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March 19, 2007
Are We Panicking Just A Bit Too Soon?
If there was any doubt about it before, that groaning sound from the residential housing market definitely has our attention now. A woefully incomplete list of blogger commentary from the past several days would include items at Alpha.Sources blog (here, with some international perspective here), at Angry Bear, at Beat the Press, at The Big Picture, at Bizzy Blog, at Brad DeLong's, at Daniel Gross, at Economic Dreams - Economic Nightmares (here and here), at Economics Unbound, at Economist's View (here and here), at Euro Intelligence, at Felix Salmon, at The Housing Bubble Blog (here and here), at Mish's Global Economic Trends Analysis, at the Skeptical Speculator, and at The Street Light. I won't even bother to list individual items from Calculated Risk or Nouriel Roubini. Just head on over and start reading.
In the midst of this, let me make one brief plea for a little perspective: It might be good to remember that this was not entirely unexpected. Since at least summer I have been giving "economic outlook" speeches with the same basic message: Weakness in the residential housing market will continue for some time -- the bottom in prices seems unlikely until at least mid-year. Adjustments of this sort are never easy, there will be some pain, and probably a disruption in the pace of economic expansion as things sort themselves out. The punch line is always something like, "but things do sort themselves out, and there is no reason to expect that the economy will fail to return to a normal pace of growth after a sluggish quarter or two."
Anything yet make that projection look wrong? Not within my confidence intervals. Forecasters, economic pundits, and other human beings are congenital slaves to the latest surprises in the data, so confidence has ebbed and flowed and ebbed again as the news has surprised to the downside, to the upside, and back again. But would anyone really want to argue that we aren't in the neighborhood of where most informed observers thought we would be about now?
Trouble, of course, often looks worse when it arrives than it did when we were merely contemplating its arrival. It is understandable that we feel a little wobbly now that the shake-out among certain mortgage lenders is here at last. And there are parts of the "soft-landing" scenario that look a bit tenuous at the moment -- I would put the worrisome signs of weakening business investment expenditures, emphasized by pgl at Angry Bear and Jim Hamilton at Econbrowser, at the top of my list. But for the time being, I'm going to go easy on the panic button.
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