Home prices take steeper downturn
Median or Average Housing Price: Totally Junk To a REO Investor (I)
I read the CNNmoney report above right after Dr. Shiller has his press release conference.
It is very hard for me to accept that Shiller Index is the most reliable vehicle to judge the trend of our housing market as CNN claimed. I wrote some articles here in AR, using real cases to express my viewpoints on the creditability of median or average housing price.
I believe Dr. Shiller invented his Index based on median prices about a year ago. It is a concept out of touch of the reality. Simply put, it is a phantom concept created in the Academic Ivory Tower. After my discussion with my appraiser/ partner two days ago, I have my belief re-enforced that there is a better way to realistically do a "real time" quote to reflect the current housing price or market trend as we have done it in the stock market.
Sure there is more time lag needed, compared to the real time quote we have in stock market. It might be done in 1-2 days delay in some metropolitan areas such as Los Angeles County, CA. For some areas it is impossible to do such speedy index. In Texas, it can't be done without a constitution amendment. However, a better way doesn't need a month delay as the Case/Shiller's Index. It is absurd to have something so imaginary and distorted as Case/ Shiller' Index in our stock markets as a DJ or SP Indice. Even more incredible to see people accept it as they did to the fantasy mirage of those dot.com phenomenon.
There is one vital point on that Dr. Shiller is totally wrong. He said, "Most economic recessions are preceded by housing declines." He said the recession possibility we may have is 50%. What a "beautifully nimble" saying: a housing downturn leads to an economic recession?!
What is the cause and what is the consequence? Provided housing declines happened before economic recessions as Dr. Shiller claimed, there shall be no way for us to always say a recession causes a housing drop. Because if most recession were not even an antecedent event, how could it be a cause to a housing downturn?
How can Dr. Shiller conclude that a housing distress causes a recession most of the times? Or why he made such a cause and consequence relationship? I have no idea.
All I know is that our traditional wisdom and theories of housing economics are based on a core assertion: property value is not decided by itself and shall be evaluated on other economy factors. In other words, its value is a reflection or reaction of others. Housing market is a reactor to other economic forces, not an actor. At least, it is safe to say it is not the a dictator or dominator. Basically, housing itself is hardly a master to actively control others. Maybe Dr. Shiller is so smart to see a revolutionary change to the roots (fundamentals) in the science of Housing Economics as he was able to invent "the "housing bubble" years ago (still not a good timer though). Sorry, I am just an old dog to new tricks.
However, Dr. Shiller's assumption is not true in history. Usually and historically, it should be the case that an economic recession causes a depressed housing market. Not the opposite is the case as Dr. shiller said. Do we have a reverse situation here today? Even I believe that a recession is possible long time ago. But it is just a cyclical economy. Hardly sufficient to say a housing situation is the cause of the current economic mess, not the consequence. As those economists said earlier, we can have the effects of this current housing bubble contained. The possibility of no spilling into other economic sectors is very high, I believe. In other words, it is not necessary leading us into a recession even the housing is regressed.
Basically everyone agreed that an irrational exuberance of dot.com lead us to have a housing downturn in SF area in early 2002. That means we agree dot.com bubble is the cause. How can we now change our objectivity to have a scapegoat and to play it in a totally reverse tone if the epicenter is as same as dot.com downfall at the greedy and reckless Wall Street? Simply because the commodity for gamble in the Wall Street Casino or Money Machine is different: a housing security, not a dot.com chip? Is there any better reasonable logics or a cover-up behind the scene to excuse the irresponsibility of those financial speculators?
To me, there is no difference between a speculator at Wall Street money machines and a gambler in Vegas slot machines. They have to take the consequence (loss) and blame themselves. When a bunch of gamblers lost their shirts and drop shoes in Vegas, is it going to create big chaos or panic to the general publics? Yes, the first and direct result is gamblers go bankruptcy and end up in the street to hand out for a "quarter." No, no chaos hunting others of the society.
Because the social majority is not involved in the gambling. Same shall be true since most economic sectors are not participating in the bubble creation. Even housing and financing are indeed two important sectors and play major economic activities, they are NOT the only two players. We have a lot more of them and we can be still okay as those VIP financial officers used to tell us something like: "The general situation of our economy is good and rosy on a healthy growth path. Every economic data looks good and inflation is under control if we exclude the situation of housing and subprime loan."
Now times passed by. Look at what exactly happen to the Wall Street genius recently. Are they acting as a street people saying "thanks" to our quarter? [see Wall St.: Thanks, we needed that] Why those Wall street speculators cry loudly all the way and all the time to politicians. They are asking a bail out plan or a "forced inflation" to ease their paper loss at the expense of all the tax payers?
In short, I don't think it is going to have serious effects on the life of majority of us, if FED can resist those massive propaganda or political pressure from a specific group, stay firm on evaluating a more broad picture academically and take right moves bravely to safeguard the general public.
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No way to have a recession in 2008 caused by housing woes? They have some good points as I said here.
AP
Forecast: No U.S. Recession in 2008
Wednesday December 5, 2:25 pm ET
By Alex Veiga, AP Business Writer
LOS ANGELES (AP) -- The nation's housing doldrums will drag on at least through 2009, dampening U.S. economic growth and job creation, but the slowdown won't push the economy into a recession, according to a new economic report.
Despite plunging housing values, rising oil prices and credit problems that continue to plague Wall Street, the nation's job market is unlikely to suffer the kind of steep losses that would tip the economy into recession, according to the quarterly Anderson Forecast by the University of California, Los Angeles.
"We still think an official recession is not in the immediate future," concluded Edward Leamer, director and co-author of the forecast set for official release Thursday.
Some economists and financial pundits have warned the nation will sink into recession, with a wave of reset adjustable-rate mortgages tearing through the economy next year.
Leamer, however, insisted the housing woes alone won't hobble the economy enough to cause two consecutive quarters of negative economic growth in the nation's gross domestic product -- the standard used to define a recession.
In addition, the U.S. unemployment rate would have to soar from the current 4.6 percent to nearly 6 percent by the end of next year, the equivalent of a loss of at least 2 million jobs, Leamer said.
That would require major job losses from a sector other than construction, something the UCLA economist doesn't see happening.
Heavy job losses in manufacturing, which has shed about 3 million jobs since 2001, could have such an impact, but Leamer believes that is implausible.
Still, he projects the economy will remain sluggish for another couple of quarters before starting to rebound in the second half of 2008.
The forecast estimated the housing slump cost the U.S. economy a percentage point of growth this year, or one-third of the typical 3 percent annual rate of increase.
Leamer predicted U.S. housing prices will continue to drop, and levels of new construction will remain depressed, through 2009.
Even so, the housing drag on the national economy will "substantially abate" by mid-2008, with housing starts bottoming out by next summer to about 900,000 units, Leamer said.
"That means that the builders are going to continue to suffer," he noted. "Starting middle of next year is when things stop getting worse ... that doesn't mean the housing market is healthy."
Many economists are worried that rising oil prices combined with housing and credit problems will shake consumer confidence, a key driver of growth.
The UCLA forecast said consumer spending will likely lag, particularly on large items such as cars.
"The auto sector is going to have a weak year," Leamer said.
Meanwhile, the decline in the value of the dollar should help fuel U.S. exports for the next several years, and the decline in consumer spending will mostly affect other countries as U.S. consumers purchase fewer foreign-made products, Leamer said.