California Recession?

The International Monetary Fund lowered its forecast for Global growth due to the shakiness of the U.S. financial and housing markets.[googmonify]4494413162:right:250:250[/googmonify]

The UCSB Economic Forecast - October 3
“Once again California is at the leading edge of economic uncertainty. The State accounts for 40 percent of the United States decline in home sales. California also is the home to the nation’s largest home lender. We do not believe, however, that the State’s real estate turbulence will lead to a recession.”

Builder Confidence erodes further in October - The National Association of Homebuilders are reporting their lowest confidence levels since they started assessing builder confidence in 1985.

These reports and many others go on to say that they believe things will get better at the end of 2008 and we will avoid a recession in good part because the job market has not slid significantly and the lenders are stabilizing. One of the reasons that the unemployment rate has not significantly increased is that most mortgage brokers and real estate agents are independent contractors and do not receive unemployment. So they may for all practical purposes be unemployed, but not count in the official statistics.

The banks have been able to use Enron accounting techniques to shove the mess off their balance sheets with the encouragement of the Feds thus artificially appearing stronger than they really are. Essentially, the big boys are getting together and dropping all of their problem assets in one pool - a master liquidity enhancement pool - possibly as large as $400 billion. Through the accounting rules they then do not need to disclose that these assets may have significantly dropped in value thus propping up their stock prices.

I am really looking forward to getting Bruce Norris’s take on the whole mess. Bruce, of course, is a local investor who has charted the housing markets over the last 30 years and was able to forecast in the mid 90’s that housing prices were going to double over the next eight years and then he called the top of the market a few years back. Bruce will be speaking at NCREI on October 23 and is going to let us know where the Southern California market is headed in the next 12 months. Following his advice, I sold my house at the top of the market - so I am really looking forward to hearing what he has to say.

I think we may already be in a recession, and I seriously doubt that there will be any turn around in 2008. I suspect that the foreclosure and short sale markets will be very strong until 2010 and then we may see some changes.

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