Home Value Predictor

Macroeconomics Role in the Housing Crisis – Part 3

Not only did the macro data (with huge flaws at the local level), fail to foresee the crisis, but also the flawed macro data was “presumed” to be a trend line to extend into the future. A good example of this is at CNN Money http://money.cnn.com/popups/2006/biz2/newrules_bestinvest/index.html which projected the Florida MSA (Metropolitan Statistical Area) to go up in value another 72% in 2005. This represents a compounded false belief and information, all due to a lack of current local information.

Is it fair to say this directly caused the housing crisis? You can combine the many factors that have been blamed for the housing crisis, such as, deregulation, false trust in the Gaussian copula function, and Credit Default Swaps, and claim a more direct influence. However underlying all of these are false assumptions based on reliance on macro data. The resulting false conclusions supported all of these various factors that multiplied the errors. I am of the firm opinion that if we have good local data to assess any specific market we could have come through the last few years in much better condition. If you think there are other fundamental factors underlying our housing crisis I do want to hear your views. My goal is to find the keys to prevent you from making poor real estate investment decisions in the future. Your comments are appreciated.