January 1, 2008


Top economist says America could plunge into recession (Suzy Jagger, 12/31/07, Times of London)

Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.

Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.” [...]

Professor Shiller, author of Irrational Exuberance, a phrase later used by Alan Greenspan, the former Federal Reserve chairman, said: “This is a classic bubble scenario. A few years ago house prices got very high, pushed up because of investor expectations. Americans have fuelled the myth that prices would never fall, that values could only go up. People believed the story. Now there is a very real chance of a big recession.”

While we make no claim to understanding the nuances of economic theory that bright people have developed, we do think we grasp that bit about supply and demand. Which is why the following story tends to make us question the good Professor, U.S. population tops 303 million heading into 2008 (bizjournals.com, December 31, 2007)
Happy New Year's, America: the nation's population is expected to hit 303,146,103 million on Jan. 1.

The U.S. Census Bureau says the number is up 0.9 percent, or by 2,842,103 people, since Jan. 1, 2007.

Boosting that number is a birth rate of one every eight seconds, offset by one death every 11 seconds. The U.S. also gains one person every 30 seconds through net immigration, according to the Census Bureau. Those numbers translate to a population gain of one person every 13 seconds.

Posted by Orrin Judd at January 1, 2008 10:28 AM

It's just wishful thinking on their part.

Posted by: erp at January 1, 2008 11:44 AM

He must live in Michigan.

Posted by: JimBobElrod at January 1, 2008 12:14 PM

I say 4+% GDP for 2008. It's in the numbers - eights are lucky.

Posted by: KRS at January 1, 2008 1:39 PM

Professor Schiller is the real deal. He has been tracking real estate prices for a couple of decades. Forgive the self-reference, but I posted on this some time ago:
Major Turning Point? — Robert Schiller

U.S. home prices went up too far and too fast starting in 2000 so they need to either remain stagnant for a number of year or even fall for a year or two until prices become attractive to buyers. To your broader point though, the long-term outlook is very attractive here.

We had good news recently on the demographic front in that U.S. fertility rates are actually going up these days. They are now at replacement, which is far better than other developed countries.

Posted by: Kurt Brouwer at January 1, 2008 2:26 PM

Professor Schiller thought the Clinton Market was a Bubble--what's it at today?

Brief periods of overvaluation aren't bubbles, they're how markets work.

Posted by: oj at January 1, 2008 5:19 PM

The whole Clinton economy was a bubble.

Posted by: erp at January 1, 2008 11:44 PM

Supply and demand also apply to money, existing units, demographics and the like.

Not everything that inflates need deflate, but it can happen. Your continuously posting happy horse crap inflation data doesn't mean that there isn't any.

The government's "Core Inflation" is a joke.

"When we strip out everything you really need (housing, energy, food) inflation is just fine....really!)

Here are some factors that could impact a flat or falling housing market for quite some time.

1. Housing supply has been over built. (Supply)

2. Sub-prime buyers are now gone, and some of their houses, now in some form of foreclosure. (Adds to Supply)

3. Banks are skittish to lend, tightening lending requirements, subsequently dropping the number of buyers able to bid up prices.

4. Huge bailouts of Fannie and Freddy may be just around the corner. The liquidity brought about by the ability to sell loans may well be tightly squeezed.

I could point out more "supply and demand" issues that may well impact housing for a long time.

But worry not, everything is ok with the world when looking through Bush colored glasses.

Care to make any predictions?

Posted by: Bruno at January 2, 2008 6:23 PM

Core inflation is, of course, a joke--it radically overstates inflation. The real measure of gas cost is how few minutes you work to buy a gallon as opposed to your grandad.

There aren't enough housing units nor are they being built fast enough to house the swelling population.

As a function of foreclosure Demand increases at the same rate as Supply.

There's money to be made on riskier loans so those loans will be made. Bankers will just craft different devices.

We have plenty of money to bail them out. Bail outs reduce risk and increase demand.

Posted by: oj at January 2, 2008 8:44 PM