A journalist once told me that I am her "Prophet of Doom." Apparently, some journalists call me if they wanted to paint a bleaker picture of the real estate market or as a counterweight to the often very rosy picture painted by real estate developers and companies.
Last year, I receive probably one call every week or two. As the global financial meltdown unfolded, journalists ask me what will happen to the local real estate market. I was also made to react on press releases by developers boasting that they remain resilient and optimistic despite the crisis.
Recently, calls from journalists are becoming more scarce. The last one I answered was a query on the proposed extension to the lapsed rent control law. Probably, it is no longer difficult to find doomsayers. It is now easier to find analysts, pundits and experts that forecasts that the country and real estate market will be in a tougher situation this year. It is probably time that I shelve my Prophet-of-Doom hat, even for just two or three years.
Predicting an economic crisis is not easy. Every now and then, people comment that nobody saw the crises coming; US housing market crisis, the subprime mortgage crisis, the financial meltdown and the global economic crisis. Not true. A lot of economists and experts have warned about it, including Nouriel Roubini (called Dr. Doom due to his pessimistic forecasts) and Nobel Laureates Joseph Stiglitz and Paul Krugman (also New York Times Columnist). The problem was that nobody listened or very few people listen or those who listened didn't or couldn't do enough.
Or people who were in the position to deal with the impending crisis did not, could not or does not want to listen. Probably, due to ideological or philosophical reasons. Much worse if they did not want to listen because they were benefiting from the financially rewarding but structurally unsustainable system.
It is also possible that those who are willing to listen, asked the wrong people, making them clueless when the crisis struck.
From the point of view of an individual (buyer, investor, or developer), I understand why it is also difficult to listen to economists, especially when they foretell economic disasters.
First, most economists find it difficult to talk to a laymen (or journalists... and most of the time you'll ned up misquoted). Well, Roubini is really difficult to follow but Krugman is a bit easy to comprehend. In the Philippines, we have former NEDA secretary-generals and economics professors Cielito Habito and Winnie Monsod as regular columnists at the Inquirer (although Mareng Winnie often writes about things other than economics). Occasionally, former NEDA chief Cayetano Paderanga and former Ben Diokno writes for the BusinessWorld. A segment in BW called IDEA Corkboard also does a good job.
But these are all in expensive broadsheets. How about the majority of people who listens to the radio or reads tabloids (if they read at all)? So far, there are very few mediums where regular folks can get sound economic and financial advise.
A second problem is with the way economists talk. Good economists are either modest or ambiguous. They never claim that things will certainly happen. They explain both sides of the argument and leave the decision to the individual, leaving the individual, most of the time, more confused.
Q: Will the housing market go up or down?
A: These are the factors that can push the market up, Blah, Blah, Blah. On the other hand, here are factors that can pull it down, blah, blah, blah.
Q: So, is it going up or down?
A: It depends... on the magnitude of the effect of each of the factors, the time frame, and whether you are at the side of the winner or the loser, blah, blah, blah.
Third, the time frame also poses significant problems. Some things will happen in the short run, another thing can happen in the long run. But how long is the long run? (Keynes said "in the long run, we are all dead"). Most economists can indicate the direction where the market is heading, but they are reluctant to say exactly how fast the wind is blowing and how long the wind will blow.
During my first few years working as a property researcher, I followed The Economist on their their coverage of the global house price boom. Every year since 2004, they predicted that the market will crash. And the market did crash, in 2007 for some countries like the US, Ireland and Estonia and in 2008 for UK, Russia, New Zealand and Singapore.
If you are an investor, you followed The Economist and pulled out your property investment (i.e. sold your house you bought for the sole purpose of selling it again) in 2004, then you would have missed the enormous property gains in 2005 and 2006. Seeing your neighbor who made tons of money back then, you might feel sorry for the opportunity you missed and blame The Economist and other economists.
But then, your neighbor got more audacious and decided to borrow more money and invest more in housing in 2007. Suddenly, the crash that The Economist warned will come has finally arrived. Your neighbor is now broke and was forced to sell all his belongings while you remain secure with your finances. You congratulate yourself for following your instincts.
So, should you follow an advice from an economists? It depends, whether you are risk averse or a risk taker. It depends on how much you are willing to risk and how much you are going to secure for your family. It is really very tricky and an economists job is never easy.
Most of the time, you feel nobody is listening to you and when people finally do listen to you because your gloomy prediction has finally happened, you are not allowed to say "I told you, so!"
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." - Laurence J. Peter
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