The Housing Chronicles Blog: Miss the 2009 Economic Outlook for Orange County?

Wednesday, January 28, 2009

Miss the 2009 Economic Outlook for Orange County?

On Monday night there were about 550 people at the Irvine Marriott listening to economic analysis and forecasts by economist Chris Thornberg of Beacon Economics and his Director of Regional Research, Brad Kemp. I was fortunate enough to be able to introduce them and to suggest why the building industry needs forthright analysts and consultants now more than ever.

Firstly, if you missed the event you can still download their slide presentations here:

Thornberg: National Outlook

Kemp: Regional Outlook & Forecast

Please keep in mind that these forecasts are for "worst-case scenarios," so pricing declines for homes (both new and existing), falls in retail sales or increases in the unemployment rate may be less severe depending on a variety of factors. But if you consider that you're better off planning for a worst-case scenario and hoping for a better outcome, then of course you minimize your risk.

Secondly, the Orange County Register's Jeff Collins was there to report on the evening, and posted some of his thoughts on the Lansner on Real Estate blog:

Chris Thornberg, a former UCLA economics professor who co-founded Beacon, told homebuilders that while the overall economic outlook is bleak, hysteria about the U.S. marketplace is overblown. At worse, the financial picture is about as bad as the recession of 1982 and other severe recessions.

“2009 is going to be brutal. But it’s not that bad,” said Thornberg, who began predicting that a housing bubble was due to burst since at least 2003. “It’s not a depression. … This is sort of a normal, bad downturn.”

Other comments by Thornberg:

  • Mortgage meltdown: The collapse of subprime loans was due to reliance on CDO (collateralized debt obligations, a.k.a., mortgage-backed securities). The entire financial market was based on folks making short-run returns. That’s got to be fixed.
  • Liquidity crisis: It’s not a liquidity crisis, it’s just that lenders have no appetite for risk these days. “You can get business from the bank. You’ve just got to put skin in the game. … You can get money. You’ve just got to reduce their risk. That’s the new reality.”
  • Wealth effect: People stopped saving because they thought they were rich because their stock values and home values had gone so high. They actually never were worth what people thought they were, and assets merely are collapsing “back to normal values,” he said. Americans “just woke up from a 14-year frat party with the mother of all Bud Lite hangovers.”
  • Prop. 13: California isn’t a high-tax state. “It’s a dumb-tax state.” It places high income taxes on the wealthy who make up about 1 % of the tax base. The state instead should levy smaller tax hikes on a bigger tax base and it should eliminate Prop. 13, which is inequitable and limits revenues.
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