NAHB’s David Crowe: Housing is the Cafe Car of the Economy
We had the opportunity to ask Dr. David Crowe, chief economist for the National Association of Home Builders, a question yesterday during a conversation we had with a few housing economists and research analysts in Las Vegas.
After all, we asked him, is housing the engine of the economy or the caboose?
We asked him that mostly because of the Steven Gjerstad and Vernon Smith paper that came to our attention about a month ago, which more or less says that just three out of the 14 recessions dating from the time of The Great Depression have occurred without housing’s leading the way in and the way out, i.e. the engine.
Our own Hanley Wood Market Intelligence’s brain trust asserts that The Great Recession of 2007 to 2009 has turned the train of recovery around on itself, stating, ”If employment is the locomotive, housing has become the caboose; the days of home building being a primary economic driver are behind us, and for housing to recover, job growth must lead the way.”
Still, you don’t get to be chief economist of anything, let alone the home builders association, without having some clever tricks up your sleeve when somebody asks you an unfairly unsophisticated question.
Without missing a beat, Dave Crowe responded that housing is probably neither end of the train right now, given that its bit of stimulus induced oomph in 2009 and early 2010 failed to do the job of pumping life into the broader economy. Nor, however, would he say that jobs, employment, and GDP growth could entirely get back on track without housing playing a pretty significant role in the rebound.
With a classic economist’s hedge, his reply was this: “it’s probably the cafe car, not in the front and not in the back.”
What a good answer to this trick question.
Dave’s point is that at this given moment, the orbit of every business assumption and wager is around jobs, specifically, the cadenced monthly Bureau of Labor Statistics employment report that comes to us tomorrow morning. In that one neat package come the inputs for countless models of fundamentals, technicals, cyclical, structural, quantitative, psychological, etc., etc. all the ways of predicting what will happen next, based on where the latest figures park themselves into the trends.
Fact is, nobody still knows whether housing will wind up being more like the 11 of 14 recessionary economic cycles that Gjerstad and Smith looked at, or more like the three exceptions, or an anomalous exception to both patterns.
It’s all a guess, but after all this duress, unless you start to see something positive take hold on the jobs front, it’s going to be impossible modeling much of anything at all.
When you cut through all of the ideology based noise, what appears to going on is that the economic pendulum is shifting – at least from a lay person’s stand point. In late 2008, and for the first part of 2009, there seemed to be nothing so much as a prevailing sense of dread and doubt. Everything that had been working in its house-of-cards way had been destabilized, unhinged.
Then, gradually, collective sentiment seems to have shifted from utter doubt to uncertainty, a period where signals were mixed, signs were choppy, fragile evidence of things being okay started to crop up, and behavior seemed to move cautiously sideways amid few transactions, and lots of volatility.
Then we got almost giddy from markets moving so strongly off their lows last year, and at the beginning of this year, it seemed for a bit as if we could zoom back into the lives and expectations we once knew. But something was different–there was all that stimulus money working in the markets, and who knew what was what as far as what was real and what was fueled by Uncle Sam’s intervention?
Now, every time we have a piece of good news on the economics front, there seems to be a counter punch of bad news – just yesterday morning, we get a good number on the housing side, with purchase applications jumping up a bit, but we have that offset by private payroll declines of 39,000. Today, we had a positive number on the jobless claims front, but the market is reacting poorly to resurgent worries about inflation linked to a likelihood the Fed will resume monetary stimulus.
Look at all the polarities, the opposing forces we’re dealing with as we try to understand what’s happening now, what’s going to happen, and what to do about it.
We have cyclical vs. structural issues, we have risk aversion vs. urgency for better investment returns, we have fundamentals vs. technicals, expectations vs. inspiration vs. harsh realities, we have stimulus vs. austerity, we have arguments for policy vs. free enterprise dynamics; we have the for-sale vs. for-rent debate, and on and on.
In pre-mid-term election limbo, we seem to be a adrift, hypersensitive to every reading from every nook and cranny of the global economy, and still waiting for that inflection point of fundamentals to make themselves known. The ones who say they’re certain of doom or certain of imminent recovery are using the same predictive models that led to the catastrophe that the economy has begun to extract itself from.
We’ve still got basic questions about the two grails of economic insight 1) what is the consumer going to do, especially vis a vis household formations? And 2) what level will real estate asset values settle in at to start trading again with some pace and conviction? How can we act sensibly without visibility into these two critical forces?
We’ve gradually begun to shift from talking about the depth and duration of the downturn to the timing and trajectory of the rebound, but until there’s some sound insight into these areas, the path from uncertainty to prosperity can be treacherous. Fortunes will no doubt be made or lost as the nature of the game is all about timing, negotiation, playing the margins, and opportunism.
Which is probably why we’re all taking a moment in the cafe car.