Thursday, January 01, 2009

Happy New year

Predictions for 2009:
1. More layoffs than 2008. :(
2. High end areas will see their greatest percentage drop off of this downturn. (National)
3. A few areas, mostly those that took their medicine early, will recover (but very few, and not enough to cause any panic buying).
4. A tightenting of credit. Most areas will see high down payments required for Jumbos. I also believe that Fannie and Freddie will have to introduce a 25% minimum down payment for 'conforming Jumbos.' Expect those 'conforming Jumbos' to be tough to get too!
5. Real Estate transaction rates fluctuate, but with the year ending at recessionary levels. I can see a horrid January and February with the *possibility* of a spring rally. But will there really be a spring rally (Nationally)?

The last is going to be important. Several events have been happening that are important. For example, California is trying to sell far more debt than the market will accept. They have to cut spending. Will their be a tax increase? Sure. But its near the Laffer curve effect. How close? I wish I could predict that...

I also predict that the 'skeptical bond market' will return. May at the earliest, most likely later in the summer. This will impact the next administration's spending plans.

The real estate market, as well as the economy, is like a HUGE ship. Its momentum is amazing. I have often neglected the momentum. I believe this is the #1 reason I have tended to 'overpredict' the speed of the recovery. Right now the momentum is turning down. That's right, the rate of economic decline is getting worse.

But here is where I part with some bears. I see the worst of this economic crisis being in the Fall. Now... I'm not talking real estate. I'm discussing the overall economy. (Most jobs and incomes.) But between now and then... is about 3 million jobs going 'poof' (net). (Compared to ~2 million in 2008). This implies a net unemployment just in the double digits.

But here is what worries me. Government interference is removing the incentive for free enterprise to expand. Why bother when its less risky to accept a handout? e.g., one of the reasons given for high home prices in DC was the diversified economy. Now that it is becoming more government centric...

The hardest hit economies are going to be those that depend on credit. Ok... stop laughing. I'm trying to start a serious point and I'm not trying to be 'Captain obvious.' Certain economies *really* need a fresh input of sucker venture capital to expand: Pharma, tech, and for some reason movies... (it should be a mature industry by now...).

The next hardest hit are going to be those that rely on Ad revenue.

I've blogged before how the automotive states are unusually hard hit. That won't stop... they need credit to 'oversell' basic transportation. But now the mess will spread to Sillyvalley, Hollywood, 'Tech' (due to the need for venture capital or Ad revenue), and a dozen other businesses.

When everything overexpands... everything contracts together.

My forward indicators:
1. International travel
2. Baltric Dry Index (ugh... UGLY!)
3. FedEx (companies ship a lot as they ramp up)
4. Middle/upper middle class birth rate (they will spend on kids like nothing else!)

Maybe its my age or maybe there is an uptick, but only #4 looks ok for now (but this could be distorted by my peer group, I do not claim to base this on statistics). Everything else scares me.

Off Topic: The wife and I have moved into an 'estabilished neighborhood' into a very fairly priced rental. I noted before how rental availability was sky-rocketing. So we moved. Due to the cost (friction) of the move... we are convinced we will only move once more (if its our choice).

OcRenter just blogged that he bought in a good school district, estabilished neighborhood, for 45% off peak. I consider that wise. I'm willing to buy within $100k of the bottom. We're not there yet. Not where I want to buy.

Since most of the renters I know have given up on buying in bubble markets... There will be quite a bit of mobility in 2009. I'm curious on the 2008 United Van lines survey...

Got Popcorn?