Street Signs

BusinessWeek's Most Accurate Forecaster For 2006

His economic forecast for 2006 was spot on – and now he’s been named "Most Accurate Economist of the Year."  On today's "Street Signs" CNBC's Erin Burnett revealed  who "he" is – and the warning he has for 2007.

BusinessWeek has named Kenneth Mayland “Economic Forecaster of the Year.”  (He’s is the Chief Economist with Clearview Economics)

Be warned - He’s predicting a sharp slowdown in housing and compares what’s happening in the housing sector today to what happens in the manufacturing sector somewhat regularly.

Mayland said, “Inventory growth (of houses) is up over the year and sales are down over the year. (In manufacturing) that is typically a bad signal.  There is a long way to go before the situation stabilizes.”

When you look at past housing cycles, Mayland suggests that those downturns were triggered by increasing mortgage rates.  “That’s easy to fix,” he said.  “Mortgage rates go down and housing becomes affordable again. This time mortgage rates stayed low – affordability was destroyed by an increase in prices."

He went on to explain, "You can fix that one of two ways – prices go down, but that creates a lot of angst in the public or income levels to go up but that takes a long time.”

There is good news - In terms of the numbers Mayland says weakness in housing only pulls 1% off of GDP for 2007 – and there’s a little spillover, but not much.

And there’s more good news – Mayland says inflation will be low. “The major driver of inflation will be slower economic growth. In the first half of 2007 GDP will be 1.5% for both the first and second quarters.  You’ll see easing of demand pressures, stabilizing of wage growth which will cause the overall interest rates to roll over."

His prediction? “The Fed probably cuts interest rates maybe two times – beginning at the May meeting next year.”

Housing: Major Depressant in '07