This is just ugly…..
Let me attempt to explain. Goldman Sachs came out with their economic forecast. Here’s a brief summary of it:
- Mediocre growth until late 2011.
- Unemployment peaking at 10 3/4 in the middle of 2011.
- Extremely low inflation through 2011
- Low interest rates through 2011 (at least the ones the Fed controls.)
So, what does this mean for the housing and mortgage markets? The following list of predictions are made under the assumption that Goldman is right. If they are, I think the housing market is going to see:
- Continued growth in the number of foreclosed homes.
- Continued downward pressure on house prices.
- Continued delinquency problems at Fannie Mae, Freddie Mac and FHA.
- Continued tightening of underwriting guidelines for mortgages.
- Continued situations where the interest rate isn’t the problem, it’s property values and qualifying for the loan that’s the problem.
In addition to that, a couple of other things we could see:
- Growing political unrest and dissatisfaction with the current state of the government and those who run it.
- An opportunity for a massive restructuring of the political landscape, starting in 2010 and continuing to the 2012 election.
- Growing resentment against the financial institutions on Wall St. and elsewhere that have had a big part in this mess.
- Substantial regulatory changes that will either lower the regulatory and tax burden on consumers and businesses and create the type of growth that we need or will stifle all initiative and all opportunities for us to pull out of this any time soon. We’ll either go Reagan or we’ll go Atlas Shrugged. I vote for Reagan.
It’s going to be bumpy and it’s going to be wild, but it’s definitely going to be a ride to remember……
Tom Vanderwell
The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011.
That said we see risks that could upset these markets. On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening. In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds. On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments.
The implications? I hardly know where to begin: a) with unemployment rising all next year, a GOP blowout in 2010; b) certainly more job creation packages; c) no capandtrade; d) increased anti-Wall Street/Fed sentiment; e) third party prez candidate in 2012; an Obama challenger in 2012 (Dean?)
Technorati Tags: Democrats, Housing, Foreclosures, Mortgage Rates
Dave Shafer says:
Tom,
Don’t bet the farm on any economic forecast! For the most part they rarely get anything right when it comes to predicting the future. As to the recovery, we are seeing the start of something here in my part of Florida with job losses moderating, unemployment dropping [slightly], real estate values stabilizing [for the last 6 months], foreclosures dropping, sales up, etc. My stock portfolio is within 5% of where it was at its peak :-), now if I could get my real estate holdings to that point, I would be a happy man!!!!
I hope you are not to the place where you wish continued pain on folks just so your political party of choice can gain ground.
December 3, 2009 — 1:52 pm
Tom Vanderwell says:
David,
On the contrary, I specifically said that IF THEY ARE RIGHT, then I would expect that we’ll see…….
As you and I have discussed many times, not all areas are going to see the same things. They are predicting 10.75% unemployment. Michigan would love that – we’ve been over 15% for months and months.
I’m going to assume that your last comment about wishing pain on others in order to see a particular party gain power was a hypothetical question and not one that was aimed at me and my motives. Trust me, if unemployment was down, real estate values were up, people were happy and we were writing loans, I wouldn’t care who gets the credit for it. The hardest part of the last 2 years for me has been seeing the pain that is etched on the faces of so many people who I interact with on a daily basis and to know that so much of it could have been avoided.
Tom
December 3, 2009 — 2:06 pm
Doug Quance says:
Since those currently in power have been doing everything that is counter-intuitive to proven pro-growth economic strategies… I suspect that Goldman Sachs will be proven right.
While the stock market may be doing better in recent months – it is based upon HOPE… not profits. In my humble opinion – getting out of the stock market right now might be the smartest thing an investor can do.
I have written very little this year, as I find it extremely difficult to find a silver lining to this economic cloud. I can only hope that all my personal fears are unfounded.
December 3, 2009 — 9:00 pm
Greg Cremia says:
“I’m going to assume that your last comment about wishing pain on others in order to see a particular party gain power was a hypothetical question and not one that was aimed at me and my motives.”
When I read your article I didn’t see it as hypothetical.
“An opportunity for a massive restructuring of the political landscape, starting in 2010 and continuing to the 2012 election.”
Anyone who sees this economic crisis as a political “opportunity” and writes about it, clearly has some pondering to do.
I used to frequent bloodhound blog but the negativity here seems to be contagious and I don’t want to catch it.
December 4, 2009 — 8:00 am
Tom Vanderwell says:
Greg,
You raise a valid point that did cause me to stop and think, I must admit that.
But I’ll come back to what my thinking was when I wrote the piece – whether I’m on the right side of the aisle or the left side of the aisle, it’s common sense that any time that there is something that is not going well, the “other” side tends to take advantage of it. I was stating my opinion that if things go the direction Goldman says they will, we’re not going to see the status quo remain in power in Congress and other “halls of power.”
You make an assumption that because I write about certain political groups taking advantage of an economic disaster means that I’m in favor of any sort of tactics like that. That assumption is false.
Tom
December 4, 2009 — 10:33 am
David Shafer says:
Not an attack on you Tom. Musings on the intersection between politics and economic predictions! Wwe all suffer from it.
December 4, 2009 — 12:32 pm
Thomas Johnson says:
Could this be Goldman reminding the power in power that they can change the power in power at will and that any threat to Goldman / Wall St corporate crony capitalism will be dealt with with harshly?
Things like Bernanke or Geithner being replaced or curtailing AIG’s infinite credit line to bankroll the credit default swaps are not what they paid for.
December 4, 2009 — 4:33 pm