Reaping The Whirlwind

Apparently some people realized the existing home sales figures were going to be really, really bad, and boy, were they!:

Existing home sales sank 27.2% in July, twice as much as analysts expected, to a seasonally adjusted annual rate of 3.83 million units. Much of that drop is attributed to the end of the $8,000 homebuyer tax credit.

That credit brought buyers out in droves, as they tried to sign home contracts before the April 30 deadline. Now, two months later, sales are 34% below April's tax incentive-induced peak.

"Home sales were eye-wateringly weak in July," said economist Paul Dales of Capital Economics. "It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With an increasingly inevitable double-dip in housing prices yet to come, things could get a lot worse."

Nevertheless, most of the naysayers were realtors, or otherwise connected to the business, and not economists. Economists, who actually don't know that much about real estate, tried to find a nice, low consensus figure to base their estimates on, so as not to stick out. No one wanted to take a risk:

So … where does the “consensus” come from, and why does it appear to be so far off?

Well, as best as I can determine A LOT of the economists surveyed for various “consensus” forecasts often don’t really know much about many of the statistics they are asked to project, but are still quite willing to be in such surveys. In the case of home sales, very few track local sales data, but surprising quite a few also don’t look at pending sales either! And for some others that do, they are often reluctant to project “really big” changes – they don’t feel comfortable being an “outlier” – and figure that if they get the direction right, well, THAT’S pretty good!

The existing home sales figures are said to be bad for Democrats, and they may, in fact, be so:

The continued problems in the housing market are bad news for Democrats, who are already struggling to convince the public their policies are moving the economy in the right direction. With the midterm elections less than three months away, voters say the state of the economy is their top concern, and most surveys show the public is souring on Obama’s handling of the issue.

The Obama administration has repeatedly defended its housing polices, even while conceding that the market remains weak.

White House spokesman Bill Burton was noncommittal on Tuesday when asked whether Treasury Secretary Timothy Geithner’s efforts on housing have been a success.

“I'll leave that to the economists and the pundits to decide. All we can do is everything we can to grow this economy,” Burton said.

Nevertheless, the Obama Administration realized long ago the figures would be bad, so in a way the new numbers just met their expectations:

The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

The Obama Administration has planned their entire economic program around bailing out the big banks, and not helping out anyone else that much. But after that? That whistling sound you hear is the whirlwind - the only thing left to reap.