The Abysmal Track Record of Moody’s Mark Zandi

The following is from independent banking analyst XXX, who has been accurately forecasting the crisis and its structural underpinnings. He wonders why (generally nice guy) Mark Zandi has become a favorite of public policy makers, despite his rather lackluster track record.


The Fed, Treasury and the Senate Budget Committee appear to have a favorite private sector economist, one who has managed to become a favorite even though he works for a unit of the same rating agency whose analysis is intrinsically tied to both the market, banking and housing crisis.

Mark Zandi of Moody’s is routinely trotted out as an independent expert. He was the sole economist at the August 17 Treasury Conference on the Future of Housing Finance, the Fed’s REO and Vacant Properties conference and has now testified at the September 22nd Senate Budget Committee hearing on “Assessing the Federal Policy Response to the Economic Crisis”.

Never mind that, based on Zandi’s record, either his analysis is just wrong or his independence is compromised. Everyone seems to like to hear the guy who is saying what people want to hear, even the press appears to prefer “feel good” analysis to considering the accuracy of his record.

I like Mark Zandi quite a bit. He is collegial, considerate, considered and smart. But his optimism is helping Washington avoid addressing the reality of our economic problems and the structural issues that must be addressed before our economy can sustain renewed growth.

Consider some of Mr. Zandi’s comments:

Associated Press – Feb. 4 2006

“The pendulum, which had been fully in favor of employers, is swinging back in favor of employees,” said Mark Zandi, chief economist at Moody’s”

Newsday – ProQuest Archiver – Aug 9, 2006

“It’s at least three or four quarters before we see the bottom of the housing market,” Zandi said.

Wire & Staff Reports – Oct 27, 2006

“The housing market correction is in full swing but it probably has another year to go before it bottoms out,” said Mark Zandi, chief economist at Moody’s

Los Angeles Times – Jan 6, 2007

“Mark Zandi, chief economist for Moody’s, said jobs and wages were growing too fast for their own good. He warned that higher wages could induce companies to raise prices, which could lead workers to demand higher wages — an inflationary wage-price spiral.”

[Note: The chart below shows 3-mo. Changes in total civilian compensation. It seems not to demonstrate any wage-price spiral:

Marketwatch – March 26, 2007

Zandi sees a bottom for sales in spring as sellers become more motivated and start cutting prices.” [Note: In August 2010, new home sales fell to the lowest level since 1963, when the government began to keep records.]

New York Times – March 18, 2007

“Weakness in the market has been concentrated in certain segments,” says Mark Zandi, chief economist of Moody’s “We’re not witnessing the entire housing market in metro areas caving in.”

MTG Foundation – April 28, 2007home prices have declined

From the housing cycle’s peak in 2005 to its bottom, which likely will come this summer, home prices of new homes will have declined about 10 percent, said Mark Zandi, chief economist of Moody’s By next spring, builders should be enjoying a recovery, but for now, “the housing correction is in full swing,” he said.” [Note; Home prices have declined almost 30%]

USA Today – May 17, 2007

“Mark Zandi, chief economist at Moody’s, says the first quarter was probably the low point for growth. Looking ahead, however, he sees unemployment rising to 5% from 4.5% as housing inventory is worked off. “The economy is going to feel softer in the summer and particularly in the fall; mortgage credit problems will be at their apex. If the Fed were going to ease, that’s the time,” Zandi says.”

U.S. News – June 10, 2007

“it’s probably going to take until next summer before things finally bottom out,” Zandi says.”

Associated Press – July 6, 2007

“It’s premature to say the economy is reviving in a consistent way, but I think it is fair to say the economy isn’t going to weaken any further.

ABC News AM Program – July 27, 2007

“Well, it’s going to take a long time until we’re through. I think we will see mortgage quality, particularly in subprime, weaken all the way through 2008 and in fact, we’ll see elevated levels of delinquency default all the way into 2009.”

CNN – Aug 25, 2007

“ZANDI: No, I don’t think there will be a bailout. I don’t think there should be a bail-out. I do think there are some borrowers who got defrauded in that they can make good on their mortgage payments with a little help. Those folks we should help. The FHA should help them and there is some talk of allowing Fannie and Freddie to extend out more mortgage credit. I think that’s a reasonable good idea.

