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MacroMarkets June 2010 Home Price Expectations Survey

Friday, June 25th, 2010

On Wednesday (June 23) MacroMarkets released its June Home Price Expectations Survey results.

Here is the Press Release (pdf); the accompanying chart is seen below:

As one can see from the above chart, the expectation is that not only has the residential real estate market hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2014.

The survey detail is interesting.  The most “bearish” of the forecasters is seen as Gary Shilling, with a forecast of 18.78% cumulative price decline through 2014.  A couple of other forecasters are close to this forecast, including John Brynjolfsson, with a forecast of a 18.08% cumulative price decline through 2014; and Mark Hanson with -17.37%.  Of note, all three of these most “bearish” forecasters see the preponderance of losses “front-loaded” (i.e. occurring over the nearest years, 2010-2012).

For a variety of reasons, I believe that even these “most bearish” of forecasts will prove too optimistic in hindsight.  Although an 18% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that have occurred over the years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people have an optimistic view at this time regarding future residential real estate pricing trends, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately.

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MacroMarkets Home Price Expectations Survey

Monday, May 24th, 2010

On May 19 The Wall Street Journal had an article about a new housing survey called the MacroMarkets Home Price Expectations Survey.

From the MacroMarkets.com website:

“MacroMarkets has assembled a distinguished panel of over 100 economists, investment strategists, and housing market analysts who are surveyed every month regarding their 5-year expectations for future home prices in the United States.”

The Wall Street Journal article summarized the May 2010 survey results as follows:

“The analysts surveyed by MacroMarkets on average expect home prices, as measured by the S&P/Case-Shiller national index, to rise about 12% in the five years ending Dec. 31, 2014. As of Dec. 31, that index was down about 28% from its peak level in mid-2006.”

However, if one looks at the detail (pdf), one sees a significant differing of opinions, with the highest cumulative gain (through 2014) expected to be 36.74% and the lowest a loss of 17.99%.

This survey should be interesting to watch as it provides a relatively broad view of housing price expectations on a recurring basis.

As for the survey results – I find them interesting.  The overall consensus view on housing seems to mirror this survey’s average forecasted results – that of mild but steady home price appreciation over the next few years.

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I’ve written extensively about housing, as it is of the utmost importance to our economic situation.  Our national real estate problems are vastly complex and highly problematical.  Perhaps my overall view on the situation and the path of housing prices is best summarized by my January 8, 2010 post.

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Characteristics Of The Housing Bubble

Friday, January 8th, 2010

Given the incredibly outsized intervention efforts in the residential real estate market, I think it is important to examine some dynamics of the real estate bubble.

Here is a chart from the 12/15/09 Contrary Investor commentary that I believe is interesting, as it depicts some underlying residential real estate fundamentals.  It shows the equity and mortgage debt situation.  The underlying data is from the Federal Reserve Flow of Funds:

http://www.contraryinvestor.com/

As far as real estate prices are concerned, I would like to show two charts, both from the CalculatedRisk blog:

http://www.calculatedriskblog.com/

The first chart was posted on 12/21/09 and is the LoanPerformance Price Index from 1976:

Next, a chart posted on 12/29/09 showing the LoanPerformance Index as well as Case-Shiller, from January 2000:

As others have commented, it appears as if the overall intervention efforts are aimed at reflating (or to re-inflate) the housing bubble.  Conventional (investment) wisdom has held that reflating a burst bubble is impossible.

However, I think given the tremendously outsized intervention efforts in housing, we are truly in a unique situation.  I don’t believe there has ever been such a large intervention effort in our country, at least in the last 150 years.  Depending upon how one would measure such intervention efforts, it might even be among the largest interventions in world economic history.

A casual observer might assume that such an outsized effort would be destined to be successful.  However, (economic) life is not that simple.

From an ”all things considered” standpoint, I don’t believe the residential real estate bubble has actually burst.  It appears to me that it has somewhat deflated.  I base this view on a variety of fundamental and technical factors. 

Assuming this view is correct – that the residential real estate hasn’t popped – the implications are immense.   I think it is likely that one of two possibilities will occur from here, and each could happen in a relatively rapid fashion.  The first possibility is a “successful” reflation of the residential real estate market, with accompanying economic activity.  The second possibility is a collapse of the residential real estate market with accompanying economic repercussions.  As to the path real estate will travel from here - my previous writings on interventions, bubbles and real estate indicate my thoughts on the subject.

If a “successful” relation occurs, one is led to wonder as to the characteristics of such a “successful” reflation of the real estate bubble.  Among other critical questions is how long would such a reflation last?

I think it very important to note the quality and durability of the economic activity that occurred in the first phase of the bubble, which peaked in 2006.  Can one hope for any better outcome during a subsequent reflation?

These issues are critical to the concept of Sustainable Prosperity, of which I have previously frequently commented.

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Posted in Bubbles (Asset), Intervention, Real Estate, Sustainable Prosperity | 1 Comment »

Ben Bernanke’s January 3rd Speech

Wednesday, January 6th, 2010

I would like to make a couple of comments regarding the speech Ben Bernanke gave on January 3.  It was titled “Monetary Policy and The Housing Bubble.” (pdf)

I could make a significant amount of comments regarding this speech, as I partly or fully disagree with many of the points presented.

I will, however, briefly comment on a couple aspects of the speech.  First, from page 21:

“Although the house price bubble appears obvious in retrospect–all bubbles appear obvious in retrospect–in its earlier stages, economists differed considerably about whether the increase in house prices was sustainable; or, if it was a bubble, whether the bubble was national or confined to a few local markets.”

I agree with the general premise that bubbles aren’t always obvious.  As I said in my December 2 post, “Some bubbles are harder to spot than others.”  As far as the housing bubble was concerned, in my opinion it was a relatively easy bubble to identify as it occurred, based upon a variety of characteristics.

Second, from page 22:

“That said, having experienced the damage that asset price bubbles can cause, we must be especially vigilant in ensuring that the recent experiences are not repeated. All efforts should be made to strengthen our regulatory system to prevent a recurrence of the crisis, and to cushion the effects if another crisis occurs.”

I think it can be strongly inferred from this excerpt, as well as other statements that he has recently made, that he doesn’t believe there are asset bubbles currently in existence.  My analysis indicates otherwise, as I discussed in my December 2 & December 16 posts.

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Posted in Ben Bernanke, Bubbles (Asset), Real Estate | 1 Comment »

A Classic Article Revisited

Monday, August 24th, 2009

One of the classic articles of the housing bubble is “America’s House Party” from Time Magazine, June 2005.  It really provides a flavor of the period, as well as provides a perspective of a bubble environment.

Here is the link:

http://www.time.com/time/magazine/article/0,9171,1069097,00.html

 

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