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Saturday, September 01, 2007

UCLA's Leamer: Some housing prices may decline 40%

by Calculated Risk on 9/01/2007 02:19:00 AM

From Bloomberg: Fed Gets `F' for Failures on Housing, Leamer Says

Federal Reserve policy makers underestimated the role that housing plays in triggering recessions and merit an `F' grade for their failure, said Ed Leamer, director of an economic forecasting group at UCLA.
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Housing is vulnerable to ``persistent'' trends that, once under way, are difficult to restrain, Leamer wrote. The Fed ought to have raised interest rates more aggressively to head off the ``bubble'' in home prices that grew from 2003 to 2005 and should have lowered rates by now, he said.
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Leamer said in an interview today at Jackson Hole that some former ``hot markets,'' such as pockets of California, may see declines of 30 percent to 40 percent.
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He added that there's ``very little possibility that a rate cut would make much of a difference'' at this point. ``Once the wave has peaked and is crashing, there is not much that can be done to quiet the waters.''
Leamer still thinks a recession is unlikely.