Fortune – Aug 23, 2007

“Before the recent rise in rates, Zandi of was predicting that national housing prices would fall another 5% over three to five years on top of the 5% they’ve already dropped. Now he’s doubling that estimate to 10% and predicting additional declines of 20% or more in markets like Miami and Las Vegas.”

CNN Money – Sept. 4, 2007 is forecasting that foreclosures will peak at 900,000 or so in 2008, above the 750,000 forecast for 2007. It projects the existing single family median house price will bottom out at just over $200,000 by mid-2008, a little more than 10 percent below its peak in 2005 and the current median of $220,000 today, a level that likely won’t be recovered until 2010, Zandi predicts. He also expects a decline in the number of home sales booked – from the current annualized rate of 6.75 million units to 6 million by the end of 2007. By the end of 2008, forecasts home sales will start to exceed 7 million homes a year. Zandi is optimistic, however, that the economy will steer clear of recession given how financially sound and profitable businesses outside the housing sector are and how well positioned the banking system is to weather problems.” [Note: as of today there are approximately 2 million homes in foreclosure, median house price is $182,600. Annualized home sales are running at a 3.8 million level. We know how well positioned the banking system was, and remains, to weather problems. ]

“I don’t think consumer spending will fall unless the job market is contracting. And I’m fundamentally optimistic we won’t see job loss,” Zandi said.”

Pittsburg Post Gazette – Sept 7, 2007

“Mr. Zandi out the possibility of a recession at 40 percent, almost four times the possibility he had estimated in July…He said defaults would not perk until next year”.

CNN – Oct 7, 2007

(on the employment numbers)

Well, wasn’t bad. Its certainly a lot better than feared, it suggests that the economy is not going to slide away into recession, but the economy is still not creating a whole lot of jobs, certainly not enough to keep the unemployment rate from rising and it did in the month and I think it will continue to rise as we make our way into next year. “

Builder 2007 – Oct 25, 2007

“On the positive side, Moody’s chief economist Mark Zandi strongly believes that the bottom in new-home sales is hitting now, the fourth quarter of 2007. “It’s going to be so bad, that it’s going to be hard to be even worse in the first quarter of 2008,” Zandi said at the National Association of Home Builders 2007 Fall Construction Forecast Wednesday in Washington. On the down side, this comes from a guy who bought a house in Vero Beach, Fla., in the last year, thinking that he was buying at or near the bottom of the market. Oops.”I caught the falling knife,” Zandi said of his recent home purchase. Zandi, who admits that the housing situation has gotten worse than he expected, said the bottom in housing starts will come in the second or third quarter of 2008, with prices continuing to fall through 2008, reaching their nadir in the fourth quarter of 2008 or first quarter of 2009.”

Bloomberg – December 7, 2007

“Zandi estimates new and existing home sales will bottom at an annualized rate of 5.25 million units in early 2008 from a peak of 8.5 million homes in mid-2005.

Bloomberg – Feb 9, 2008

“Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight,” chief economist Mark Zandi said in a statement today. “Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.”

PBS NBR – April 24, 2008

“Policy prescriptions, like lower interest rates, the fiscal stimulus checks and foreclosure prevention plans should help the housing market find its footing. Still, economist Mark Zandi says it will be next spring before it reaches bottom.”

AP – May 27, 2008

“This is going to be another difficult spring,” said Mark Zandi, chief economist at Moody’s “I think we are at the beginning of the end of the housing downturn, but it is going to be a long and painful end.””

Orlando Sentinel – Jun 25, 2008

“”It shows that declines are now across all markets, that this is a nationwide housing collapse rather than one in a few markets,” said Mark Zandi”

Reuters – June 26, 2008

“Zandi said home prices, based on the S&P/Case-Shiller data, have fallen about 15 percent and he is expecting them to drop another 10 percent before reaching a trough in the spring of 2009.”

SF Chronical – Sept 16, 2008

“Bankruptcy lawyers predicted that Lehman’s Chapter 11 filing could leave creditors with tens of billions in losses. The bankruptcy is 15 times larger than any such case in history, with some $613 billion owed. There are two perspectives on what the market turmoil will ultimately mean, said Mark Zandi, chief economist at Moody’s in Pennsylvania.

