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.