SF Fed President Speaks On Bubble, Economy
The president of the Federal Reserve Bank in San Francisco, Janet Yellen did an interview with ContraCosta Times. Is the interviewer paying attention. "There are some fundamentals that explain why housing is doing so well at the moment. A key one is low interest rates. Mortgage rates remained quite low, and they really haven't risen a lot since the Fed started to tighten monetary policy. Incomes are rising. People feel more optimistic about the future."
Why would low interest rates make house prices go up? The issue of rising incomes is touched on in the interview as well.
"The Bay Area economy has roughly stabilized, but we haven't regained what we lost. We're just growing modestly. I don't think the IT sector has revived and is growing robustly enough at this point to really generate strong growth in jobs here."
The Bay area hasn't had a big population increase. The interview makes one wonder just how rigorous the selection process is for the Fed.
"Is it a bubble? Nobody ever knows for sure until one pops. I wouldn't rule out the possibility that there's a bubble and we could have house price declines ahead."
7 Comments:
(Nobody knows for sure until one pops.)
Kind of reminds me of those stories you read about people who have to be carried to the hospital for removal of 200-lb tumors. By that point, they usually can no longer stand or leave the house.
One might ask, how could a person let a growth on their body grow to 200 lbs? Didn't they realize that something was amiss when the tumor was 1-lb? Or 10 lbs? Or 100 lbs?
At some point, my guess is that the poor person probably went from thinking "maybe I've gained a little weight" to "this is looking pretty serious" to "i'm too scared to do anything so I won't think about it and maybe it'll go away".
Where are we right now with housing? Are we still in the "this is looking serious" phase or have we moved to the "too scared to think about it" phase?
"Is it a bubble? Nobody ever knows for sure until one pops."
Captain, did we really hit an iceberg?
Perhaps. But we won't know for sure until we sink.
Melody,
Please post links, or maybe quotes. You are posting about ten times what I am. Thanks.
Real Estate Economist Gary Watts Forecast:
Housing prices will appreciate 15% over the next 12 months! This is not just a number pulled out of thin air, the following will tell you why as well as comparing Gary's record this century with actual outcomes.
Chapman University's Forecast
2000 - 8.0%
2001 - 7.7%
2002 - 2.8%
2003 - 2.0%
2004 - -2.7%
2005 - -7.4%
Gary Watts' Forecast
2000 - 12.5%
2001 - 12.0%
2002 - 10.0%
2003 - 15.0%
2004 - 25.0%
2005 - 15.0%
Actual
2000 - 13.0%
2001 - 10.1%
2002 - 16.8%
2003 - 19.1%
2004 - 23.8%
2005 - ?
Are you suggesting we should believe in his prediction because of 5 data points? Past performance is no indication of future success.
BTW, How well did his predictions do between 1989 and 1994?
Obviously Watts has been wildly bullish and he has been correct. But that's because we are in a mania. Bubbles also overshoot and then they overcorrect.
Lots of pros were bullish about the stock market in the '90s, but no one did (or could have) predicted the ferocity of the gains by 2000. And most of those same pros who felt we were due for a correction could have (or did) predict a 50% SPX or 80% Nasdaq decline by 2002.
Manias make folks look like geniuses for a while and then, suddenly, they look like chumps.
Gary Watts is paid by the larger real estate brokers to give motivational speeches to legions of Realtors.
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