Recently, I have happened upon the Gary Watts Real Estate Outlook for 2006/2007 as of October 2006. As the party presenting me with this information desires to remain anonymous, and I cannot source this from the internet, I will not be able to link to it externally. Maybe if I can clean portions of it up, and post it on a share, I will do so if people would like.
For some of the new readers, you might not be aware of my track record of posting responses to some of Gary’s predictions over the past year. You can visit some of my old postings sprinkled throughout my blog:
Gary Watts will Burn in Hell October 30th 2005
Gary Watts will Still Burn in Hell April 21st 2006
Gary Watts Pulls His Head Out Long Enough to Stick it Back In July 21st 2006 (A parody)
and, the ever popular
Gary Watts and the Incredible Logic Shrinking Machine August 14th 2006
Fact is, it has yet to be 1 year since he made his idiotic comment that OC would see increases between 15% and 18% in 2006, and that it was “In the Bag”. What’s suprising is still how many realtors believe that his predictions will still come true, even though we are seeing an increase of only 2.6% in Orange County, and that all of Southern California is at 2.7% YOY as reported by Dataquick Info Systems.
What’s even crazier, is that Watts “quotes” dataquick as having 7.7% increase (a full 185% higher than what Dataquick is actually publishing on their website) Makes you wonder if any of the agents paying for Mr. Watts advice are really getting their money’s worth, if they can just surf to the Dataquick site and see it’s very different than his “reporting”.
This absolutely goes beyond spin into the realm of falsification, fictionalization of numbers that don’t exist. Perhaps those at Dataquick would like to know that he is “selling” their numbers that are fictional.
Because it would take far too much time to write a blog on the entire document, I will attempt to piece apart the most important points he makes and see if they pass a smell test… The most difficult thing about evaluating a paper like his (besides the horrible, horrible formatting, seriously, doesn’t someone in his office know how to use Microsoft Word?, Please, turn this rubbish into something that is readable, and for god’s sake, use spellchecker! You’re selling this after all!) is that the datapoints are nowhere to be found. You must simply trust his information on the basis that he is Gary Watts…
Last Year’s Forecast
What Went Right!
1. Interest rate increases will be no more than ¼ to ½ percent on the upside, with it all being given back in the fall.
2. The Federal Reserve will stop raising interest rates by summer and may even begin to reduce the Fed rate by fall.
3. U.S. Economy will continue to grow and budget deficits will decline.
4. Employment will continue to increase as business activity remains strong.
5. Home price appreciation will continue upward with no “Bubble” in site.
Ok, #1, he is both factually right and correct. However, I am confident that he has no idea that this signals deflation, not price increases… And he dares call himself an “economist” he is no more an economist than I am a brain surgeon. I can call myself one all I want, but it doesn’t make it so.
#2 is questionable. First off, he did not make this prediction… this is a “backward-looking pat on the back” Will the Fed continue to hold, or even hold overnight lending rates this low? More importantly is, is this even relevant? I say no… credit spreads are too compressed to stay this way for long. There are only 2 ways out… lower Fed rates, or higher borrowing rates. Even then, this means nothing in a land where nearly 80% of of the buyers do not use a 30 yr. loan. ARM rates are the real trigger here, which have skitted substantially higher in the past 2 years, and with a large surge in resets coming in the next 18 months, the likelihood that all of these can pull off the higher payments is questionable at the most optimistic.
#3 is once again off-target. Is the economy growing? yes. Is it greater than inflation? Not likely. The inflation adjusted economy is shrinking. And, with all of the cash generated from the 6-year long housing bubble, the economy has been goosed long enough that it’s too bruised to even sit. We may have to fall on our backs to land. On an aside… am I worried about budget deficits… No. I’ll have to dedicate a much longer post to explain why budget deficits can be a good thing, (not always, but can be).
#4 is only important locally. Detriot is most certainly in a multi-year slump. With OC the center of the Sub-prime universe, we are likely to have a big hit now that origination volume has cratered. It’s just a delayed effect.
#5 is laughable. Delusion is a sad thing, Gary. Please, go get professional help. We’re all hoping you’ll get well soon.
