Sunday, December 28, 2008

Time to break out the crystal ball

I made my 2008 predictions about this time last year. Some were pretty good, others I might have been early on. I thought the crime rate would already have started to rise but that doesn't seem to have happened (yet). Most of the other stuff I think I did a lot better than most of the so called economists.

I'll skip repeating the silly forecasts that were made by the NAR and the home builders. We all know "there's never been a better time to buy, blah blah blah......). As expected they were all horribly wrong. By the way if you want to read the CAR 2008 forecast it's here, (yup 4% down, oh so close....NOT).

This years forecast is a little foggier. All the government meddling is making it hard to get a grasp on what's going to happen. They usually don't mess with free markets but this is obviously a far bigger problem for them than previous crashes. All that meddling will probably stretch this mess out far longer than I would like.

So on to the magic 8-ball. It sees price declines in the IE of another 20% in the IE in 2009. The OC and LA will see larger price declines, probably closer to 30%. Home building will dry up (like that hasn't already happened). Even building smaller homes it's going to be hard to compete with the REOs. I think we will start to see the larger homes wilt on the vine. Now that the potential for large gains are gone those big homes are just money-pits. The average family doesn't need 4000 s/ft nor can they afford the added costs such homes generate. I think the interest rates will remain low since the government and the NAR beleive this is the best way to halt the price declines. There are arguments both ways, it will help sell homes, however it's very likely to have the opposite effect on prices especially in the long run. I see rents coming down as a result of prices coming down. When you can buy a house in Perris for $120K you sure as heck don't need to get $1500/mo for rent. So as more homes are sold off to investors, expect some competition for those renters and that should bring rental prices down (keep that in mind when looking at investment properties).

The overall economy will continue to erode as job losses widen. Look for the weaker chains to start folding in droves. Don't buy stock in Ghottchalks, Circuit City, Home Depot or Pier 1 to name a few. I forsee a mass culling of nail sallons, coffee shops and high end eateries. The holiday hope is gone. The only thing the new year will ring in is the cold hard reality of a going out of business sale for many of these places.

Unlike some economist (and Tyrone) I don't see the demise of the dollar or the total collapse of our economy. While we may be printing money like mad, so is the rest of the world. Europe and Asia are just as bad off as we are. I think the entire global economy will contract but stay coupled and balanced within reasonable limits. We may not buy as many useless trinkets as we once did, however we still need products. People have to have clothing, food and medicine. It may not be gucci or lobster but there we will still buy stuff.

So there's mine. Lets here yours!


tyrone said...

hey sorry.. there are 2 tyrones... i'm the one who posted earlier about the tin can... i think the other tyrone who has been here longer is the one u are referring in this post!! :)

golfer_X said...

Yes, the other Tyrone is the one I'm teasing in this post. He has a rather more apocalyptic view of the future than I do.

Renee' said...

I think "X" that there are some realtors out there that have come to the conclusion that you have ....

Yesterday - I went out roaming the area of Corona that I am interested in buying in - I found two REO's - modest in sq footage (under 1700sg ft) on big lots (over 8000sq ft) that were under $195k. Both homes looked in pretty good condition (MAYBE some paint needed) and are not listed on any public MLS listing.

A month ago these homes would have been in the $250k+ range easily...I think some realtors (and banks) are beginning to wise up that they can't keep these homes at the prices they have been based on our economy....

JORDATO said...

Golfer i need your input i am looking to buy in perris stats show both zip codes are 61% underwater with recast coming of all of those payoption arms and alt-a in 09 thru 2011 according to mr mortage do you think their may be a addition 40% percent decline i hoping to finance nothing over$115k for around 2000sqr ft nothing built before 2002

Tyrone said...

Awwww, c'mon, I'm not that negative on the dollar and economy, am I??? :)

Actually, for the total collapse of the dollar I assign a low probability. However, the dollar losing half its purchasing power is a high probability event. And I'm preparing for the worst, which is the prudent thing to do.

I read something interesting from Jim Sinclair, yesterday. Not only is he predicting a new form of currency, he provided the date:
the date that a new currency form will replace the form of the US dollar as you know it today which is the third week of June 2012.

Don’t laugh! Write this down and do not forget about it!

I'll add a post for this. I chuckle when I read this stuff, but it's intriguing that he not only believes it will happen, he provides an explicit date when it will occur.

I did add a post titled 'Welcome to 2009', which is more a list of my concerns as we enter '09, rather than predictions.

I'm Not POTUS said...

I see a period of time (months only I hope) of massive dislocation in energy costs and supply.

Oil tanks are full and the pipelines are being turned off. This will be a mess on a global scale. The SOR will be drained after the production freeze hits like the credit freeze did.

golfer_X said...

Jordato. Another 40% from where Perris is now is asking for a lot. It's way down already. I doubt you will see much farther in Perris. You can already pick up REOs in perris that will rent for a profit at the current prices. You might find a 2000 s/f for $115k but it's probably going to need some work. I'de say if you want to buy in Perris start looking. I just did a search and there are already a dozen under $125k that look ok. Most are older built in the 90s. There should be plenty more to choose from in a few months when the banks start releasing the REOs they been holding.

colleeeen said...

Tyrone, was he talking about the Amero? It has some conspiracy nuts all up in arms, convinced that the backdoor deals have already been done. Of course, given the other secret crap that's gone on in the last 8 years, who knows?

FairEconomist said...

I'd basically echo your predictions, with one exception and one add-on:

1) I think service places like coffee shops and nail salons will do surprisingly well, because rent will get very cheap and there will be a lot of people with nothing to do.

2) I think at the end of the year we will start to see communities collapsing - both residential and commercial. Not all; not even most; but the overbuilding of the past decade is extraordinary and some areas will end up unused or used only for very low value purposes like warehousing and slums. I think you'll start seeing large areas like that in the second half of the year.

Tyrone said...

Tyrone, was he talking about the Amero?

Could be, I guess.

Of course, given the other secret crap that's gone on in the last 8 years, who knows?

And given all the lies and BS that has been dumped on an unsuspecting population, anything can happen. I have no trust or faith in our leadership. I only trust in Tyrone, and accept the outcome of my decisions.