"Experts"

So last Thursday (11/6) I attended the Sacramento Housing Forecast put on by the North State BIA. One of the speakers was Ed Leamer of the UCLA Anderson Forecast. No disrespect to the man or to my alma matter, but this guy must have been smoking crack.

He made the point that the declining RE market had caused builders to cut back starts so drastically, that soon there would be a SHORTAGE of housing. He said that past RE cycles have seen a "V" shape in housing starts, where they drop to ultra-low levels, creating a housing shortage, and as a result immediately rise again in the classic "V" shape. As such, he suggested (I think seriously. Really.) that builders should hold their prices firm and start building again.

In the Q&A session that followed, I couldn't help myself. I stood up and asked something to the effect of, "Ask any builder here, and they'll tell you that they're not competing with Centex or Lennar or Pulte down the street. They're competing with all of the REOs currently on the market, many of which are in their own or a directly adjacent community, and almost all of which are less than 5 years old, still in good shape, finished (window treatments, back yard landscaping, etc.) and WAY cheaper than their new stuff. So with the huge numbers of new foreclosures expected to hit the market in 2009 and 2010 as a result of all of the Alt-A 5/1 Arm resets about to happen, isn't the market going to remain oversupplied for a long time to come?"

Ed hemmed and hawed about the possibility of the 5/1 Arm resets adding more inventory to the market and then didn't really answer my question.

Academia is not always in touch with what's going on in the real world.