Housing’s Woes Aren’t Over Yet, Winning Forecaster Says

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RISMEDIA, March 13, 2007-(MarketWatch)-Economist Richard Moody's job is to monitor local housing markets, the U.S. economy, and global financial conditions, so it's no shock that he put all of his knowledge to use in February, winning the Forecaster of the Month award from MarketWatch.

Moody bested 41 other economists to capture the monthly award, given to the forecaster with the best predictions on 10 key economic indicators.

The runners up in February were all former winners: Stephen Stanley of RBS Greenwich Capital, David Greenlaw and Ted Wieseman of Morgan Stanley, Brian Wesbury of First Trust, and defending champ Ian Shepherdson of High Frequency Economics.

Moody, who toiled for nine years at PNC bank in Pittsburgh under the tutelage of Stu Hoffman, broke out on his own recently, taking the job of chief economist for Mission Residential in Austin, Texas. Moody helped Hoffman win the contest two times, most recently in September.

Mission Residential buys and manages multifamily residential properties. Besides tracking the national economy, Moody has to analyze local economies on the level of Census tracks to help figure out what properties to buy and how to manage them, and he needs to keep an eye on the global picture as well.

"What the Bank of Japan does affects investors," Moody said.

Moody earned his doctorate from Texas A&M University, taught at James Madison for three years, then worked for a real-estate consulting firm in Florida before hooking up with PNC. Now he finds himself back in Texas, right the backyard to his alma mater's rival, the University of Texas.

Not to worry; there are plenty of closet Aggie fans in Austin, Moody discloses.

In the February contest, Moody had the most accurate forecasts on three of the 10 indicators: payrolls, new-home sales and personal incomes. And he was very close on a couple others: industrial production and housing starts.

"We've only touched the tip of the iceberg" in the housing correction, Moody said.

"There are lots of shoes" left to drop. It's still getting worse.

"The spring will be the key," he said. He thinks many speculators have been sitting on the sidelines, hoping for a bottom in the market. But the speculators can only eat the monthly carrying costs for so long before they throw in the towel. If sales and prices are still falling after the spring sales push, the speculators will dump their properties on the market, inflating inventories and pushing prices lower still, he said.

And he thinks the reset of exotic mortgages will begin to hurt, not just in the well-publicized subprime market, but among wealthier borrowers as well.

His firm would be among the winners if many marginal buyers are pushed back into the multifamily market.

Moody, like almost all his peers, isn't forecasting a recession. He thinks gross domestic product will continue to grow about 2.5%, but he acknowledges the risks are on the downside. He sees a 25% chance of a recession this year.

He expects the Federal Reserve to cut interest rates twice this year.

In the longer term, Moody sees risks as consumers rebalance their spending. They won't be able to extract so much money from their home equity in the future, and their debt levels are too high. "That should make us nervous," as households are "vulnerable to a shift in sentiment or a shift on economic fundamentals."

Rex Nutting is Washington bureau chief of MarketWatch.

Source: MarketWatch

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