Wednesday, January 23, 2008

2008 vs 1992

2008 vs 1992

By TheBigPicture | 16 January 2008

Today's chart porn (below) comes from the NYT: "A Revival of 1992’s Glum Mood."

The current situation was summed up by David Leonhardt:

"Economists argue about the reasons for the great wage slowdown— technology, globalization, health care costs, the decline of unions, the rise of the new wealthy— but it clearly seems to have made people feel more vulnerable to small economic swings. In the latest New York Times/CBS News poll, only 19 percent of those responding said the country was headed in the right direction. That was the lowest percentage since the early 1990s.

"This glumness is especially striking because perceptions of the economy usually lag behind reality, and the reality hasn’t deteriorated much yet for most families. But as in 1992, said Alan Blinder, a former vice chairman of the Federal Reserve, “people are more sour about the economy than the data would seem to warrant."

Leonhardt comes very close to resolving the conundrum, but alas, he gets it wrong in the end. At the very least, he fails to consider an alternative explanation: The measured economic readings— inflation, growth, unemployment, job creation, real income— are far less accurate than many people (quants and politicians who don't have to worry about their next paycheck) perceive them to be . . .

Economic Scene: A Revival of 1992’s Glum Mood
David Leonhardt, NYT January 16, 2008

Study Suggests Lengthy U.S. Home Price Decline

By Ros Krasny | 14 January 2008

CHICAGO, Jan 3 (Reuters)— U.S. home prices could fall "considerably" over a number of years as a benchmark ratio of rents to prices slowly returns to its long-run average, according to a new study. "If the rent-price ratio were to rise from its level at the end of 2006 up to about its historical average value of 5 percent by mid-2012, house prices might fall by 3 percent per year," two Federal Reserve Board economists and a University of Wisconsin professor said. In a paper accepted for publication by the Review of Income and Wealth, the authors termed the estimate "more of a back-of-the-envelope calculation than an actual forecast."

Andreas Lehnert and Robert Martin of the Fed and Wisconsin's Morris Davis developed a series that shows the ratio of rents to the value of owner-occupied housing stretching back to 1960. The ratio, which compares imputed rents of homeowners to the value of owner-occupied housing, is a valuation of residential housing that is equivalent to the earnings-price ratio used to value stocks and is considered an important component of housing valuations. The rent-price ratio ranged between 5 percent and 5.5 percent between 1960 and 1995 but fell rapidly after that, hitting a historic low of 3.5 percent by the end of 2006. In the first half of 2007 the ratio started to climb again, and incoming data suggest that the rent-price ratio has continued to increase, the authors said.



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