The next section of the paper
What Went Wrong . . . (besides all the world problems)!
1. Inventory of both homes and condos exploded upward when seasonally, they should have begun to decline.
2. By April, resale condo prices began to decline (from previous month) but corrected by August and are still positive year to date.
3. By June, resale home prices began to decline (from previous month) but still positive year to date.
#1. — Yes, most definitely. If you cannot see what this means, noone can help you, as you are in the industry.
#2 — Correction. Price declines began late last year. We will likely see YOY declines by the end of the year. If not this year, early next.
#3 — Again, correction. Price declines began late last year according to Dataquick, who is your “source” for this information. Perhaps you need to hire a fact checker?
Here are his predictions for the remainder of the year:
How Will This Year End?
1. As mortgage rates continue to decline, buyers will get off the fence and purchase homes as soon as they believe housing prices have stabilize.
2. Sales of homes should start to rise by the fall, while inventory goes into its seasonal decline.
3. Appreciation should continue to rise in the fall, compared to last year when prices actually dropped.
4. With luck, we may end the year with double digit appreciation in homes with small gains in condos.
This is easy…No, Yes, No, No. Besides “with luck” from an “economist”. Good heavens! I’m glad junior college is doing you so well.
The worst kind of denial is present in his “data” table which shows the following numbers
December 2005 $660,000 $459,000
January 2006 668,250 455,000
February 690,000 462,000
March 695,000 469,000
April 705,000 460,000
May 705,000 460,000
June 700,000 456,000
July 699,000 450,000
August 685,000 460,000
First off, these are a different set of numbers than what is published on the Dataquick site, so we must assume that the numbers are just different subsets of data. Worst of all… he states that this is a “YTD Appreciate Rate” for houses of 9.2% and 8.4% for condos…
So, if we break out our handy-dandy calculators and use our high-school algebra… okay, y equals x times constant divided by e=mc squared, carry the 2, and we get….
2.5% for houses “YTD” and 1.1% for condos. Something smells awful fishy. I think besides a spellcheckerand a fact checker, Watts needs to have someone check his math as well.
The last part I will cover is what I refer to as the “tinfoil hat” section of the paper. Remember, Stop Abductions!
The Media: Factual vs. Accurate
Newspapers are losing subscribers and television is losing viewers. Consultants have advised them that if they want to hold their viewers’ or readers’ attention, they have no alternative but to portray fearful impending events and instill anxiety in their audiences!
This raw emotion will help to keep people tuning in, thus possibly preserving precious advertising dollars. The media’s portrayal of a few past events will help make this point clear:
♦ What did they put us through with Y2K?
♦ How about the Killer Bees of South America, the West Nile Virus and Mad Cow disease?
♦ What happened with last year’s “serious” lack of vaccines for one of the “worst” anticipated flu seasons?
♦ Where did Scars and the Bird Flu . . . fly to?
Where do you start with this one? To be fair, I will not tear this apart, as I think his paranoia speaks for itself. I will only take some time to correct some of his references.
First, Y2K is yes, laughable in hindsight. The housing bubble will be anything but. Financial manias are rarely funny.
Killer Bees, West Nile, and Mad Cow have either killed people, or endangered lives. I find nothing funny about that.
And, as for the worst possible flu seasons, we might have been lucky this time. We could have another flu epidemic like 1918, “the worst epidemic the United States has ever known“. Vigilance is the key to survival, and mockers like Mr. Watts are beneficiaries of diligent workers who sacrifice to provide them with public health, and are repaid only with unkindness that they are “chicken littles” or boys who cried wolf! (I think we all know how that ended)
Lastly… and first off, it is “SARS”as in “Severe Acute Repiratory Syndrome”… these are once again real threats that only through people’s diligence, were we as a group of humanity able to *so far* (with fingers crossed) keep from spreading.
If you think that Mr. Watts sounds a bit paranoid and detatched from reality, you’re not the only one. I, for one, say he should really reevaluate his state of denial.
As for being an Ignorant Optimist, or a Deluded Sociopath… you decide.