Economists are like
weather forecasters. Weather
forecasters can go out a few
days, economists can go out
months, but going out a year
or two, they get really iffy.
We spend about a third
of our time in recessions.
So the probability going out
18 months must be something like that.
I think a little bit higher
than that, maybe a half given the situation.
But there's so many factors
that one could bring in.
And I am not confident of
my ability to predict these
things anymore than I'm
confident of anybody else.
The nominal home prices, according
to the S&P CoreLogic
Case Shiller index that I've
been talking about, is
essentially at a record high.
If you don't correct for inflation
and if you do correct
for inflation, it's not a
record high, but it's pretty
high. It's gone up since 2012 at a good pace.
I counted as the third
largest expansion of home prices since 1890.
Late last year, we got a lot
of attention in the news media
to the idea that we're in
the longest bull market ever.
We've had the longest period
of near zero interest rate.
Well, they're not
quite near zero.
They're still on the low side.
According to the National Bureau
of Economic Research, we
will have set a record for
the length of an expansion if
there isn't a recession by
June of this year.
So all those things together suggest
to me that a lot of
people are thinking that this is
getting late in the stages of a boom.
And, you know, if history repeats,
we're in for a good chance of another recession.
Recessions are hard to predict
until they're upon you.
Remember, we're trying to predict
human behavior and humans
thrive on surprising us,
surprising each other.
And things have happened, like
the election of Donald
Trump. Nobody thought that would
happen back in 2015.
But here it is.
We've got him.
And the same kinds of things
can happen again, just like
wildfires in California.
It appeared we had a really
bad year on that and that
that's just another example
of surprises in history.
But the problem is that
we tend to magnify them.
We may read into the
California wildfires, for example,
more than is justified.
The other thing that hasn't hurt
us, but in principle could
is the kind of polarization
around President Trump and
the strong disagreements and the
hearings we're hearing now
that depending on your viewpoint,
are either proving he's a
criminal or are a vindictive
conspiracy against a good man.
But it hasn't
affected the economy.
You know, I don't think that
it's easy to piece out exactly
why. So it may depend
on how this hearings end.
I'm reminded of the Army
McCarthy hearings when Senator Joe
McCarthy, held hearings that were
on television. It was
the first really big
television extravaganza of hearing.
Everybody watched it.
And public
opinion turned based
on those hearings.
So what happened after that
in the stock market?
It boomed.
It was great.
But the end of the
Army McCarthy hearings discredited those
hearings. McCarthy ended up
retreating because he didn't
look good in those hearings.
The question is, how did these
hearings now that we've had
for President Trump, how do
they weigh up and ultimately
affect public opinion?
And I don't I
don't know the answer.
These things are
hard to predict.
The boom has lasted since 2012,
but it doesn't feel so much
like a boom because it's
a recovery from the worst
recession since the
Great Depression.
And I don't see the euphoria
that we've seen in previous
booms. I've been doing
questionnaire surveys of homebuyers.
We asked them, what do you
think the price increase in
homes will be per year
for the next 10 years?
And that's been pretty
low since around 2014.
I mean, it's like 4 percent.
It doesn't have the
spread that it did.
Back in 2004, people were expecting
12 percent a year home
price increases, according
to our survey.
But the mortgage rate was
6 percent or so.
But that's still a 6 percent
spread between your, you know,
you're long and you're short.
We don't have that now.
We have something like a
4 percent increase expected per
year. It's not exciting.
And I don't think
people are so excited.
Having a low unemployment rate is
a strong forecast for home
prices. If people are worried
about losing their job,
they're not enthusiastic about
buying a house.
So one thing that's been driving
the housing market is the
much advertised fact that recently
we were down to 3.7
percent unemployment rate, which was
the lowest since 1968.
And that was also back then,
that was also an extreme low
point. Doesn't get much
better than that.
So that then gives people a
sense that America is becoming
great again, at least
something like that, which
encourages people to buy.
But there are also other
things that are more emotional
that are driving.
I just think
the Trump lifestyle.
It's not only Trump, it's
the people who surround him.
There is more of a sense
that it's okay to flaunt your wealth.
I mean, flaunt your wealth
is a judgmental term.
It's okay to show that
you've made it in society.
That's the so-called
American dream.
The American dream has been
a growing influence that, hey,
you know, that's what
we're proud of.
We're proud of each other
for all having such beautiful
homes. That mood has
been strong under make
America great again president.
Make America great again means
we'll all be living in
mansions or something
like that.
I think if you go back 50
years and ask about homes as an
investment, you would get
a strong no.
There would say that's
too much trouble.
It's hard to
make it profitable.
Buying a house to rent it
out, hard to make that
profitable. Some people
did it.
Now, I think, especially in
the years before the 2007 financial crisis.
A lot of people
were doing that.
They were flipping houses
as they said.
The enormous housing boom
that preceded the 2007
financial crisis, after 2007,
was unusually nationwide.
Usually, the narratives about housing
and their booms were
local of one sort or another.
For example, when the Florida housing
boom in the 1920s was
attributed to the fact that we
now have cars, we can drive
down to Florida,
everyone's coming.
There was a simple story.
Now it's breaking down
a little bit.
It's still a national component,
but some of the best
stories are places that seem to
have a life of their own.
Notably Seattle.
Seattle was the dream city, I
guess, for a home price
appreciation. A year
or two ago.
But now it's retreating.
Trump signed a bill that put
on an increase in the standard
deduction, which made it less
profitable to itemize your
mortgage when you buy a house.
So it changes my enthusiasm
for owning a house.
Also, when people don't get their
tax refund in the same
proportion that they used to
maybe realize that things aren't as good.
I don't know how to forecast
the housing market, but I
think that it's looking a little
bit weaker now and there
could be a change of
sentiment toward housing that would
bring prices down
The problem of affordability of housing
is not unique to the United States.
I hear this in London,
for example, or Shanghai.
How does anyone afford
to live there?
And it's part of the
polarization that's occurring around
the world between
populists and elitists.
So in Britain, they're not so
happy that they can't afford
to live in London anymore.
And they have all these
foreigners coming in with their
huge wallets and
bidding up prices.
So this led to Brexit and
it could lead to economic
instability in many places.
It's a big theme of our time.
I don't know what we
can do about it.
It's unfortunate.
