Wednesday, June 25, 2008

Yet another forecast.....

Another report from another so-called economist has been released. This one is forecasting price declines to continue through late 2009. Looking at the numbers of this one I actually can’t rip this one apart as I usually do with most other forecasts. The numbers look feasible and the timeline also looks right to me. He is forecasting a drop of 21% this year and other drop of 6% in 2009 before prices level off. That might be a bit optimistic but shouldn’t be too far off. So far this year prices have fallen about 15% but the rate of price declines should start to shallow out a little bit since many areas have already fallen by a large amount. I don’t like his final number though. I think a final bottom of $258K is far too high. Economist John Husing makes some predictions in this article too. I ignore whatever he says since I think he’s idiot. His forecasts have been spectacularly wrong over the last couple of years.


Here’s the report from the Press Enterprise

Foreclosures that are battering Inland Southern California will continue pushing down home prices until late 2009, although the region's overall economy will improve next year, Chapman University economists are predicting.

Esmael Adibi, director of Chapman's Anderson Center for Economic Research, which on Tuesday released its midyear forecast, said he expects median home prices in Riverside and San Bernardino counties to drop an average of 21.6 percent this year compared with 2007 and to edge down an additional 5.6 percent in 2009.

Median prices in the region will bottom out about $258,000, Adibi predicted. He said the correction in prices has been exceptionally steep and quick, and by the end of 2009, it will have plummeted 37 percent from a peak of $410,000 in December 2007, based on single-family home sales tracked by the California Association of Realtors. That would roll back housing prices close to their level in February 2004.

"We have to wait until late 2009 to see home prices stop falling," Adibi said. Before that occurs, he said, jobs must increase, incomes must rise, and the existing glut of homes for sale, dominated by bank-owned properties, must shrink substantially.

Riverside and San Bernardino counties will see on average a loss of 15,827 jobs this year, or a 1.3 percent cut, because "there is still a strong negative impact from the decline in construction," both home building and commercial, Adibi said.

But he predicted that job losses this year will be partly offset next year with the addition of 7,517 jobs in non-construction employment, led by growth in education, health, hospitality and other service industries.

Chapman's forecast is for inflation to level off in 2009 and for retail to gain momentum because of some job growth, producing a 3.6 percent jump in total taxable sales to $62.8 billion.


Now, here's my forecast....

I think we will see 28% (+/- 2%) declines this year and another 10% to 15% in 2009. After that I think prices will stagnate for several years. The memory of the crash will be fresh in the minds of buyers for many years to come. This should serve to keep price increases to a minimum. I think the median will be closer to $175k in late 2009.

I’m not as optimistic as these guys on the employment numbers either. They are far too fixated on housing as being the only job loss sector. I see the job losses spreading into the retail, service, distribution and the manufacturing sectors. The high cost of fuel is cutting into the sales of boats, RVs and even luxury items like big screen TVs. This will lead to job losses in those industries and to job losses in warehousing and distribution. FedEx, UPS and DHL will make cuts as costs soar due to high fuel costs and because there will be less items being shipped as people cut back on spending. Even the service sector which is a large part of the job market in the IE will need to make some cutbacks. I expect the unemployment numbers to blow past those of the early 90s.

I think they are seriously underestimating what the high cost of fuel is going to do to the economy. The cost of fuel is driving inflation and as inflation gobbles up more and more disposable income people will eat out less, they will cut back on day trips, days at the spa, health club memberships and stuff like that(think 1970s, how often did you family eat out in the 70s?).

In addition to the private sector, governments have already put hiring freezes in place and many are actually cutting staff. Of course there will be some job gains in areas like healthcare but not enough to offset the losses of those other areas.

8 comments:

Frank Jewett said...

You're right, the job losses will extend far beyond housing. When the public thinks of housing related job loss, they think of carpenters. The downturn also means fewer agents, fewer lenders, and fewer title reps, not to mention all the people who made their living servicing those groups.

If 20% of the jobs in a boom market were related to real estate and those jobs vanish, you have to lay off one out of every five... policemen, firefighters, teachers, bank tellers, store clerks, car dealers, waiters, cooks, baristas, etc.

That's before you get to the effects of outflows and defaults on the tax base, which trigger more layoffs in the government sector which in turn trigger more layoffs or closures in the private sector as those people no longer consume goods and services.

It's a cascade effect that can't be stopped by a few stimulus checks. Imagine how much home equity was cashed out over the past five years to fuel the economy. We're talking hundreds of thousands, not $1,500. With the home equity ATM turned off, all that spending disappears and all the jobs that relied on that spending disappear too... and on it goes.

Paige said...

Do you mean you believe prices will fall an additional 28% from this month through the end of December?

golfer_X said...

No Paige, that is for the year. We were already down 15% for the first 5 months. So hitting mid to high 20's should be a no brainer.

bigdog76 said...

I though I would ask any one here this?

I have a co-worker he just bought a home in the city of San Bernardino.

He is receiving a loan from the city towards his down payment of either $25,000 or $40,000 not sure.

The catch is as long as he stays in the home for 10 years he does not pay nothing back.

He also got $15,000 from the school district as well.

I looked into this for Fontana and they have the same thing but you have to stay for 15 years. But you have to qualify for a deed trust loan. Another factor is I beleive the city has to be accepting application for this (Could be a waiting list or something???) . I plan on calling tomorrow to check.

The catch is if you move out before the first 5 years you have to pay it back if you stay after 5 years they take off 10% each year till 15 then you are scott free. They also want you to spend improvements on the property equavalent to the amount borrowed over the 15 years.

Does anyone know the ins and outs sounds to good to be true what is the catch.
I am also looking in Corona but there city website doesnt have such a program just a grant loan for improvements in regards to health such things.

Martin Burtin said...

It sounds like a fair deal bigdog; you get some help on your loan, the city gets a stable owner into a blighted home and neighborhood, correct me if I'm wrong. It does not sound like they are doing this on new homes, just ones they want to see improved. I guess you have to ask yourself if you'd really want to commit yourself to living there long term and investing in improvements as well. Personal considerations, such as your wife and children, the quality of schools, crime, gangs, and such... you'll need to weigh them in your decision. Many cities have home ownership programs for teachers and police to live within the city they serve.

Empire Realty said...

Hey Golfer,
I like your estimates, they appear to be on the mark, right now San Bernardino and Riverside counties are loosing about $12k a month.

Hey big dog, yup those programs are called silent seconds, they are usually income qualified. If interested I can help you there visit empireteam.com

Take care!
RJH

bigdog76 said...

I looked up the program but they only on in certain areas of the city
for Fontana it is South of Foothill north of valley and that is not a nice area of Fontana.

I will call the city and see if they offer it in other parts of the city.

Does anyone know if Corona has the same kind of deal??

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