The following are excerpts of a speech made by David Lockhart, President of the Federal Reserve of Atlanta. My interpretations are in italics and bold.
Speech – July 1, 2008: “What’s ahead
I know you are most interested in the path from here—the path to recovery in the financial markets and, by my inclusion, the broader economy. My base case forecast for the economy involves a stronger-than-expected first half of 2008 with growth of 1 to 2 percent but not much pickup in the second half. That means that things are going to slow down from here to at least Christmas.
The drag of high energy costs, continuing financial market stress, and a still-declining housing sector may continue for a while with gradual improvement of growth in 2009. That means that we hope that by the end of 2009, we’ll see the economy start to show a little improvement. Not much, but a little.
There is much uncertainty surrounding this outlook. We really don’t know and we’re guessing almost as much as you are.
More adverse alternative scenarios are entirely possible. We’re probably being overly optimistic.
Self-reinforcing progressive deterioration Lower house prices will reduce the number of people who can refi out of bad loans which will bring increased defaults which will bring increased numbers of REO which will bring lower house prices (now repeat this again) could continue in the housing market, in turn affecting the financial markets the banks will take it in the shorts if that happens.. And neither the financial markets nor the overall domestic economy is protected from surprise events around the world.
Like many, I believe stabilization of the housing sector is required for recovery to proceed Really? Who would have thought? (Okay, sorry for the sarcasm). There are early and tentative signs that a bottom may be forming in some housing markets. Having said that, a sober approach to calling the future must allow for an additional period of house price decline, a slow housing sector recovery, and, as a result, a quite choppy progression to better markets and economy.” It’s going to be a rocky road. We better be prepared, educated and prepare our clients.
Chris Eliopoulos says:
Reality check.
The market is going to continue the “descent” and the landing (in my opinion) will be rough.
There are no signs of recovery and they won’t be at least for the next three years.
Any other view (in my opinion) is overly optimistic.
The foreclosures are continuously increasing and banks are siting in huge inventories. Lending practices are restricted and that takes a great number of potential buyers out of the market. Prices are still high and that gets many people to stay on the side lines. The unemployment rate is up and will continue to go up. The dollar is weak and will remain weak while oil prices expected to rise.
We were experiencing a false “boom”. People were able (do to liberal lending practices), borrow to the hilt on their houses and spent the borrowed money purchasing goods thus “fueling the economy”.In addition because of the liberal lending practices there was huge demand from buyers, that were willing to overpay and prices were sooting up (all that on borrowed money), until it came to a point that the product out priced it self.
Now many “experts” are discussing many “sophisticated”reasons to why and what will happen, the truth is took four years for the market to get the way it is.It won’t correct in months. The required ingredients are not there (in my opinion).
This is not a gloom and doom situation. This is a market of TREMENDOUS OPPORTUNITIES. This is not the time to be reading the news,watching TV reports and exposing one’s self to anything negative about the market and the economy. There many deals out there but only for the people that are able to think and act with courage and vision
July 2, 2008 — 9:18 am
Chris says:
2006+5 to 7 years = 2011-2013.
Thats my prediction for a solid upswing.
July 2, 2008 — 11:30 am
Tom Vanderwell says:
think and act with courage and vision
Chris, that’s exactly what I’m working on. How can we as Realtors and Lenders think and act with courage and vision in ways that will not only raise the standards of our profession but more importantly help our clients?
Thanks for your thoughts!
Tom
July 2, 2008 — 7:55 pm