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Peering Over the Edge. Housing and the economy. Christopher Thornberg Principal Beacon Economic. Where are we today?. Last Year. Why now?. The 3 parts of a housing cycle. The transaction cycle The collapse of the pyramid The building cycle The loss of jobs The price cycle
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Peering Over the Edge Housing and the economy Christopher Thornberg Principal Beacon Economic
The 3 parts of a housing cycle • The transaction cycle The collapse of the pyramid • The building cycle The loss of jobs • The price cycle The impact on financial markets and consumer spending
The central issue? Prices Affordability based on FHA definition
The Correction has begun LA -9% SD -13% SF -7.5%
Who can help? The Fed? Only Indirectly The Paulson plan? Useless Fannie and Freddie? Probably not Congress? Yes, but at what cost
So—what does it mean for the economy? • Can construction stop the economy? • No- its not big enough • Does the credit crunch matter? • Not as long as the Fed does its job as lender of last resort • What does matter? • The consumer
Recent GDP Growth Surge: Illusion Beacon Economics
The Employment Report Beacon Economics
Local Unemployment Change November 06 to Nov 07 Beacon Economics
Economic Forecast Beacon Economics • Recession is starting now • Q4 or Q1 academic- depends on NBER • Negative growth through Q3 08 • Doldrums in 2009 • Recovery 2010 • Mild downturn • Worse if financial losses add up to more than expected • Worse if inflation creeps in to the economy
So what does it mean for California?? The downside of Prop 13
California Revenues Beacon Economics
Summary Beacon Economics • Recession VERY likely • Consumer weakness coming to light • Business weakness to start on profit issues • Exports will not be able to carry the day • Housing to go into freefall in 08 • Price declines, bottom found in 09 to 10 • State Local Budgets are a mess • Actual deficit larger than $14 billion • No quick recovery in revenues—this is structural / not cyclical • Impact as large on local governments as state gov.
Beacon Economics is an independent consulting firm providing a variety of economic support services to clients across the Western US. • Our Services Include • Custom Presentations for Public and Private Events • Litigation Support and Damage Estimation • Regional Economic Outlooks and Conferences • Market Analysis and Forecasts • Cost-Benefit Analyses • Public Policy and Development Studies For more information Go to: www.BeaconEcon.com E-mail: Chris@BeaconEcon.com Call: 310-739-3286