May 31, 2006

A Housing Panic Exclusive: An Interview with Christopher Thornberg of the UCLA Anderson Forecast on the Housing Bubble

As many HP'ers would agree, Dr. Thornberg and the UCLA Anderson Forecast have been spot-on with their housing bubble reports and reflections, including this extremely insightful presentation on the bubble now available on Google Video.

Dr. Thornberg was kind enough to give a brief interview to Housing Panic on our bubble troubles. Here is the interview in its entirety. Enjoy!

HP: David Lereah and the NAR continue to call the declining home sales and prices, and building inventory underway a "soft landing". Do you feel the landing in bubble markets will be "soft" or something more approaching "hard"? And do you feel David Lereah and the NAR should be seen as a trustworthy source of information on the real estate market?

CT: Actually what we are seeing is a very typical slowdown in the market so far—there is nothing particularly soft about it.

The claim is that because unit sales are falling but prices are still going up that this is an unusual slowing.

The fact is that most breaking markets start with activity, and it takes 3 to 4 quarters for that to take all the wind out of price appreciation.

How hard it will be remains to be seen. Of course they have a biased view—they are paid to be sunny. Caveat Emptor.

HP: Ben Bernanke is faced with what seems to be a tough choice - continue to raise rates to combat inflation and protect the dollar, likely hurting the housing market and home prices, or stop raising rates, and let inflation roar, the dollar freefall and the housing bubble continue. If you were Ben, what would be your action plan?

CT: This is a no brainer. The Fed’s first job is to promote price stability, and its second job is to help the economy through rough patches.

Given a situation where these two goals point in different directions, price stability is the most important factor. So if inflation rears its head, rates will go up regardless of the housing market.

HP: Who was most responsible for the housing bubble - The Fed, Realtors, Mortgage Brokers, Exotic Loans, Human Nature, Speculators, Appraisers, Builders, something else or an equal combination of all of these?

CT: Yes, and throw in China since they have been fueling our spending binge with cheap capital.

HP: What US housing markets do you feel are most at risk of collapse (defined as real median home sale price drops of more than 20% from peak) if any?

CT: Prices fall when you lose jobs. Right now the non-housing part of the economy is picking up speed, thus stabilizing things.

Still, those markets with the greatest level of speculative buying and building (Florida for example) may be most at risk.


Marinite said...

Good job!

Anonymous said...

if only the msm would run to Thornberg and not Lereah (and realtors!)I think the ignorance of the public played into how high the bubble got, and thornberg and shiller were just lone voices in the wilderness, until now

and housingpanic and housingbubble2 too!

nice interview cool of him to do that

David said...

Solid interview. Nice exclusive.


Anonymous said...

MSM probably would run Thornberg if he bought enough advertising.....

Anonymous said...

More please.

I would like to hear Dr. Thornberg's take on the RE jobs explosion and the economic effect of the likely disappearance of these jobs in the near future.

In some areas these jobs have made up a large percentage of all job creation over the last few years.

Plus, RE has a rather substantial muliplier. One house built, sold and occupied creates income for many, many people. Once this cash cow disappears will we see a more severe recession than if RE had not run up so incredibly?

Also, What's the true HH inflation rate? ;-)

Anonymous said...

Bow down.

Now that is one smart individual.

"There is no such thing as a permenant tax cut.... only a deffered tax cut."

If I had a Guiness I would give it to this guy!

Los Angeles Friends In Deed said...


you asked some good questions.

Please give some background on how you were able to get the interview with Dr. Thornberg. Do you attend UCLA? Did you attend one of the conferences he spoke at or attended, through email? Of did you get him on the phone?

borkafatty said...

nice interview would like to have seen more of it

thanks keith

Chris G said...

Although the non-housing part of the economy is strong, I wonder if Thornberg is also considering that some of those non-housing sectors may be fueled by the equity cushion that some homeowners have, or pretend that they have. This can happen in one of two ways. One is that these homeowners actually pull out equity to make their purchases. The second way is that with an equity cushion, they simply feel wealthier, which gives them the confidence to spend more aggressively. This feeling of wealth was very prominent during the late 90's when the stock market took off.

Anonymous said...

when you're losing money, you feel poor, even if you still have money.

batten down the hatches, head for the cellar, stop spending - that's what people are gonna do now I think

and also a lot of people have equity, but will be losing (or fear losing) their jobs real soon - anyone connected to real estate in any way has to be nervous already

panicearly said...

"Prices fall when you lose jobs"

sun micro laying off 5000, analysts call for 10,000.

run pussy cat run run run said...

the segment on google video from Thornberg was one of the most illuminating media events on the housing situation...even in the US.
thanks for the link...I would have never found it otherwise.

Thornburg is obviously a near-genius...and I learned a lot. I believe more than ever that we are in the midst of a major freeze in housing costs in my local area (boston)


The_Scum said...

Great interview and great job obtaining it.

foobeca said...

Chris is a smart guy, but he has fallen into the trap of the "core" rate. Inflation is raging out of control. I guess if you don't need to eat food, drive your car, go to the doctor, buy a house, or use electricity, or heat your home, then the core rate could apply to you.

Anonymous said...

who is this guy?

Tulip Bulb Maniac said...

I really enjoyed his Round Table forecast from February, but he did not address on issue that could throw his forecast off. To paraphrase, he said that today's home prices will likely be the price in 2011 and that people will close their doors, not read the paper, and not sell their house if the prices are not increasing.

What about those adjusting arms that will force so many to have to sell their home because they can't afford the new payment. This dynamic will throw a monkey wrench into his hypothesis.

douglasbtrain said...

"Chris is a smart guy, but he has fallen into the trap of the "core" rate."

The core rate is scary. If we fix the way it is calculated, then medicare and social security are even bigger messes. But are we headed for a bigger mess by denying inflation exists? At some point reality is going to catch up with us.

Anonymous said...

Super color scheme, I like it! Good job. Go on.