“The dark view is that this is the catalyst for a string of financial failures that will end badly for the system and the economy,” he said. “The sanguine view is this is a cathartic event, cleaning house, pulling off weak links in the financial chain and the chain will be stronger as a result.” Zandi himself thinks the latter is more likely”

CNN Money – Sept 20, 2008 (on the bailout)

“Word of the plan first leaked Thursday afternoon, causing a massive rally in stocks at the end of the day that carried over into Friday. Several economists also praised the move. “I’m confident this will work,” said Mark Zandi, chief economist with Moody’s”

CNN International – Sept. 20, 2008

“I mean make no mistake what the government has done will sew the seeds for I think a very, very sharp recovery.”

CNN Money – Sept 18, 2008

“Several panelists, including’s chief economist Mark Zandi, Goldman Sachs (GS, Fortune 500) economist Charlie Himmelberg, S&P managing director David Blitzer and S&P senior economist Beth Ann Bovino all agreed that home prices would stabilize sometime during the summer of 2009. “The bottom of the housing market is coming into view,”

Agence France Presse – Sept 13, 2008

“Mark Zandi at agreed that the gloom may be an overreaction. “The current tone of pessimism seems overdone,” he said. “Despite the tumult, the bottom for the housing market, financial system and economy is coming into view. The US still faces a painful slog, lasting well into 2009, but by this time next year a self-sustaining economic recovery is expected to begin.””

The Times – Oct 19, 2008

““All the signs suggest we have a long way to go,” he added. “In terms of the financial panic I am hopeful that we are near the bottom. But in terms of the broader economy there is a lot more to come.””

Christian Science Monitor – Oct. 28, 2008

“By paying interest rates on reserves, the Fed is able to provide so much cash to financial institutions that there will be no reason for them not to lend to one another and, by extension, to business and households.”

USA Today – Oct. 30, 2008

“Other analysts, including Mark Zandi, chief economist at Moody’s, predicts the downturn will be much more severe than the 2001 and 1990-1991 recessions but not as bad — in terms of unemployment or lost growth — as the 1980s one. The unemployment rate, now at 6.1 percent, could hit 8 percent or higher next year.”

Business Week – Nov. 12, 2008

“In testimony before the U.S. House of Representatives in June, Zandi offered estimates of how much each dollar of government spending in different forms would produce in real GDP each year. He said extending unemployment benefits would yield $1.64 of GDP, a temporary increase in food stamps $1.73, aid to state governments $1.36, and increased infrastructure spending $1.59. “The bang for the buck is very high,” Zandi said of extended jobless benefits…The problem is that without some sort of huge stimulus, the U.S. recession could turn into a depression. “Consumers are retreating, people are losing their jobs, and only the government can fill the void,” says Zandi.”

CNN – Feb 21, 2009

“OBAMA: It will prevent the worse consequences of this crisis from wrecking even greater havoc on the economy and by bringing down the foreclosure rate, it will help shore up housing prices for everybody. According to estimates by the Treasury Department, this plan could stop the slide in home prices due to neighboring foreclosures, by up to $6,000 per home. (END VIDEO CLIP) WILLIS: Hmm. So, Mark you know, big promises here that prices really stabilize, recover, and I don’t know that your forecast for housing prices really calls for recovery in short order. Will this help? MARK ZANDI, MOODY’S ECONOMY: Yeah, it’ll help. It’ll help stem the declining in housing values — house prices are going to decline further but this should help put a floor under prices and hopefully bring forward the day when we find a bottom in pricing. So it’s helpful, but I think everyone should realize that we are going to experience much further price declines and that’ll occur throughout most of this year. WILLIS: Wow. So, the bottom coming fourth quarter here? ZANDI: Yeah, with a little bit of luck. If everything comes into place, and the policy steps, are able to get mortgage rates down, get more credit out there, and the stimulus plan helps shore up the job market I think Q4 ’09 would be a good baseline forecast, yes.

CNN Money – April 2, 2009

Nationwide, home prices will bottom out at the end of this year, according to the forecasters at Moody’s Median prices will probably fall another 10% on top of the 27% they’ve plummeted since their 2006 peak.”

