Friday, January 02, 2009

Guesses for 2009

Before I get to 2009, here's how I fared with my predictions for 2008:

"At least three publicly traded house builders will go bankrupt." -Fail. The house builders have shown an amazing ability to survive this brutal downturn. Although many regional builders have failed, no major national builder has gone under.

"Countrywide Financial will be out of the origination and underwriting business." -Fail. They were bailed out by the government and Bank Of America in January, and are still making loans under the Countrywide moniker.

"There will be a run on Washington Mutual. No prediction on whether it fails or not." -Pass. WaMu suffered a stealth run throughout the summer of 2008, and had to be bailed out by the FDIC in October.

"Fiscal crisis at the state and local level as tax revenue declines and bond funds dry up." -Pass. State and local governments are clearly in fiscal crisis, although the effects have yet to be felt by the public at large.

"Unemployment in California will reach 6.5%, and 6.1% in Sacramento." -Mixed. Sacramento unemployment hit 8.1% in November 2008, and 8.4% statewide. The 6% numbers were reached by April.

"SIT losses in the four-county area will reach $1 billion at some point during the year." -Fail. Total asking price losses by Sellers In Trouble in the four county area peaked at ~$770 million in October 2008, and are now down modestly due to end of the year delisting activities.

The FIT will return as banks begin to liquidate in order to raise cash. -Fail. The few banks that are actively selling are bypassing the MLS completely, while most banks avoided selling their vast REO holdings in an attempt to avoid marking their portfolios to market.

The last quarter of 2008 heralded the end of market forces driving economic decisions in the United States for the near to medium term. We are now in an era of political maneuvering as the US tries desperately to avoid the consequences of the end of the credit bubble that has defined the last 5 years. Politics is fickle, and this being the Sacramento Real Estate Statistics blog, I hate to call these predictions per se:

  • Unemployment will dominate the 2009 economic story. We will hit 11% unemployment in the US, 10% in California, and 9.5% in Sacramento before the end of the year. Retail will be the hardest hit.
  • Three major (at least $25 billion/year in revenue) national retail chains will fail in 2009, all household names.
  • At least three publicly traded house builders will go bankrupt in 2009. (These guys have been hanging on by the skin of their teeth. I think 2009 will be the year.)
  • Corruption scandals will break at several large public investment funds, including CalPERS.
  • Obama's stimulus plan will pass with flying colors, and bond sales for the first half will go off without a hitch as dollar holders give the new president a shot at reviving the economy. Demand for treasuries will wane in the third quarter of 2009, however, as events rapidly overtake the effects of the new policies and he tries to bump up the calendar on sales for the second half of the plan. Thus sparking the Great Bond Crisis of 2009.
On a more personal note, I know I strayed off the reservation a bit during the last few months as the crisis deepened and the bailouts mounted. This blog has a fairly narrow audience, and there are lots of places online where can find well-reasoned opinions about every facet of the crisis. Thus, my goal for this year and beyond is to focus on data-driven analysis and limit my opinioneering to the comments. Fair warning though: I will take on issues I feel are getting a short-shrift in the media, or look like they're being reported on incorrectly.

Lastly, a big "thanks" for reading and to everyone who comments! Here's hoping that by the end of 2009 there'll be a light at the end of the tunnel!

14 comments :

Jason said...

Don't you think your CA unemployment numbers are a bit conservative. CA unemployment is more than a percent higher than national unemployment so why would it flip? We've had the greatest buildup of housing related unemployment (except maybe FL). Also our state/local government will lose the most jobs due to budget issues that will be more pronounced in CA than in other states. Tech has had over 50,000 layoffs announced (affecting Si valley). I'd say national unemployment of 11% with CA hitting 12% and Sacramento matching the states...

Max said...

so why would it flip?

Automakers. With or without a bailout, the big 3 are going to layoff big in 2009, and the parts suppliers and related industries will follow.

This is only a guess. :)

Buying Time said...

Thanks for all your hard work and statistics Max. I especially loved the you tube video you recently posted.

I certainly don't mind you getting into the political (although some of the people who comment are a bit over the top). It's nice to hear a local reaction to national news.

Best to you and your new bride as we proceed into the new year.

Rob Dawg said...

We will hit 11% unemployment in the US, 10% in California, and 9.5% in Sacramento before the end of the year.

Uhhh huh? 10.5%, 12% ,and 13.5% respectively.

Max said...

Best to you and your new bride as we proceed into the new year. And to you guys too! Gongrats on the new place. Mrs. Max and I will probably be joining you guys and ocrenter in the joys of home ownership in 2009. I didn't add that to the predictions because I didn't want to jinx it. :)

Max said...

Uhhh huh? 10.5%, 12% ,and 13.5% respectively.

Not impossible, although 13.5% in Sac will be tough to hit.

Sold in '05 said...

Thanks for the blog Max. Your articles and the audience commentary are always a good read with interesting perspectives.

Happy New Year.

-CD

patient renter said...

Mrs. Max and I will probably be joining you guys and ocrenter in the joys of home ownership in 2009

You guys are dropping like flies! Almost makes me feel like I'm missing out on something :)

Rich said...

Sorry PR- we'll be leaving you soon as well. I likewise don't like to count foul too early, but we have one accepted offer that we like. There's one other offer out there we're holding out on, but in any case we should be in escrow for one or the other in a few days.

If it's any consolation, I agree that this still isn't the correct financial decision. It is the correct life decision for us.

I'm sure we'll see better houses go for cheaper for a while. We're prepared for that. This is a home, not an investment.

Hoping the new year treats you all well and you stay high on Maslow's hierarchy.

Mike said...

Those unemployment numbers look very scary. But, it IS definitely possible.

Anybody think we may have a fake stock market rally early to mid 2009? Where people start buying thinking we are out of woods but it will be a sucker rally?

And maybe high inflation and devaluation of the dollar will take place? Due to all the dollar the Fed is flooding the market?

Definitely should be interesting and painful year.

Anonymous said...

Like BT, I enjoy your commentary as well as your charts.

Best wishes in 2009 and thank you for providing your blogs and comments on other blogs, I enjoy reading your thoughts.

Curious

Nooge said...

"Max said...Countrywide Financial will be out of the origination and underwriting business." -Fail. They were bailed out by the government and Bank Of America in January, and are still making loans under the Countrywide moniker."

I think you are too hard on yourself. When businesses are no longer viable they become targets of other stronger businesses. They get purchased IN LIEU of bankruptcy. However, they nonetheless "failed" in the eyes of the business world.

Same thing for youir 2009 prediction of the homebuilders. If your prediction is only "bankruptcy" I would bet against it. However, if your prediction was "Bankruptcy, OR a merger or distress sale" I would say you have a much better chance of getting it right.

Deflationary Jane said...

Max,

You, Like CR, did a pretty fine job of forecasting. I think the reason we (including myself here) came up short was not foreseeing just how much government would interfere.

Now, that said, I'm waiting to see what I can pull on outmigration data for 00 to current. I have some predictions but I numbers before I post but that will affect the umemployment predictions in a significant way.

Max said...

I think the reason we (including myself here) came up short was not foreseeing just how much government would interfere.

Yeah, I wish I had explored the concept in depth. It was clear in April with the Bear bailout that the Feds had no intention of letting things happen naturally, but then again, it's hard to predict irrational behavior. :)

I think you are too hard on yourself.

Just trying to be honest. FWIW, I think the Countrywide brand will disappear in 2009-2010 once the real crimes surface. They'll change the name to "BofAHome" or something.