MacroScope

The outlook for the UK housing market has darkened again. The usually optimistic bunch of property market watchers polled by Reuters, who have tended to predict ever-rising property prices no matter what the season or financial climate, now say the market will move sideways for the next two years.

They say that in the next few months, the small double-dip in prices that has begun will continue. Modest gains predicted less than three months ago for this year and next essentially have been wiped away.

No one should be surprised by this.  It smacks of an awakening to reality more than a slight change to a few variables in the statistical model. What’s perhaps most striking about these new poll results is that economists think houses are even more overvalued now than they were in July even after a few straight months of falls.

The poll found the proportion of property market watchers who expect a double-dip in prices has swung to a three-quarters majority from about one in four minority in July. As polls go, that is a big shift in sentiment in a very short period of time. The consensus points to a 5 percent fall from here on top of the 1.4 percent fall over the last two months, but the forecast range goes as far down as 22.5 percent from here.

That tallies with anecdotal evidence. A friend who is heavily invested in London property says he’s having trouble selling and says a 15-20 percent fall in the market is likely.

A daily look at the macroeconomic news and its impact on the mood of investors and the direction of the economy. Are we heading for a double-dip recession?

Pending home sales were up 5.2 percent in July, a surprise rise although sales were down year over year. As our report points out, “home sales have fallen sharply following the end in April of a popular tax credit for home buyers and the surprise gain in July raised hope the decline was close to a bottom.”

There was also good news on the labor front after data showed new claims for unemployment benefits fell last week. At a seasonally adjusted 472,000 the number is still high but has been moving in the right direction for the past two weeks.

In the last comparable recession, which we know wasn’t anywhere near as deep as the Great Recession just endured, U.S. jobless claims peaked at 695,000 in October 1982.

Weekly initial unemployment claims is an extremely reliable leading economic indicator because the figure is not derived from a survey. It’s an actual tally of real people without a job who are queuing up for the dole.

By the end of the following year, about 14 months later, weekly initial unemployment insurance claims had plunged by more than 300,000 to 372,000. They dipped even further to 333,000 in January 1984.

The economic blogosphere has spoken — and it is not too happy with what it sees. The Kauffman Foundation has just published a survey of 68 economic (but not necessarily economist) bloggers showing that they are pretty gloomy about the U.S. economy’s progress.

Feedback from the likes of  Oregon University’s Mark Thoma and UC San Diego’s James Hamilton suggests the U.S. is at some kind of tipping point with a good number expecting it to fall rather than maintain balance:

68 percent (said) that conditions are mixed, and the rest split three to one toward weakness rather than growth. For an economy in which growth is the norm, 47 percent of respondents think that the U.S. economy is worse than official statistics indicate, and only 5 percent believe it is better.

There is little doubt that the latest U.S. earnings season has been a good one for long-equity  investors. Thomson Reuters Proprietary Research calculates that with 67 percent of S&P 500 companies having reported, EPS growth -- both actual and that still forecast for those who have not filed yet -- has come in at 36 percent.

Furthermore, a large majority of the reports have surprised on the upside, as they like to say on Wall Street.  Some 75 percent of  reports have been better than expected.  Not surprisingly, the S&P index gained around 6.9 percent in July and is up another 1.7 percent in the first two trading days of August.

But given what looks like at least a faltering U.S. economy with little consumer confidence, some analysts  have begun asking what there is to get excited about. Philipp Baertschi, chief strategist at wealth manager Bank Sarasin, for example, calls it a case of micro bulls versus macro bears and warns that it won't last.