Rosy Forecast Gets Hammered

Last Friday, in a roundup of real estate news, TrueGotham linked to a Business Week story about a Virginia-based numbers cruncher named Michael Youngblood with a new model for predicting housing prices. Rather than depending on traditional measurements like interest rates and inventory, this model, as Youngblood explained in an earlier interview, is based on growth in employment and growth in personal income.

Does that work? I don’t know. Let’s just say I have my doubts about some of his projections. As reported by Toddi Gutner of Business Week:

  • Housing prices will rise in each of the next four quarters, but by progressively slower rates year over year: 7.1% in 2Q 2006; 5.7% in 3Q 2006; 4.4% in 4Q 2006 and 3.5% in 1Q 2007.
  • MSAs with fastest year-over-year gains in 1Q 2006 will continue to rise. Those cities include Phoenix, Az (34% expected rise in 1Q 2007) and Naples, Fla. (51% expected rise in 1Q 2007).
  • California market will have continued rising house prices with a median year-over-year rate of 24.1% in 1Q 2007.
  • Ten of the largest MSAs will continue to rises in housing prices: 17.5% in New York City; 26.7% in Los Angeles, Ca.; 4.9% in Chicago; 3.9% in Houston; and 4.8% in Atlanta, Ga.

I took enough statistics and economics courses in college to know that numbers can be manipulated to say just about anything. And this guy works for an asset backed securities firm, which means he has a vested interest in everyone feeling good about the housing market.

Check out some of the reactions from commenters on the Business Week site:

  • Parithead: "I have run some of my own models based on history, complex mathematical algorithims, tide and moon phases and processed it through the flux capacitor. The result is clear, Micheal Youngblood is a crackhead."
  • Doh: "Well, his model is already wrong. Only took one month to debunk this junk science of his."
  • Bill: "Interviewing the Managing Director of an asset backed securities firm who has a vested interest in the stability of asset backed securities like houses is akin to the dot-com days when analysts were giving rave reviews to stocks they owned. Of course he’s bullish on housing."
  • Bubba: "I think that this guy is purposefully trying to be contrarian. In the off chance that he ends up being right, he looks like a genius and is anointed the seer of the real estate industry."

I’ll say this for the Business Week site–they have some good commenters!

Of course I am bullish on housing in the long term, but to argue that several of the major markets will see double digit gains this year is absolutely ludicrous. There is no substitute for the real numbers provided by those on the front lines of the real estate market and we all know that the NYC market has cooled considerably since its peak of Spring 2005.

Just another example of the media reporting "man bites dog." He is one of a rare few (the only one I have seen recently) who has made such ridiculous projections going into 2007. I wonder how much property he owns.

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