacity for export consumer goods production.
NAR is a liar, manupulator, and incompetent assessor, and a worthless organiztion made of stupid people.
Sippin,
Your reference to MD20/20 brought back memories of my misspent youth when we called it "Mad Dog". It is probably a main ingrediant in the Cool Aide occasionally mentioned by Tanta.
KnotRP said: "...In that whole time, I don't recall CR ever making a macro economic prediction...he's pretty well constrained himself to housing market predictions,
to the degree that he's occasionally gotten some grief for NOT making macro economic predictions..."
One of the macro-related predictions CR did make that I've always felt was irresponsible was his call for 400k-600k in residential construction job losses by this Summer. I suppose one could technically say that this was strictly "housing-related", except that job losses of that magnitude only occur during recessions (which CR never mentioned, to my knowledge).
Either he was making a "stealth" macro call for recession or he simply didn't understand the implications of what he was predicting.
Now, recession remains as far away as ever and so does his job-loss call. IMO, if you're going to come out and say 1/2 million people are going to lose their jobs decimating an entire sector of the economy, you'd better by-God know what you're talking about.
Sebastia
does anyone have the link to where Rex Nutting called out the NAR for it's string of 'real estate's bottomed, it's up from here' calls earlier this year??
Sebastian - I'm not so sure that call was wong....look at remittances to Mexico if you don't believe it, but it was still a call constrained to the residential housing sector....he has been particularly patient about not making a call on the commercial sector.
The general argument that CR has been "selling" some sort of macro economic view is just plain garbage, which responds to the original point.
We can go back to quibbling about how bad employment stats are now, if you like....
Sebastian, it cuts both ways, if you're going to come out and say there's going to be no recession or major financial market disruption in the aftermath of the most wide-ranging and fraud-ridden real estate bubble the nation has ever seen, you'd better by-God know what you're talking about.
I've not even once seen you link to any concrete data that solidly supports your arguments* -- you just keep referring vaguely to indicators you follow, mentioning specifically only the "Wright Model B". But Googling a little on that I come across the Nov 2006 article Fed Model Suggests Recession which begins "The odds of a recession in the United States in the next year are now greater than 50-50, according to a simplified version of a model developed by an economist at the Federal Reserve," and in Wright's own paper
we can see clearly from Fig. 1 that in most cases his Model B indicator peaked ahead of the recession and was back to a low level before the recession officially began, so it won't do you much good to argue that that is history. (More succinct presentation with same graphs here at Econbrowser.)
*Last time you linked to concrete data -- the Census' home ownership rate tables -- everyone who looked at it agreed that it didn't support your argument at all.