Buyer Beware

The housing market may hit rock bottom this year, but not to worry, there is no recession looming in 2007, predicts Sam Thomas, senior lecturer at Case Western Reserve University’s Weatherhead School of Management.

Thomas made his predictions for the sixth year at the school’s 33rd annual David A. Bowers Economic Forecast luncheon, where hundreds gathered to hear him foretell of a mid-cycle slow down in the economy in 2007, but not a recession like in 2001.

“We’ve had a lot of stimulation for several years,” he says. “The Fed has stepped up and they’re playing offense now.” To fight off inflation, there will be an aggressive rise in interest rates, he added, saying the Fed is “desperately trying to raise rates to get back into equilibrium.”

This makes the “big issue” whether or not the Fed has “overdone it,” he tells the crowd. 

Quick with the quips, Thomas explains how the Fed cuts rates during weak times, and then raises them to see if the economy can handle it. “It’s sort of like standing on your toes in a pool of water and trying to find change at the bottom,” he jokes.

But Thomas supports their decision to raise rates because the economy is strong and the dollar should be stabilizing this year, along with unemployment.

“There’s nothing to be worried about yet,” Thomas says, adding, “Although, it can turn on a dime.”

He predicted a housing drop, due to the likelihood of the Fed cutting interest rates, will make this year a good time for foreigners to buy assets. To the room full of Weatherhead alums, Thomas recommended borrowing and buying a lot of capital this year because in the long run, the economy will ignore inflation and completely ignore the Fed.    

     
  — BS