Top number crunchers
By Matt Carter, Friday, March 21, 2008.Bookmarking Sites
When USA TODAY asked experts at the Atlanta Fed to analyze the accuracy of predictions made by 37 economists who fill out a quarterly survey published by the paper, they determined five of the top 10 were employed by companies or associations in the fields of real estate, home building, mortgage lending or finance.
The list:
1. David Berson, PMI Group
2. Nariman Behravesh, Global Insight
3. Lyle Gramley, Stanford Washington Research Group
4. Mark Zandi, Moody's Economy.com
5. Lawrence Yun, National Association of Realtors
6. Bruce Kasman, JPMorgan Chase
7. Ethan Harris, Lehman Bros.
8. David Seiders, National Association of Home Builders
9. Robert Shrouds, DuPont
10. Michael Englund, Action Economics
Berson's employer, a mortgage insurer, just posted a $1 billion fourth quarter loss despite his acumen (the decisions that led to those losses were all made long before Berson joined PMI in October, but his previous company, Fannie Mae, has also seen some tough sailing lately).
In the blogosphere, the only thing about the list worthy of discussion seems to be the presence of NAR economist Lawrence Yun. While the National Association of Realtors was naturally thrilled to have Yun make the list, USA TODAY was slammed by blogs including The Big Picture, Bubble Meter, HousingPanic and Lawrence Yun Watch (Lawrence Yun Watch?!).
Hey guys, it was the Atlanta Fed that did the statistical analysis, and it looks like their methods were sound. Yes, we can always find some instances where predictions were far off the mark (and OK, it was sometimes hard not to make fun of Yun's predecessor) but don't you think you have to do better than anecdotes if you want to challenge sombody's presence on the list?
So what are these top economists' predictions? Yun, Seiders and Shrouds were the only ones willing to go out on a limb and say we won't have a recession in 2008. Yun and Englund offer the most conservative predictions about where the federal funds rate is going -- they say 2.25 percent, while Berson and Zandi say 1.5 percent and Harris sees the Fed cutting all the way down to 1 percent.
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Submitted by Ben Martin, Va Assn of REALTORS on March 21, 2008 - 1:01pm.
There's another side to this. I'm no economist, but most of the metrics used to rank the economists had nothing to do with the housing market. Still, I'm inclined to agree with you that the bubble heads are just noisily pounding sand.
The Virginia Association of REALTORS arranged for a bunch of Virginia based REALTOR-bloggers to meet with Lawrence Yun on March 28. If you leave your question in the form of a comment at VARbuzz.com, our bloggers will pass along questions posed to Dr. Yun.
Submitted by Ki Gray on March 26, 2008 - 3:11pm.
I'm confused isnt the Fed rate currently 2.25 percent. Do they think the rate is not going to come down any more? That seems a little strange. Bernanke seems intent on doing whatever he can to improve the market so it seems unless the market has a super recovery in the next 30 days rates should come down.
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Submitted by Matt Carter on March 27, 2008 - 9:18am.
Ki you are correct the federal funds overnight rate is currently 2.25 percent (or at least the Fed's target is 2.25). My guess (and it's hard to tell looking at the story) is that these economists were polled before the 75 basis point cut on March 18.
That said, everybody was expecting a 50 or 75 basis point cut on March 18, so yes, pegging the low for the year at 2.25 percent, as Yun and Englund did, is rather conservative.
But keep in mind a couple of things -- the FOMC made a pretty strong statement about their continuing concerns about inflation on March 18 (see story.
There's no predicting when the Fed will stop cutting short-term rates -- it could even reverse course and start RAISING them this year. Economists polled recently by the Wall Street Journal see the federal funds rate bottoming out in June at 2.06 percent and climbing again slightly in December, to 2.11 percent (see previous post).
So 2.25 percent is conservative but not wacky. A lot can happen between now and April 29, when the FOMC meets next.
Keep in mind the federal funds rate doesn't directly influence long-term mortgage rates, and most ARM loans are tied to LIBOR, the London interbank offer rate, which has come down some but not as much as the Fed funds rate.
For the most part, the Fed's short-term rate cuts haven't been having the desired effect of bringing investors back to markets for mortgage-backed securities and other investments that fund borrowing. Instead, they've weakened the dollar and fueled speculation in commodities like gold and oil. So the Fed has been coming up with other programs to address the credit crunch (like taking MBS as collateral for short term loans).