CNN – April 25, 2009

“WILLIS: You know what’s interesting though, you know, because all we care about is seems like are housing prices in this country. I spoke with Mark Zandi this week who follows this, frankly, maybe one of the best databases, Zandi says we are at the bottom in the housing Market, so that is at least some good news, here.”

AP – May 20, 2009

“”I think we have probably reached the low point for this housing crash, but I don’t expect us to come roaring back,” said Mark Zandi, chief economist at Moody’s “I think it will take another year for a recovery in housing to get going.””

MSNBC – May 21, 2009

““You mix all of that together, and the foreclosure problem is getting worse not better,” said Mark Zandi, chief economist at Moody’s “We’re counting on the president’s loan modification plan to really kick in here. But it hasn’t yet, and we need to see it.””

NPR – Jul 23, 2009

“the housing market is stabilizing,” said Moody’s economist Mark Zandi. “I’m expecting that by this time next year the market will have hit bottom”

Kiplinger – Oct 16, 2009

“Mark Zandi, chief economist with Moody’s, thinks it’ll be 2011 before the number of foreclosures ebbs, receding to about 1.1 million, as the economy improves.”

Bloomberg – Nov 19, 2009

““I don’t think the housing crisis is over,” Mark Zandi, chief economist with Moody’s, said in a telephone interview. “I think we’re going to see another leg down.””

American Banker – Dec 28, 2009

Though it is easy to carp about all the money Fannie and Freddie are bleeding from the taxpayers, Mark Zandi, the chief economist and co-founder of Moody’s, said the companies could ultimately turn a profit for the public. “My sense is that three to five years down the road, once they work through these problem loans, they’ll become more profitable again and there will be more pressure to spin them off,” he said. “

NPR – Dec 31, 2009

“Zandi says builders have pulled back so much that even if the housing market remains a bit anemic, homebuilding is likely to pick up in 2010. He says that’s a very important change. Housing construction is expected to go from being a very significant drag on the economy to being a small positive. Zandi adds, “That’s very key to ensuring that the economic recovery continues on and ultimately evolves into an expansion.” In other words, more homes getting built next year could mean more construction jobs, more orders for windows and doors, refrigerators — everything that goes along with a new home. The National Association of Home Builders predicts a 35 percent increase in homebuilding in 2010. So, Zandi says there are more reasons to be optimistic about the housing market and the broader economy.

New York Times – Feb 19, 2010

Mr. Zandi of said he expected the nation’s housing prices to fall another 8 percent during 2010 and bottom out by the end of the year

San Diego Union Tribune – April 27, 2010

“Nationally, the federal credits have caused sales to surge and stabilized prices, agents across the country said. Some analysts said the tax credit money would have been better spent to help alleviate owners subject to foreclosure. Mark Zandi, chief economist at Moody’s, said the credits “helped staunch the price declines.”“The home is still the largest asset on most people’s balance sheet, so when prices are falling, nothing works for most families,” Zandi said. “But now people can take a deep breath and think clearly again.””

Marketwire – May 13, 2010

Zandi also forecasts improving demand for housing, but with foreclosures rising later in 2010 before easing in 2011. He said home prices may weaken this year. “The housing crash is over — nearly. We are now near the bottom,” he said. “There will be no real price growth in 2010 or 2011. Whether home prices weaken is unclear, but it will take two more years to work off excess housing inventory at the current sales pace. Of course, if demand picks up, it would take less time for prices to rise,” he said.”

Ft. Mayers Examiner – Aug 27, 2010

Moody’s chief economist Mark Zandi told home prices will fall between 5 and 10 percent more in some areas of South Florida. Zandi expects home prices to plummet 30 percent in 2010.”

Philadelphia Inquirer – Aug 25, 2010

“Housing’s double dip should not cause a double dip in the broader economy, said Mark Zandi, chief economist at Moody’s Analytics. “The recent weakness in housing won’t be severe or long enough to undermine the rest of the economy,” Zandi said.”

Senate Budget Committee – Sept. 22, 2010

“Indeed, even if policymakers do nothing else, the recovery will still likely continue. The next six to 12 months will be uncomfortable as the economy struggles to gain traction, but a full-fledged expansion should take hold by this time next year.”

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