Sunday, December 28, 2008

Saturday LA Times

Here are highlights and comments on Saturday's LA Times' "Home prices expected to fall further in 2009 by Peter Hong. It begins:
Real estate experts who were troubled by a 10% drop in median home prices near the end of last year from the previous year probably were stunned by the 35% drop in values since then. ...

Growing unemployment, more declines in consumer spending and a particularly long and deep recession are expected to batter home prices even further next year, they said.

Got that right. Then here's a projection by Christopher Thornberg worth noting:

At the end of November, Southern California's median home sales price had fallen to $285,000, from $435,000 in November 2007. If median prices were to continue falling at that pace, they would be below $200,000 a year from now.

But even bearish forecasters don't expect so severe a decline. More likely, prices in Southern California will settle in late 2009 at a level roughly 55% below their peak, said Christopher Thornberg, a Los Angeles economist.

That would amount to a price near $230,000, a level at which home prices would be roughly in line with incomes by historical norms.

But then came this way-off-base statement:

UCLA economist Edward E. Leamer said further government action to stop foreclosures was essential for putting the brakes on falling home values.

"When you're sick you need medicine for the disease, not the symptoms," he said.

In housing, the disease is the deterioration of neighborhoods and home values as houses are foreclosed, abandoned and sold at greatly reduced prices, said Leamer, director of the UCLA Anderson Forecast.
No, the disease is the credit and housing bubble, and falling prices and foreclosures are the symptoms! To push the analogy further, a fever is the body's way of curing an infection, and falling prices will eventually cure the bubble.


matthew said...
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Anonymous said...

Yep, I could not believe my eyes when I read the remark by the UCLA economist. I attended UCLA for undergrad and was generally impressed by the quality of the professors there, but that this particular man lacks an understanding of the economics of the housing market, and the bubble, is quite frightening! No tenure for you!

dwr said...

Leamer is the Chauncey J. Medberry Chair in Management and Director of the Anderson Forecast- I'm sure that equals tenure. Which makes his comments even more frightening, especially the ones 9-12 months ago about how his gut told him we were going to miss a recession, when all indicators pointed toward a recession.

Anonymous said...

Wow, this Leamer is revealing himself to be quite the moron.

Anonymous said...

It's been interesting to read Christopher Thornberg's public comments about the SoCal real estate market since he left UCLA to start his own consulting practice. His observations and predictions are very realistic, while the comments from his former colleagues at UCLA often don't make any sense.

willwill said...

These guys at UCLA are so out of touch it is ridiculous. First they say there's no bubble, then after prices start to fall "oh maybe there's a bit of a bubble but there will only be a small drop," ...then after the bubble bursts "oh yeah, I guess there was a bubble, so we should try to stop foreclosures to prop up the bubble that we said didn't exist." How are these guys even considered economists? And how can any credibility be given to their reports? And what is their reasoning behind saying that the numbers are pointing below $200k by end of '09, but we don't think it will go that low? Is that forecast based on a hunch? Maybe some tea leaf reading? What a joke. What kind of economist dismisses the numbers?