Macroeconomic Forecast Paper
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Macroeconomic Forecast Paper
Economics for Managerial Decision Making — ECO 533
Table of Contents
Macroeconomic Forecast Paper
Company Background
Industry Background
Purpose of Paper
Macroeconomic Forecasts
Mortgage Bankers Association
MBA: Long-Term Economic Forecast
Federal Reserve
Federal Reserve: Monetary Policy and the Economic Outlook
Bureau of Economic Analysis
Housing and Urban Development
“Why Not in Our Community” Removing Barriers to Affordable Housing
Variables to be Forecasted
Gross Domestic Product
Income Levels
Employment Growth
Interest Rates
Housing Starts
Economic Reasoning for Forecast Differences
Implications of Forecasts on Planning & Operations
Recommendations
References
Company Background
RE/MAX is one of the fastest expanding real estate franchise operations in the United States and is an independently owned and operated network of offices and member sales associates. Dave and Gail Liniger of Denver, Colorado founded RE/MAX, in 1975. Their dissatisfaction of the real estate business pushed them to start the business since, “regardless of an operations size, most real estate offices used the commission-split system, requiring sales professionals to forfeit half of their commissions to their brokers in exchange for an office environment and company services” (Official RE/MAX Web Site, 2005a, para. 2). What transpired was an industry hampered by high turnover with staff that did not have the experience or level of professionalism to make organizations profitable. RE/MAX used high commissions, advanced support services and national advertising to attract and retain the best associates. The associates paid the broker a fixed management fee, which gave them the freedom to succeed and prosper. “In an industry rife with mergers and acquisitions, RE/MAX is the only major real estate network still owned and directed by its original founders” (Official RE/MAX Web Site, 2005b, para. 9). As of 2004, RE/MAX had posted another record year, not only in revenue but also in new agents recruited.

Industry Background
The United States has an economy that supports private and commercial real estate ventures and this market is growing. A recent article by Robert Schiller “argues that housing in many cities is undergoing the same irrational exuberance as stocks did in their bubble days” (Schiller, 2005, p.74). What is driving this activity and will it continue, into the foreseeable future? With increasing housing prices, as witnessed across the U.S., is this a time to invest in real estate? “The fact is, according to many industry experts, a major national housing boom may be brewing over the next decade” (Earl, 2005, p.1).

Purpose of Paper
For RE/MAX, this macroeconomic forecast paper performs the following:
Assess the accuracy of macroeconomic forecasts from various forecasting groups
Identify economic indicators are important to RE/MAXs future
Determine reasons for differing economic forecasts
Quantify the implications of the forecasts on planning and operations
Provide recommendations, including risks and opportunities
Macroeconomic Forecasts
This section analyzes and assesses the forecasts provided by three recognized macroeconomic forecasting groups. The accuracy of their forecasts is analyzed to determine the accuracy of their forecasts, based on their past performance. These forecast groups include the Mortgage Bankers Association (MBA), the Federal Reserve, the U.S. Department of Commerces Bureau of Economic Analysis (BEA), and the U.S. Department of Housing and Urban Development (HUD).

Mortgage Bankers Association
The Mortgage Bankers Association is a forecasting group used to assess macroeconomic factors such as mortgage data, interest rates and housing activity that serve as a direct input to the strategic plan for RE/MAX Corporation. The MBA is an industry leader in the aggregation of microeconomic factors into macroeconomic forecast as illustrated in their recently published “Long Term Economic Forecast “(Mortgage Bankers Association Web Site, 2005).

Key attributes of the MBA are the following:
National association representing the real estate finance industry, headquartered in Washington, D.C
Ensures the continued strength of the nations residential and commercial real estate markets by expanding homeownership prospects through increased affordability

Membership includes 2,900 companies including mortgage companies, mortgage brokers, commercial banks, thrifts, life insurance companies (2005)” (Mortgage Bankers Association Web Site, 2005).

MBA: Long-Term Economic Forecast
In April of 2004 the MBA released its long term forecast for the US Economy and Housing Finance market that spanned 2004 – 2006. The MBA forecasted strong GDP growth rates for this period that would be near or in excess of 4%. Key points of this forecast as they relate to 2004 in particular have been extracted for assessment to determine the overall confidence level in the long term forecast for REMAXs strategic planning.


MBA Forecast: Real GDP growth would average

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