By Alan Townsend
Just one year ago, the nation faced the threat of reliving the Great Depression. The stock market had its worst crash in history, major financial institutions had gone broke, President George W. Bush was getting Congress to get $700 billion for financial bail outs. Companies were laying off a workers at 15 people per minute. Every 30 seconds a home was being foreclosed.
America has come a long way since then, but big problems still are in the market place. 2009 was one of the worst years for the American economy, hitting 70-year highs for layoffs and foreclosures. The second Great Depression was avoided and replaced with the Great Recession.
California, the ninth largest Economy in the world, has many big issues to address.
A. Historic unemployment – The current job loss will hit 11% to 12% in 2010.
B. Historic underemployment – The number of part time or partial workers is estimated at 12%.
C. California’s large budget deficit – Currently taxes are tied to income, sales and capital gains. The state looks to have an additional 20 billion dollar deficit for 2010. This looks to be an additional 1/3 of the current 60 billion already cut by the state. This loss of income could last as long as four or five years.
D. Lack of Home financing – The federal government is the largest market lender through VA and FHA programs. Unless other lenders enter the market, mid and large home prices will come down.
E. More ARM foreclosures coming – California has more of these loans than any other state in the nation. Many of these loans are coming up over the next 3 to 5 years. These properties loans are greater than the value of the homes and will create more foreclosures on the market.
F. California Housing is still over priced – Family incomes do not support the current average priced home. Prices of homes will be flat or lowering over the next 3 to 5 years.
G. Consumers have to much debit. – California residents have used up their home equity lines, credit cards and are tapped out.
H. More Bank foreclosure inventory soon – Lenders have homes they have been holding for higher values and lots of failed deals with owners trying to avoid the foreclosure process. Unfortunately these plans are not working and homes are building up on bank balance sheets.
Even with the list of issues in California and San Diego, absent a major oil or other unforeseen economic jolts, a recovery is starting. Financial markets have healed considerably and credit markets are starting to function more normally.
The fear of a double-dip into recession again seems to have passed, as business inventories are very low and lots of parked money is starting to enter the market. 75% of people working full time and increasing savings rates will provide more investment capital for business expansion.
Main Points
1. Jobs – Slow job growth, but long-term, the worker shortage as baby boomers leave the work force remains. Top growth areas are education, health care, technology, defense and green initiatives. Demand for professional and technical services will be strong.
2. Housing – 2010’s market will be flat. Very little new and low end homes are currently available. Financing is still a big issue, but demand for good value properties is there.
3. Retail – Housing and cars will be weak. Internet sales are growing.
4. Construction – 2009 will be the worst on record, 2010 the second worst. Building permits will start to rebound.
5. Deflation – In this recession prices actually fell, but it was only about 2 percent. Prices during the Great Depression feel 25 percent.
San Diego’s overall outlook – As sales improve, companies are starting to buy capital goods and that boosts confidence. The county economy will outperform the national economy from its core strengths: trade, alternative energy, health care and technology. Things are on an upward trajectory.
Sources:
1. San Diego Union, December 27, 2009
“Higher Expectations for 2010”, by Dean Calbreath
2. 2010 Economic forecast for California:
What 10 Reasons will keep a lid on the Housing and Economic Recovery for California?
December 12, 2009.
3. Economy! Outlook brightening for San Diego County, January 12, 2010.