Recession or not?

LAS VEGAS -- In the time span of about 20 minutes, Realtors attending the National Association of Realtors conference in Las Vegas Tuesday heard two strikingly different outlooks on the probability of an economic recession:

1. There is a 10% chance of recession next year. (Lawrence Yun, NAR Chief Economist)
2. There is an 80% chance of recession by mid-2008. (John Tucillo, former NAR Chief Economist, 1987-1997)

Was one of these prognosticators speaking solely for shock value? Tucillo's explanation of why he feels stronger about the possibility of a recession has to do with expensive oil and other threats to an increase in interest rates in order to stave off inflation. He says that given a choice between stopping inflation and stimulating the economy with rate cuts, the Federal Reserve board will always go the way of inflation-fighting.

Former Fed Chairman Alan Greenspan shares the same dim outlook on the economy, but for different reasons. Yun pointed out Greenspan's study which links home price growth to consumer spending. For every $100 rise in home values, consumers will spend about $10, thereby putting money back into the economy, according to Greenspan's thinking. Since home price growth has gone from an average 12 percent in 2005 to around 1 percent in 2006 and now in the negatives in 2007, that doesn't bode well for consumer spending forecasts.

Yun said he thinks other economic indicators will offset the effects, though.

A panelist who shared the floor with Yun and Tucillo during a discussion on commercial real estate trends and market updates pointed out that Yun's view may differ from other economists because he is employed by NAR, while others are not. The trade group has met much criticism for its rosy outlooks in the press and from bloggers who say they have been unrealistic and even comical as the housing market has spiraled into this downturn.

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