If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Three cheers for two economists for telling it like it will be.
Harvard’s Kenneth Rogoff and Carmen Reinhart of the University of Maryland have published a paper outlining how long the “recession” will be and what it will entail. Their projections are based on what happened to 22 economies that went through financial crises since 1929.
Conclusions:
- Housing downturns last six years — so we’re still at least three years away from bottoming out.
- Unemployment increases around 7% after a major financial crisis; hitting its peak four years after the crisis. November jobless numbers 6.7%. That means unemployment will hit at least 13% if that’s where you start measuring from. Also this is based on the tweaked unemployment stats which do not include the under-employed or those no longer collecting benefits.
- Stock declines last three and a half years and total 55%. If true, that means DJIA would be under 6500 (which is the number I have in our office pool).
- Government debt = 86% of GDP ?- or $12 trillion.
(Another fine assessment of the report can be read at the WSJ Real Time Economics blog here.)
All of which sounds a lot more likely than any of the official pronouncements which suggest it turns around by 4Q of 2009.
On a related note: There is a fascinating mea culpa from David Lereah, former chief economist with the National Association of Realtors, at CNNMoney.
Q. Were you wrong to be so bullish?
A. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.
Q. The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?
A. My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.
Q. Any regrets?
A. I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.
It is clear that telling the truth and leaving out the spin would have served the NAR better. They could have established themselves as a trustworthy source of information. Instead they lived up to expectation as just another generator of bovine fecal matter. Shame on them.
Constantine von Hoffman, is a veteran business journalist and author of the blog CollateralDamage.biz, a satirical look at marketing and business.
Last 3 posts by Constantine von Hoffman
- Housing prices sink as underwater number rises - August 11th, 2009
- The home price increase that isn’t - July 28th, 2009
- Why the increase in housing starts means trouble - July 21st, 2009
Related posts:
Loading ...