According to this article, real estate economist Christopher Thornberg has left The UCLA Anderson Forecast to start his own business. Does this mean he will be more free to speak his mind vis-à-vis the housing bubble affecting much of California? He has already proven himself to be one to "call it the way he sees it"; just check out this video. Is Christopher Thornberg to the housing bubble what Robert Shiller was to the tech stock bubble?Some choice quotes:
Bearish real estate economist Christopher Thornberg, who says the Southern California housing market is a bubble beginning to pop, has left UCLA Anderson Forecast to strike out on his own.
"I wanted to start my own business and do things I wasn't able to do before," said Thornberg.
His new consulting firm, Los Angeles-based Beacon Economics, will prepare forecasts for regions he thinks are underserved, perhaps including San Diego, the Inland Empire, the Bay Area and Sacramento, Thornberg said. His partner at Beacon is San Francisco economist Jon D. Haveman of the Public Policy Institute of California.
Thornberg was one of the first economists to declare that the housing market was peaking. He did so in September...
Other market observers now agree that the market is cooling but are uncertain about whether it will result in a "soft landing" that won't disrupt the economy. Thornberg said his expectations are growing more gloomy.
Thornberg... insists that the real estate market is dangerously puffed up... "Look at what your house was valued at three years ago and what it is now. Is it really worth 70% more? The answer is no," he said. "There is no way you can justify the math."
"My guess is we're going to have a hard landing," he said. "It's ugly out there."
There has been large-scale overbuilding of homes and condominiums nationwide, he said. "And here in Southern California we have had this massive price appreciation that is just not justifiable by any kind of standards of reasonable economics," he said.
With interest rates rising in recent months and sales declining, "the bubble is popping, just like a bubble is supposed to," he said.
17 comments:
Thornberg... insists that the real estate market is dangerously puffed up...
He is probably right. The insane rise of real estate price has become yesterday’s news. People should start looking into other beaten down asset class to speculate. NASDAQ l00 looks like a good candidate.
I can't believe I watched the WHOLE video... Thanks. This was englightening and educational. I feel like I am so much more qualified to have bubble conversations, and I didn't feel underqualified before.
Anyone else feel like this is a crash in slow motion? Since it takes time to sell a house? Unlike the dot-com bust where you could sell your stock in one day?
~Caddis
Caddis-
Actually, Thornberg was discussing that very issue in his presentation. I agree; I wish it were happening faster, but I am just being impatient beacause of my own selfish dreams. Still, don't you wish you could fast forward to see exactly how it all plays out and when to jump on the break of the uptick??
If he made that video in April of 2005 I would be impressed. Right now every pop economist in the U.S., other than David Lereah, is saying the same thing, only differing by degree.
Ali-
California is unique in how it cycles through RE. I've got a good idea of when to hold for the long term. The next boom will be much greater than the one we just witnessed.
~Caddis
Young Chris will have fun finding clients willing to pay him to tell them how fecked their local economies are because the housing market isn't behaving as his model says it should.
He became the office barking nutter to his Anderson colleagues after more than three years of doom shrieking, which will make his power-point sales pitches really interesting.
I watched it twice.
He is wrong.
It will go up and up and up.
single fam 3/2 in Marin Sept. 2009...
$1,777,555.00
This for a fixer upper in Novato.
Get in now!
Interesting, but even he admits that he's no Oracle of Delphi. He says he likes to use the past to predict the future, and we haven't seen this economic set up in the past so we're, as he puts it, "running blind".
Yes, so he talks about "soft pop" of the bubble because houses are less liquid than stocks. Add to that, as he says, no recession or major job loss in the future and it seems he's saying that prices will drop, but not dramatically.
One thing I found interesting is that he barely mentions the creative financing that's helped fuel this bubble: 63% of loans in California are "interest only" loans! (This stat repeated often in the NYT and WSJ in 2005.) The terms of many of those loans are scheduled to change in 2007 and 2008. As the terms change, many people will have a hard time making payments, and they will have counted on increased asset value that won't be there as prices begin to fall. With our dear president (sarcasm) increasing the difficulty of filing for bankruptcy, it could get really scary for a lot of folks in California, mostly those who are struggling to maintain a middleclass lifestyle.
What do others think?
An article related to Interest-only loans in the Bay Area, and possible repercussions:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/05/20/MNG5CCS82U1.DTL
"Thornberg was one of the first economists to declare that the housing market was peaking. He did so in September..."
You cut that quote short right before the most important part:
September of WHAT YEAR?
"September of WHAT YEAR?"
The article states he was "one of the first" to declare a peak in Sept. of '05. That's hilarious. Google his name and see him singing the same old tune for the last almost 4 years.
63% of loans in California are "interest only" loans!
Not True! You imply that 63% of ALL loans in California are interest only. While it is true that in recent months the majority of loans are interest only, the VAST majority of loans overall are locked-in, low interest 30 year fixed loans.
patrick -
Sorry. Here is the full text where the quote came from.
Thornberg was one of the first economists to declare that the housing market was peaking. He did so in September, when the median home price in Los Angeles County was $494,000, and he said that there were "signs that the housing party is ending." Since then, the county's median price rose another 5%, hitting a record $520,000 last month. But year-over-year sales plunged 25%, the eighth consecutive monthly decline.
"63% of loans in California are "interest only" loans!
Not True! You imply that 63% of ALL loans in California are interest only. While it is true that in recent months the majority of loans are interest only, the VAST majority of loans overall are locked-in, low interest 30 year fixed loans."
'Vast'? Care to quantify that? Sure, plenty of people got 30-yr fixed since the Great Depression (the last time IO's were used, BTW), but they didn't drive the bubble. The people who have driven this bubble leveraged themselves to the hilt in order to get in the market at 'low' rates.
Sorry, but numerous reliable sources have cited that more than 60% of loans extended in California in the last few YEARS (not months) have been IO-ARM loans. Last January the Financial Times quoted that 63% of loans aquired in CA in 2005 were interest-only. That's a lot of loans.
Great post!
Glad to see Thornbery go independent!
Not True! You imply that 63% of ALL loans in California are interest only. While it is true that in recent months the majority of loans are interest only, the VAST majority of loans overall are locked-in, low interest 30 year fixed loans.
What - you mean for the last 2 months? I am sorry you are little off there. The point is that for the last 2-3 years, over 50% (so 63% seems accurate) of mortgages were of the jumbo i/o and neg-am flavor. Hard to believe, isn't it?
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