Tweet
U.S. new-home prices plunging at fastest pace in 36 years
October 26, 2006 (Rex Nutting - MarketWatch)
The median sales price of a new home fell 9.7% in the 12 months ending in September, the fastest price decline in nearly 36 years, the government said Thursday. The government reported that sales of new homes unexpectedly rose 5.3% in September to a seasonally adjusted annual rate of 1.075 million, the most in three months and well above the 1.05 million expected by economists. New-home sales are down 14.2% in the past year. Inventories of unsold homes fell 1.9% to 557,000, representing a 6.4-month supply at the September sales pace. It's the second consecutive decline in inventories. The inventory peaked at 7.2 months in July. Inventories are up 14.4% in the past year.
AntiSpin: Phrases like, "sales of new homes unexpectedly rose 5.3% in September," raise the question: Unexpected by whom? By "most economists," is the usual answer. Reads like the famous Trident gum TV ad that started running in the 1950s: "Nine of ten dentists recommended Trident for their patients who chew gum." Stan Freberg parodied those ads in the 1960s with a commercial he made for Chun King Chinese food. The voice-over proclaimed, "Nine out of ten doctors recommended Chun King Chinese food." The camera then panned to nine Chinese and one Anglo doctor.
The way housing busts happen is not exactly a mystery. They occur as a series of self-reinforcing deflationary waves. The process is non-linear. Inventories rise, then price pressures rise, then transaction volumes fall, then sales volumes rise again–although not to previous levels–as prices decline, then inventories rise again, price pressures increase further, and so on. If unemployment rises, price pressures increase proportionately.
If I can figure out how they're going to start (seize up then slow decline), how they're going to evolve (revert to the mean) and when they're going to happen (starting in mid 2005), you'd think nine out of ten economists could, too. How about recession predictions?
Last week, nine out of ten economists for The Conference Board agreed that the US economy is headed for a slowdown but no recession, and issued a report stating, "Indicators point to slow growth ahead in the U.S., but not a recession." In early 2001, nine of out ten professional economists were, as today, predicting a slowdown, not a recession. In January 2001, my analysis came to a different conclusion–that "The Post-Bubble Recession has Arrived." This analysis assumed a recession, and instead focused on trying to predict the character of the recession, what policy responses were available and were likely to be taken, and the potential impact and effectiveness of those policies.
Later, the post-mortems on the nine-out-of-ten economists' predictions read like this:
My initial prediction was for the last recession to start in Q4 2000. According to the NBER business cycle dating committee, the United States entered recession in March 2001. I was off by a quarter or two, and while some of the predictions about the character of the recession came true, others did not.
With economic storm clouds on the horizon, it's time for me to weigh in with a new recession prediction. I learned a few things from my last effort back in 2000. Next week I will issue my forecast for our next US recession, in 2007.
October 26, 2006 (Rex Nutting - MarketWatch)
The median sales price of a new home fell 9.7% in the 12 months ending in September, the fastest price decline in nearly 36 years, the government said Thursday. The government reported that sales of new homes unexpectedly rose 5.3% in September to a seasonally adjusted annual rate of 1.075 million, the most in three months and well above the 1.05 million expected by economists. New-home sales are down 14.2% in the past year. Inventories of unsold homes fell 1.9% to 557,000, representing a 6.4-month supply at the September sales pace. It's the second consecutive decline in inventories. The inventory peaked at 7.2 months in July. Inventories are up 14.4% in the past year.
AntiSpin: Phrases like, "sales of new homes unexpectedly rose 5.3% in September," raise the question: Unexpected by whom? By "most economists," is the usual answer. Reads like the famous Trident gum TV ad that started running in the 1950s: "Nine of ten dentists recommended Trident for their patients who chew gum." Stan Freberg parodied those ads in the 1960s with a commercial he made for Chun King Chinese food. The voice-over proclaimed, "Nine out of ten doctors recommended Chun King Chinese food." The camera then panned to nine Chinese and one Anglo doctor.
The way housing busts happen is not exactly a mystery. They occur as a series of self-reinforcing deflationary waves. The process is non-linear. Inventories rise, then price pressures rise, then transaction volumes fall, then sales volumes rise again–although not to previous levels–as prices decline, then inventories rise again, price pressures increase further, and so on. If unemployment rises, price pressures increase proportionately.
If I can figure out how they're going to start (seize up then slow decline), how they're going to evolve (revert to the mean) and when they're going to happen (starting in mid 2005), you'd think nine out of ten economists could, too. How about recession predictions?
Last week, nine out of ten economists for The Conference Board agreed that the US economy is headed for a slowdown but no recession, and issued a report stating, "Indicators point to slow growth ahead in the U.S., but not a recession." In early 2001, nine of out ten professional economists were, as today, predicting a slowdown, not a recession. In January 2001, my analysis came to a different conclusion–that "The Post-Bubble Recession has Arrived." This analysis assumed a recession, and instead focused on trying to predict the character of the recession, what policy responses were available and were likely to be taken, and the potential impact and effectiveness of those policies.
Later, the post-mortems on the nine-out-of-ten economists' predictions read like this:
"The 2001 recession differed from other recent recessions in its cause, severity, and scope. This paper documents the performance of professional forecasters and forecasts based on leading indicators as the recession unfolded. Professional forecasters found this recession a difficult one to forecast. A few leading indicators (stock prices, term spreads, unemployment claims) predicted that growth would slow, but none predicted the sharp economic slowdown. Several previously reliable leading indicators (housing starts, orders for new capital equipment, consumer sentiment) provided no early warning signals. When combined, the leading indicator performed somewhat better than a benchmark autoregressive forecasting model."
HOW DID LEADING INDICATOR FORECASTS DO DURING THE 2001 RECESSION? (pdf), James H. Stock, Department of Economics, Harvard University and the National Bureau of Economic Research
Like weather forecasters who stay glued to computer screens that display the results of models that predict sunshine when it's already raining, nine out of ten professional economists neglect to stick their head out the window to see what's actually going on. HOW DID LEADING INDICATOR FORECASTS DO DURING THE 2001 RECESSION? (pdf), James H. Stock, Department of Economics, Harvard University and the National Bureau of Economic Research
My initial prediction was for the last recession to start in Q4 2000. According to the NBER business cycle dating committee, the United States entered recession in March 2001. I was off by a quarter or two, and while some of the predictions about the character of the recession came true, others did not.
With economic storm clouds on the horizon, it's time for me to weigh in with a new recession prediction. I learned a few things from my last effort back in 2000. Next week I will issue my forecast for our next US recession, in 2007.
Comment