On the key economic and housing issues, Mark Zandi is a recovering pessimist. In a conference call with clients on February 5, he predicted housing prices would bottom in mid-2009 and unemployment would peak shortly thereafter.
And he stuck his neck out a bit farther to say that we have already seen the bottom in the stock market.
Zandi is the Chief Economist at Moody’s Economy.com, an economic research and consulting firm he co-founded. Zandi, a prominent economic pundit, recently provided Congressional testimony on the Obama stimulus plan and the automaker bailout.
“It used to be that we were more negative than the consensus,” Zandi said. “Now we are optimistic. This is an unusual position to be in, but appropriate given the facts.”
Zandi forecasts a 3% peak-to-trough decline in GDP – clearly in the camp of the optimists. He projects an additional decline in housing prices of 10% or slightly more, on top of the 25% decline since their peak in early 2006. After prices bottom mid-year, he predicted, they will level off in 2010 and rise appreciably in 2011.
But it will be another decade – sometime around 2020 – before housing prices return to their 2006 peak values.
Zandi outlined six broad factors underlying his forecast:
Affordability. Zandi said affordability is a “necessary but not sufficient” condition to stabilize the housing market. The price-to-income ratio has returned to its long run (since the late 1980s) average, suggesting that houses are now affordable once again. But a second metric – the price-to-rental-fee ratio – still suggests housing may be overpriced. “It is falling quickly,” said Zandi, “but it is not back to its long run average.” Another 10% price decline, consistent with Zandi’s forecast, is needed to return this ratio to its long-run average and establish affordability.
Inventory. Breaking with the prevailing consensus, Zandi said housing inventory “has peaked.” Normally, approximately 1.25 million vacant homes are on the market, but currently that number is 2.25 million, where it has stood for nearly two years. With demand at approximately 1.3 million units per year and housing formation at 800,000 units per year, the excess inventory will finally begin to come down over the next two years, according to Zandi. “We should be working off that inventory pretty quickly,” he said, adding that “despite significant progress, we still have a lot of work to do.”
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And he stuck his neck out a bit farther to say that we have already seen the bottom in the stock market.
Zandi is the Chief Economist at Moody’s Economy.com, an economic research and consulting firm he co-founded. Zandi, a prominent economic pundit, recently provided Congressional testimony on the Obama stimulus plan and the automaker bailout.
“It used to be that we were more negative than the consensus,” Zandi said. “Now we are optimistic. This is an unusual position to be in, but appropriate given the facts.”
Zandi forecasts a 3% peak-to-trough decline in GDP – clearly in the camp of the optimists. He projects an additional decline in housing prices of 10% or slightly more, on top of the 25% decline since their peak in early 2006. After prices bottom mid-year, he predicted, they will level off in 2010 and rise appreciably in 2011.
But it will be another decade – sometime around 2020 – before housing prices return to their 2006 peak values.
Zandi outlined six broad factors underlying his forecast:
Affordability. Zandi said affordability is a “necessary but not sufficient” condition to stabilize the housing market. The price-to-income ratio has returned to its long run (since the late 1980s) average, suggesting that houses are now affordable once again. But a second metric – the price-to-rental-fee ratio – still suggests housing may be overpriced. “It is falling quickly,” said Zandi, “but it is not back to its long run average.” Another 10% price decline, consistent with Zandi’s forecast, is needed to return this ratio to its long-run average and establish affordability.
Inventory. Breaking with the prevailing consensus, Zandi said housing inventory “has peaked.” Normally, approximately 1.25 million vacant homes are on the market, but currently that number is 2.25 million, where it has stood for nearly two years. With demand at approximately 1.3 million units per year and housing formation at 800,000 units per year, the excess inventory will finally begin to come down over the next two years, according to Zandi. “We should be working off that inventory pretty quickly,” he said, adding that “despite significant progress, we still have a lot of work to do.”
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