Houston, Why Don't We Have a Problem?

Over the last few months anyone reading the published numbers on Housing has been treated to a collapse of mythic proportion. Sales of existing and new homes are down month over month as well as year over year. At the end of this year we will see the first National decline in home prices since the Great Depression. The Mortgage Lender Implode-o-Meter (http://ml-implode.com/) currently stands at 167. Mortgage lenders and banks have announced monster losses. Homebuilders are going down the drain. Realtors across the US are having to make due with 15-50% of their previous years incomes. The MEW (mortgage equity withdrawal) home ATM is now finished. State collections of fees and commissions on home transactions are crashing. Oil at $88 dollars a barrel. The list goes on and on.
Given the conditions listed above, here is where we stand on a Macro level:

• Unemployment at all time lows
• GDP cruising right along in a 2-4% range
• Consumer spending INCREASING
• Stock Markets up substantially on the year (DOW all time record)
• General public psychology is not one of fear or distress

Now I know we can basically tear apart a few of the above points. Take the jobs number. We know that crazy numbers of jobs are added by the secret "Birth/Death" model. We also know it is hard to capture the numbers of illegal immigrants working in the construction field (no immigration debates, please!). We also know that the major driver of jobs the past year was the wonderful "government jobs" as well as dining and leisure fields.

The point is not to nitpick the data, but to try and understand why there seems to be no apparent fallout from the housing implosion. As a scientist, I try to be analytical. My theoretical construct in this case is that The housing bust should show some degradation of economic indicators.

With that as my construct, I must then take the bullet point data listed above and try and explain why the observed results are not what my expected results are. I will list them below, and they will also be on a new poll on this site. (Note: Blogger reset my previous poll, so I will start the new one today)

Possible reasons for theoretical construct to not be proven experimentally:

• It will take time for the damage to filter down to the economic numbers
• The housing components of GDP, employment, consumer spending, and psychology are over estimated by the construct
• The data itself is compromised in some way

That's it. It is one of the three possibilities above. As far as taking more time to filter down into the numbers, I think that may be possible, but we would have seen at least some degradation by now. Perhaps going forward we will see more.

Overestimation of the effects of Housing certainly at this point seems the most likely explanation. While Housing may be overestimated per economic numbers, the frantic moves by the FED, and the banking industry imply they are not underestimated in the financial system. Is is possible that besides a bunch of people who lost their homes, are underwater on a mortgage, and people struggling to pay their mortgages, the only entities that will lose are banks and the taxpayer (in a bailout)?

Manipulated data is a tough one. I do not think that the published numbers are bunk so to speak. I do feel that the numbers are massaged a bit however. Again, if the Housing bust is as bad as per my construct, the data could not hide that fact without outright fabrication.

This has been an interesting exercise for me, and I encourage you to try it yourself. Perhaps we could arouse some interest from the Supreme bloggers like Calculated Risk (http://calculatedrisk.blogspot.com/) and Mish(http://globaleconomicanalysis.blogspot.com/) and they will tackle it more head on with cool graphs and the like.

Even though scientifically the information I have tells me that my construct is either wrong or severely flawed, I cannot help but think that it is right. The problem with economic issues is everything takes SO LONG to settle out, any one point in time may not be a representative sample.

Vote in the poll and leave some comments, maybe we can settle on a new construct.

Have a good night.