The housing market defies rational analysis
Bloomberg won’t allow embeds, but check out this clip with Robert Shiller of Case-Shiller Index fame as he discusses the housing market.
This guy likely understands housing better than anyone else in America, and he seems absolutely perplexed as to the banks, the stimulus, the whole thing. It defies rational analysis, in response to no structural trend in particular.
Bloomberg, as in most of the business media, has a classic position: Up is GOOD! But Bob Shiller seems more interested in talking about how quantitative forecasting no longer works as a predictive model. He just seems confused as to what just happened. As well he should be.
What is left undiscussed: the notion that a group of our institutions have banded together to defy most of the logic that underpinned capitalism: that there is a free market, and that the winners are not picked by the government. That’s why the trends don’t matter in this case. The Treasury, Federal Reserve, White House and Congress banded together to make banks the winners, to allow them to suspend marking their assets to market, and to artificially keep housing prices inflated. In an economy made by fiat, structural trends lose their predictive ability. Who cares what “the numbers” say if a small group of people can renegotiate what those numbers mean at any given time?
Ah, but this is not without cost. Unemployment, inflation, and consumer spending will still likely follow the laws of gravity. That will make the recent acts of our government a temporary solution at best. So keep your seat belt buckled.
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About Eric Garland
Eric is one of the world's pre-eminent thoughtleaders in forecasting and strategy. He helps leaders of business and government make critical decisions about their futures.About Dan Vecchi
Dan Vecchi is the director of economic risk analysis for Competitive Futures. He helps leaders examine their investments in countries around the world, exploring future options and ensuring profitability in the years to come. He speaks natively fluent English, Spanish, Italian and works regularly in South America as well as Europe.New project: Manufacturing 2020!
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