Housing - a contrarian view
The essay below is by Scott Grannis, Chief Economist at Western Asset Management.
-- David M Gordon / The Deipnosophist
================================
I'm always willing to entertain a contrarian view, and if there's anything that is contrarian these days it's the belief that the US housing market collapse is yesterday's news. I would venture to say that the vast majority of observers believe that the housing market won't hit bottom for another year or two; that housing prices have only just begun to decline. I'm sure that a lot of people worry that a big decline in home prices could really hurt the economy over the next year--a hard landing scenario.
But it is also true that the bursting of the housing bubble has been very widely anticipated and thoroughly reported. Maybe we've seen the worst. Maybe we should be looking "across the valley" to a recovery. Maybe the economy is not going to be so weak next year that the Fed will be forced to cut rates three times, as the bond market is now assuming.
Mike Bazdarich notes that California housing permits have fallen by about 50% in the past year. "Some real estate investor types are optimistic about these data, because they think that builders have cut back faster than demand, supposedly paving the way for the market to rebound once it bottoms out."
The chart (below) reinforces that view.
An index of home builders stock prices peaked over a year ago and bottomed out in July, about the time the housing collapse became official. Despite the drumbeat of bad news in recent months, this index is up 20% from its recent lows. Not all the news is bad, and you can't wait for newspaper headlines to tell you what is happening to the economy on the margin. Something to think about.
-- David M Gordon / The Deipnosophist
================================
I'm always willing to entertain a contrarian view, and if there's anything that is contrarian these days it's the belief that the US housing market collapse is yesterday's news. I would venture to say that the vast majority of observers believe that the housing market won't hit bottom for another year or two; that housing prices have only just begun to decline. I'm sure that a lot of people worry that a big decline in home prices could really hurt the economy over the next year--a hard landing scenario.
But it is also true that the bursting of the housing bubble has been very widely anticipated and thoroughly reported. Maybe we've seen the worst. Maybe we should be looking "across the valley" to a recovery. Maybe the economy is not going to be so weak next year that the Fed will be forced to cut rates three times, as the bond market is now assuming.
Mike Bazdarich notes that California housing permits have fallen by about 50% in the past year. "Some real estate investor types are optimistic about these data, because they think that builders have cut back faster than demand, supposedly paving the way for the market to rebound once it bottoms out."
The chart (below) reinforces that view.
An index of home builders stock prices peaked over a year ago and bottomed out in July, about the time the housing collapse became official. Despite the drumbeat of bad news in recent months, this index is up 20% from its recent lows. Not all the news is bad, and you can't wait for newspaper headlines to tell you what is happening to the economy on the margin. Something to think about.
Labels: Economics
posted by David M Gordon | 5:24 PM
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