Are We in a Recession?

NAR recently released their observations on the economy and the housing
market. Lawrence Yun, Chief Economist of NAR stated that we are not in a
recession and speculated that home prices in certain areas such as Miami, Las
Vegas and Phoenix could go up as much as 50% over the next five years.

Here are our thoughts on this matter:
According to the Bureau of Economic Analysis, GDP increased at an annual rate
of 0.6% in the first quarter of 2008. GDP is estimated quarterly. This is an
"advance" estimate and subject to further revision. A more complete estimate
will be released at the end of May.

According to Bernard Baumohl, 3-3.5% annual growth rate is considered the
pace the economy has to grow for people to feel prosperous. GDP figures are
released quarterly and lag behind more current monthly indicators. Even though
GDP figures are a little dated, historically, GDP growth rates have proven to be
quite different than what the market expects.

According to BEA, the last quarter’s increase in GDP is attributed to:
• Personal consumption expenditures for services
• Private inventory investment
• Exports of goods and services
• Government spending

This offsets the negative contributions due to:
• Residential fixed investment (construction of homes, etc)
• Personal consumption expenditures for durable goods

So technically speaking (according to the advance data estimates), we are NOT
in a recession. If the upcoming revision of the GDP shows a decline, we still have
to have two consecutive quarterly declines in GDP for a recession. Regarding
NAR’s forecast for home prices, our previous research indicates NAR has been
overly optimistic with their predictions in the past. We suspect that this may be
true in this instance as well.

Even if we are not technically in a recession, the market seems to think
otherwise. A survey of 52 economists, conducted in April found that 67% of them
believe we ARE in a recession. On April 30th, an NBC/WSJ consumer poll found
that 81% of Americans agree. The pros and public alike – believe we are in a
recession. Wisdom of the crowd, perception is reality, what you see is what you
get. If it’s true for you, it’s true – any way you want to posture it. We’re saying that
if it walks like one and talks like one, it is one, and we might need to face that
reality.