Economist

Maryland home prices declined more in the first quarter than in all but seven other states, the federal government said yesterday. Home sale prices in the state fell 4.8 percent in the first three months of the year from the corresponding period in 2007, according to the Office of Federal Housing Enterprise Oversight. Twenty-six states and the District of Columbia reported dropping prices - the biggest in California, down 19 percent. Nevada, Florida and Arizona, other states hard-hit by the housing slump and mortgage restrictions, posted price declines of more than 10 percent.

Back when quickly rising home prices struck many as a good thing, economist Dean Baker was a veritable wet blanket. In August 2002, he published a paper suggesting that the country was caught in a housing bubble, that a price slump was inevitable and that there could be a huge loss of equity, "a surge in mortgage default rates" and "serious stress on the financial system." He was so convinced, he sold his condo in 2004 to become a renter. That all seems prescient now. Baker, co-director of the Center for Economic and Policy Research, a think tank in Washington, doesn't claim to be more far-seeing than the droves of experts and economists who at least initially took a "don't worry" stance.

Economists note there should not be two prices for one thing at the same place and time. Could a drugstore sell two identical tubes of toothpaste, and charge 50 cents more for one of them? Of course not. But, in effect, exactly that has been happening, repeatedly and mysteriously, in trading that sets prices for corn, soybeans and wheat - three of America's biggest crops and, lately, popular targets for investors pouring into the nation's volatile commodities market. Economists who have been studying this phenomenon say they are at a loss to explain it. Whatever the reason, the price for a bushel of grain set in the derivatives markets has been substantially higher than the simultaneous price in the cash market.

Industrial production in the United States dropped more than forecast in February as the economic slump deepened even before the crisis in financial markets intensified. Production at factories, mines and utilities fell 0.5 percent last month, the first decrease in four months, the Federal Reserve said yesterday. A report from the New York Fed showed its manufacturing index dropped to a record low in March. Factories are cutting back as the biggest recession in housing in a generation prompts Americans to spend less on furniture, appliances and automobiles.

A416-point stock market rally Tuesday seemed to rescue investors from the bear's claws, but they have to wonder if the beast is gone for good. Many analysts aren't sure the surge was anything more than one of the powerful rallies that often come during bear markets, only to see stocks turn down again. Last week's rally was set off by an innovative move by the Federal Reserve to relieve some of the tensions on lenders and get money flowing to borrowers by letting lenders use distressed mortgage-related bonds as collateral for loans from the Fed. But stocks remain well below their record highs; a common view is that a recession is now unavoidable and the bear market has not run its course.

Log onto theeconomist.com and pretty much the only thing you'll see is a giant mug shot of Alan Greenspan - which irks The Economist magazine to no end. The 165-year-old English publication, read by financial and political junkies worldwide, is stuck using plain old "economist.com" - sans the all important "the" - as its Web home, even though it has trademarked the two-word title. Three weeks ago, a United Nations intellectual property arbitrator ruled that while he's "highly sceptical and almost incredulous" over aspects of the situation, there's no legitimate reason to rip the domain name from the owner who claimed it in 1996.

The National Association of Realtors' chief economist told local real estate agents yesterday that he believes the Baltimore housing market has hit bottom and 2008 should be a better year - assuming buyers don't sit on the sidelines, anticipating major price drops. "This area will be very interesting to watch because there's very solid economic growth, but people aren't buying homes," said Lawrence Yun, the economist. He added: "Ten years from now, people will look back at 2008 and say, `Wow, that was a great time to become a homeowner.

Life improves slowly and goes wrong fast, and only catastrophe is clearly visible," said nuclear physicist Edward Teller. Improvement is especially obscure as we say goodbye to a miserable 2007. The Christmas shopping season was a flop. The country may be entering its first consumer-led recession since 1991. The mortgage mess, worse than almost anybody could have dreamed, is hurting all kinds of borrowing. Inflation is stirring. Middle-class families may do even more poorly this year than they have in the previous five.

Because the U.S. economy is so astonishingly complex and subject to so many variables, economists can't predict recessions. They can't even say for certain one is under way until months after it has begun. What economic experts can do is establish probabilities of a financial meltdown. And with the U.S. economy already on the ropes as it enters 2008, most experts say things are almost certain to get worse. The question that can't yet be answered: How much worse? The housing market is still falling and still eroding consumers' confidence.

The plan unveiled yesterday by the Bush administration to stave off foreclosures by freezing mortgage rates is aimed at Americans in the greatest danger of losing their homes when payments on their adjustable loans jump, but it offers little hope for people already in trouble. The rate freeze, generally for five years, would be limited to certain subprime borrowers with hardly any equity in their houses who can't refinance but who can afford their current payments. President Bush, who billed it as the industry's plan, said the major lenders that have signed on to the voluntary initiative also expect to help refinance subprime borrowers who are in better financial shape, either with FHA loans or other mortgages.