Magazine article Mortgage Banking

Irwin Kellner, Chief Economist, North Fork Bancorporation and MarketWatch.Com

Magazine article Mortgage Banking

Irwin Kellner, Chief Economist, North Fork Bancorporation and MarketWatch.Com

Article excerpt

Given that he holds down three different jobs, Irwin Kellner might fairly be able to claim the title as the hardest-working economist in business.

Kellner holds the Augustus B. Weller Distinguished Chair of Economics at Hofstra University, Hempstead, New York, where he is the author of Hofstra University's Economic Report. He also serves as chief economist for North Fork Bancorporation, Melville, New York, as well as for MarketWatch.com, San Francisco, the interactive financial news Web site.

Kellner has also served as a member of former New York State Comptroller H. Carl McCall's Economic Advisory Committee, New York City's Economists Roundtable, the New York District Advisory Council of the Small Business Administration Region II, and the Long Island Regional Transportation Advisory Committee of the New York State Senate.

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A native New Yorker, Kellner received his bachelor's and master's degrees in economics from Brooklyn College and his doctorate in economics from The New School for Social Research, New York. He also has a Doctor of Humane Letters bestowed by Hofstra University and a Doctor of Laws conferred by St. Joseph's College, Brooklyn, New York.

Mortgage Banking recently interviewed Kellner about the economic outlook for 2007 as well as other housing market trends.

Q: Regarding the 2007 outlook: Many forecasters are calling for a "soft landing" for the overall economy, but you've written that, given the Fed's track record and other prevailing economic headwinds, we're in for more of a bumpy ride. Can you elaborate on that?

A: Actually, since I wrote that an amazing and interesting development has occurred, which has caused me to change my views for 2007. I don't have any qualms about changing my views, because as the great economist John Maynard Keynes once said, "As the facts change, I change my opinion. What do you do, sir?"

The change that I'm referring to has to do with the sudden and spectacular drop in the price of oil. This has simultaneously slowed inflation as it has improved buying power for both business and consumers.

By slowing inflation, it has brought down long-term interest rates--giving beleaguered homebuyers who took out exotic mortgages in the days of 1 percent Federal Funds rates between 2003 and 2004 an opportunity to refinance and take out a fixed-rate mortgage [FRM] with little or no interest-rate penalty.

So I think for all of these reasons, the outlook for 2007 is not so bad. I don't even know if I would characterize it as a "landing" of any kind. It's just continued economic growth.

Q: How do you see that impacting the housing market?

A: The housing market has a ways to go in terms of adjusting to reality. That's because it was pumped up so much by these extremely low interest rates. I believe there's still too many unsold homes out there, which have to be worked down before you'll see much in the way of new home building.

I also think there's a new element in the picture that will continue to drag housing down regardless of what happens to interest rates or jobs or the rest of the economy--that is psychology, and psychology takes a long time to change.

Not too long ago, the psychology was that it was a seller's market. As soon as a house came on the market, there were multiple offers as people sought to buy it before prices went higher. Now, it's clearly a buyer's market in most parts of the country.

Sellers will put their houses on the market and nobody will come take a look. Buyers are waiting for prices to fall further. Sellers are anxious to sell before prices fall further, and this psychology, I think, is going to be the story of housing for the next few months at the very least, if not [for] a good part of 2007.

Q: During the most recent housing boom, the housing market had been credited as being the engine of economic recovery following the last recession. …

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