Housing Soft Landing

Discussion in 'Economics' started by 2cents, Aug 31, 2006.

  1. things can always get worse, or better, but so far no sign of anything but a soft landing post historical 2005 peak year...

    "Shiller Runs with the Housing Herd

    Robert Shiller and Karl Case argue that:

    Deterioration in that intangible housing market psychology is the most uncertain factor in the outlook today.

    Yet in the same op-ed, Shiller and Case provide evidence from trading in their own house price indices on the Chicago Merc that suggests a downturn in house prices is already discounted:

    "The U.S. now has a futures market based on home prices. The market that opened in May at the Chicago Mercantile Exchange is now showing backwardation in all 10 metropolitan areas trading. The backwardation can be expressed as implying a rate of decline of 5% a year for the S&P/Case-Shiller Composite Index by May 2007. Since the margin requirement is only about 2.5%, an investor who is sure that prices cannot actually fall by next May has, on that assumption, a sure return of at least 200% from buying a futures contract, and even more if prices rise at all. But there can’t really be so much “money on the table.” It must be that people really no longer see it as a sure thing that prices won’t start falling across the metro areas."

    Not much uncertainty there. Shiller and Case also can’t help but invoke these notorious contrarian indicators:

    "the air is now full of talk of a bust. The covers of the New Yorker, the Economist, The Wall Street Journal and virtually every news magazine and newspaper in America has heralded the bursting of the “housing bubble.”"

    While Nouriel Roubini likes to portray himself as an out-of-consensus contrarian, both he and Shiller are just running with the herd in calling for a recession on the back of a housing sector downturn. Yet recessions are rarely caused by events that are well anticipated, which is why they are almost never heralded on the front pages of newspapers until they are already well underway. Based on the NBER business cycle reference dates, the 2001 recession in the US was all but over by the time it hit the front page. The expansion began in November 2001, yet as late as the September terrorist attacks, there was still debate about whether or not the US was in recession. "
  2. "What Nouriel Roubini Won’t Tell You About the US Economy, Part II

    More of the stuff that hits the cutting room floor at Doomsday Cult Central, from my associates at Action Economics:

    A surprising array of major U.S. macro indicators continue to defy expectations of a slowdown, beyond pocketed weakness in the housing. Indeed, even here, construction activity remains solid despite housing due to robust business and public sector growth. Consumers are spending, factories are humming, profits are booming, and trade is turning the corner. Even the labor market clearly remains tight, despite the seemingly meaningful yet notably isolated restraint in monthly payroll growth.

    The most important discrepancy between expectations and outcomes has come from the consumer, where nearly all economists projected some pull-back this year, even though spending strength has remained unwavering. As is evident below, nominal consumer spending growth was solid in both Q1 and Q2, and has actually gained steam in Q3. The “real” spending figures were hit in Q2 from soaring gasoline prices, but the hit was temporary. Since consumption accounts for 2/3rds of GDP, this steady growth is providing an important driver of economic growth."
  3. 5% decline may be an accurate average,2 cents;
    closer to 10% decline in miami area,Tampa, Orlando.

    Memphis area UP 9.6%
    Nashville area UP 18.9%
    Austin area UP 17.4%

    [last 12 months as of 9-7-2006]

  4. Hmm, and what happens to the consumer's discretionary spending when all those low interest rate teaser ARM loans re-set, and the interest only loans convert?
  5. SteveD


    Most people will roll over the home loan into a fixed rate....they were a number of those loans made in the last couple of years BUT they are a small per centage of total home loans....

    Hard to have recession with interest rates and unemployment under 5%...

    Workers who build homes now just go into commercial and build apartments, hotels, senior care, etc etc.....same trade...slightly different product..

  6. Chagi


    Consumer spending is a very big part of the US economy (not to mention other international economies, such as Japan, China). If consumer spending has been higher due to housing bubble, what happens when housing prices decline (or even just level out)?

  7. Tell that to the Japanese.

    "But they're different."

    Yeah, right, they actually had savings.
  8. we are a couple months into a rate pause and you're really already intimating that this is a soft landing? way too early to tell my friend.
  9. this is what i said...
  10. piezoe


    While it is always risky to make predictions, "especially about the future", i look at the magnitude of the housing bubble created by the lowest interest rates in 50 years and very creative financing, and i can't escape the thought that ultimately the markets react in proportion to the size of perturbations in the economy. This ultra-cheap-money-creative-financing-housing-bubble perturbation has been pretty damn big. I am expecting a pretty damn big reaction from the market as the air comes whoosing out of the bubble.
    Gee Whiz, i hope i am not getting too technical here.
    #10     Sep 11, 2006