housing and the economy christopher thornberg principal beacon economic
TRANSCRIPT
Housing and the economy
Christopher ThornbergChristopher ThornbergPrincipalPrincipalBeacon EconomicBeacon Economic
1. The transaction cycleThe collapse of the pyramid
2. The building cycleThe loss of jobs
3. The price cycleThe impact on financial markets and
consumer spending
6-Dec 7-DecResale housesLos Angeles 6,013 2,853 -53%Orange 1,787 972 -46%Riverside 2,222 1,238 -44%San Bernardino 2,172 936 -57%San Diego 1,847 1,074 -42%Ventura 562 290 -48%
Median Prices
Q1 89 Q1 99 Q1 07
Alameda $179 $228 $618
Contra Costa $163 $209 $584
Los Angeles $185 $177 $553
Orange $223 $246 $681
Riverside $106 $117 $409
San Bern. $93 $98 $368
San Diego $160 $200 $546
San Francisco $268 $327 $799
Santa Clara $231 $334 $738
Ventura $233 $215 $610
Owner Affordability
1989 1999 2007
83% 138% 66%
100% 153% 72%
79% 147% 61%
77% 125% 59%
112% 187% 76%
131% 223% 81%
86% 131% 67%
55% 100% 50%
78% 114% 66%
71% 139% 64%
Affordability based on FHA definition
LA -9%
SD -13%
SF -7.5%
The Fed? Only Indirectly The Paulson plan? Useless Fannie and Freddie? Probably
not Congress? Yes, but at what
cost
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
Beacon Economics
Beacon Economics
Beacon Economics
Illinois 1.2 Virginia 0.2 North Carolina -0.2Nevada 1.1 Utah 0.2 North Dakota -0.3Florida 1 Vermont 0.2 Washington -0.3California 0.9 Rhode Island 0.1 Wyoming -0.3Connecticut 0.8 Ohio 0.1 District of Columbia -0.4Hawaii 0.8 Oregon 0.1 South Dakota -0.4Montana 0.5 Arizona 0 Idaho -0.5Oklahoma 0.4 Colorado 0 New Mexico -0.5Iowa 0.4 Delaware 0 Pennsylvania -0.5New York 0.4 Indiana 0 Texas -0.5
Change November 06 to Nov 07
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
Local Government
FinanceCA US
Support from State 47.0% 37.4%Property Taxes 33.2% 47.7%04-05 Surplus 1.0% -0.8%
The downside of Prop 13
Beacon Economics
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.
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