The Signal and the Noise: Why So Many Predictions Fail-but Some Don't

by Nate Silver

Whether homeowners believed that they couldn’t lose on a home or couldn’t choose to defer the purchase, conditions were growing grimmer by the month. By late 2007 there were clear signs of trouble: home prices had declined over the year in seventeen of the twenty largest markets.58 More ominous was the sharp decline in housing permits, a leading indicator of housing demand, which had fallen by 50 percent from their peak.59 Creditors, meanwhile—finally seeing the consequences of their lax standards in the subprime lending market—were becoming less willing to make loans. Foreclosures had doubled by the end of 2007.60 Policy makers’ first instinct was to reinflate the bubble. Governor Charlie Crist of Florida, one of the worst-hit states, proposed a $10,000 credit for new home buyers.61 A bill passed by the U.S. Congress in February 2008 went further, substantially expanding the lending capacity of Fannie Mae and Freddie Mac in that hope that more home sales might be spurred.62 Instead, housing prices continued their inexorable decline, falling a further 20 percent during 2008.