Perhaps I should be pleased that my predictions for 2010 proved more accurate than those of many of the so-called experts, but gloating has little appeal when most of the country continues to suffer the effects of the worst recession in decades. And although those same “experts” have announced that the recession ended more than a year ago, that seems little consolation to the millions of unemployed or millions more who have lost their homes. These are indeed troubling times, and our troubles are far from over. But since this is a longer post than last year, I’ll jump right in.
● Interest rates: There are no surprises. Interest rates will remain low throughout 2011, with mortgages probably remaining close to 5% and 10 year Treasuries around 3.5%. The government/Fed will continue to keep rates at near historic rates, for doing otherwise would put the brakes on an economy that is stuck in first gear. Inflation still seems a possibility, but at this point, only a distant one.
● Home prices: While many had predicted home prices to stabilize by the end of 2009, that didn’t happen. Through July of this year, prices have declined another 3.3% year over year. There has been no stabilization. Although home prices are down about 35% from the peak, they’re still about 10-15% above the trend line of the past 100 years. In addition, there’s still an incredible overhang of potential foreclosures and short-sales, and the market must absorb those before we achieve stabilization.
In 2009, the “cure rate” for delinquent mortgages fell off a cliff, and if anything, that trend has only worsened. Only a small fraction of loans in default are self-curing today, providing a “shadow inventory” of up to 7 million homes. Prices will remain under pressure until those homes are absorbed. And, adjusted for inflation, home prices will NEVER recoup the losses of the past 3 years.
● Foreclosures and short-sales: Distress sales, now at the highest rate since the beginning of the recession, will remain a huge portion of home sales, hovering near 35-40% throughout 2011 and comprising as much as one-third of sales in 2012.
A new concern for some is the possibility that the government is considering allowing the housing market to collapse, especially since none of their efforts to salvage it have been successful. While I don’t think that will happen in the near-term—prices would fall dramatically, endangering both banking and the overall economy—I do expect to see a prolonged effort to withdraw government support from the housing and mortgage markets. Loss of government support will ultimately make homes more expensive and more difficult to finance—but that’s a 3-5 year scenario.
Housing Tax Credit: While there has been some mention of extending another Homebuyer Tax Credit, the administration seems to have little appetite and no funds for doing so. With no support from NAR or NAHB, and with only marginal results from previous credits, it seems unlikely that we’ll see another in 2011.
● Employment: The key to a sustainable recovery is the creation of millions of new jobs, and that’s just not going to happen this year or the next. Unemployment throughout 2011 should remain above 9%. With 20 million currently unemployed, underemployed, or out of work self-employed, some are now resigned to the prospect of never working again. Millions of jobs have been lost forever, and the economy will have to remake itself in order to employ all those who need/desire employment. Creating new job opportunities in new industries will take years, resulting in prolonged uncertainty in an economy whose lifeblood is consumer confidence and spending.
● New Construction: The current recovery has seen the slowest rebound in residential construction in more than fifty years; and with the administration publicly pushing affordable rentals over the concept of home ownership, homebuilders will see little relief from Uncle Sam. Additionally, changing demographics, tightened lending restrictions, and a market exercising extreme caution, will cause some to remain renters for longer periods than we’ve seen in the past.
In my 2009 post I predicted an ugly mid-term election, and that seems to be coming to pass. Both political parties have sent out their “attack dogs” and are filling the airwaves with both distortions and impossible promises, yet neither has presented a viable plan for recovery. And that’s because there is none—at least none that will satisfy the American voter who demands instant improvement, yet who is unwilling to forgo any portion of their “entitlements.” And the prospects are even more dismal for the coming year, as both parties begin posturing for the presidential election and are carrying partisan politics to the extreme.
Finally, while the economy will continue to grow, it will do so at a rate insufficient to rapidly absorb the millions of unemployed or to stimulate growth in troubled sectors. Crippled by continued high unemployment and weak consumer confidence, the growth will be obscured by the dark clouds of uncertainty. And while some may feel my analysis too negative, the facts are what they are. Of course it is possible that some unforeseen action could inexplicably restore our economy—possible, but most unlikely.
(It could be worse) The above is contingent upon our avoiding other global catastrophes. Should there be any sort of mid-east conflict, a spike in oil prices, economic collapse in Europe, or a significant terrorist attack, all bets are off. And while we will probably avoid such calamities, in today’s world, little is certain.
(source:activerain.com)
No comments:
Post a Comment