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The economic recovery has definitely begun, but it has a long way to go. Housing prices might have a lot farther to fall. And new waves of foreclosures could keep the economy on shaky footing -- for years. Those were a few of the views offered today by leading economist Christopher Thornberg of Los Angeles-based Beacon Economics, who took the stage in Missoula to kick off NewWest.Net’s fourth annual Real Estate and Development in the Northern Rockies conference -- and to also predict the future. It’s something Thornberg has done with uncanny precision in past years, when he was one of the few economists to warn about a coming housing bust and its dire consequences.

Economy Will Improve — By About 2012, Top Economist Says

The economic recovery has definitely begun, but it has a long way to go. Housing prices might have a lot farther to fall. And new waves of foreclosures could keep the economy on shaky footing — for years.

Those were a few of the views offered today by leading economist Christopher Thornberg of Los Angeles-based Beacon Economics, who took the stage in Missoula to kick off NewWest.Net’s fourth annual Real Estate and Development in the Northern Rockies conference — and to predict the future. It’s something Thornberg has done with uncanny precision in past years, when he was one of the few economists to warn about a coming housing bust and its dire consequences.

At the MCT Performing Arts Center, Thornberg offered some more predictions, this time about the recovery in Montana and beyond.

“The only thing I’m certain of is that this will be a slow recovery,” Thornberg told the more than 130 developers, planners, policy-makers, real estate agents, and others in attendance.

Thornberg predicted a “near recession” by 2011, “because we haven’t actually fixed the problems” that created the financial crisis, he said. “Unemployment will come down, but at best come down very slowly, and could still be at 8 percent in 2012. There’s not a very good prognosis for where this economy is headed in the short-term.”

The forecast would improve if the value of the dollar continues to fall, feeding an export boom. “That would help the situation enormously,” he said.

But the core of the recovery, he stressed, has to come from healthy consumers: people who save more money, have less debt, and live in a country where financial realism — not denial or hysteria — rules.

“Extremely aggressive” government interventions in the last year have been “like a tourniquet on a wound — it stabilizes the patient, but it’s not the end of the healing process,” Thornberg explained. “It’s going to be a long time before the patient gets up off the table and starts dancing again.”

Thornberg had some good news, too. Montana has weathered the economic downturn better than most and is one of the most stable states in the Rocky Mountain region, with about 7 percent unemployment this year, compared to about 10 percent nationwide (and about 9 percent in Idaho), he said.

The state has lost up to 2 percent of its workforce and shed about 4,400 construction jobs. But those losses “are really mild compared to most places in the United States.”

In addition, Montana’s median home prices have stayed relatively stable at about $220,000 (although overall sales have remained relatively low).

In addition, the nation’s recession is over, Thornberg announced. Then he showed a slide of a beam of light in the darkness, and posed the afternoon’s main question. “Is that the light at the end of the tunnel, or is that a train coming ’round the bend?” he asked.

In Thornberg’s view, it’s a bit of both. Among the biggest problems:

– “We have at least a million foreclosures that have yet to hit the market,” Thornberg said. In the second quarter of 2009, 7 percent of all mortgages were seriously delinquent and 4 percent of homes were already owned by the banks. “That pent-up supply is going to start coming out in 2010.”

– Montana has done comparatively well: only about 3 percent of mortgages are seriously delinquent (the Idaho rate is 5.6 percent and in Colorado it’s 4.6 percent). But the number of foreclosures is still unprecedented, and could send housing prices to new lows.

– The foreclosures come against the backdrop of a “vast oversupply” of housing in the country. Before the crash, “We were building like nobody’s business.”

– People aren’t saving enough. “In the mid-1990s, Americans were saving 7 or 8 percent of income. In recent years that level has dropped to about 1 percent. That’s not sustainable,” he said.

– Americans need to reduce their massive debt load. Tight consumer credit markets aren’t the problem, he added. “That’s like saying that the problem for the alcoholic is that the bar isn’t open.”

What worries him “more than anything,” Thornberg added, is that in 2010 there won’t be any more tax rebates, unemployment will still be high, and Americans will cut back on spending again.

So what does he advise and predict?

– If you want to refinance your home mortgage, do it in the next 12 months. Mortgage rates today are at about 5 percent but could rise to 7.5 percent or 8 percent in coming years.

– Inflation could strike hard after the next 18 months. “It’s definitely something to keep an eye out for.”

– Unemployment levels nationwide will hover at about 8.5 percent until 2012.

And the housing crisis remains, he said, because of “Michael Jackson” syndrome — or what happens when you pay people to tell you what you want to hear. The syndrome in housing involves real estate agents who tell homeowners they can list their property at inflated prices, or mortgage brokers who tell people it’s okay to buy a house they can’t afford.

Delusion lives on Wall Street, too, of course. Fixing the system, among other things, would require reforming the corporate incentive system so that executives aren’t rewarded for disastrously risky behavior, Thornberg noted. (Lehman Brothers Chief Executive Richard Fuld Jr. made $200 million after taxes for running the company into the ground, he said.)

“The problem is these guys have every incentive in the world to take the most giant gambles possible. Until you change the incentives, the only question is, what’s going to be the next disaster?”

In the meantime, people need to be patient, he said.

“We’re re-balancing now into a more sustainable model.” The nation is finding a middle ground, he said. It’s called reality.

NewWest.Net’s Real Estate and Development in the Northern Rockies conference continues tomorrow at the Hilton Garden Inn, including three tracks of break-out sessions in the morning and a plenary session in the afternoon. The afternoon features Luther Propst of the Sonoran Institute and Roger Lang of Sun Ranch among many other speakers, and will conclude with Sam Byrne, the new owner of the Yellowstone Club. The Tuesday evening reception will feature music with Shane Clouse and Tom Catmull, sponsored by WGM Group. Tuesday-only ticket are available for $198, and include breakfast, lunch, breaks, the reception, and all the presentations. Sign up online or on-site at the Hilton. Call 406-829-1725 or visit the conference website at www.newwest.net/realestate.

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Comments

  1. Mickey Garcia says:

    America is becoming a “has been” economic power and China, to whom we owe a couple of trillion dollars, is becoming what America once was all because we’ve permitted large corporate interests to focus on high risk short term profit instead of long term, sustainable financial health. Apparently we have learned nothing from the great depression, the saving and loan fiasco, and Enron.

  2. Lance Olsen says:

    All is not bleak. It certainly looks that way when compared to our recent expectations, which were based on nothing more substantial than — to borrow a term from real estate economist Robert Shiller — irrational exuberance.

    But even a depressed housing market will still be offering shelter from rain, snow, and wind. And, even though, thanks to warming temperatures, the Rocky Mountains may plausibly see a 175% increase of forest fires out to 2050, and a consequent reduction of people willing to buy the homes recently built in fire’s way, the region’s housing market outside the urban-wildlands interface will likely remain a player even if real estate sales are not THE player in the region’s economy.

  3. John Molloy says:

    This “economist” is full of B.S. We haven’t seen anything yet except Ross Perot’s “Giant Sucking Sound” prediction come to fruition and Clinton’s “New Economy become exactly what it was intended to be – a service economy that produces absolutely nothing. Then the more militant wing of the War Party decides anyone wearing a turban gets a Hellfire and the war profiteers from both sides of the aisle get in on making a killing.

    Garcia’s pretty well on the money, but far too optimistic. The hammer hasn’t even fallen yet. “Jump Start” the economy they say, with a stimulus here and a stimulus there, except when they opened the hood and hooked up the cables they failed to notice that the engine was gone. See Perot above and as pointed out by Mickey, the quarterly pleasing of the investor class moved production offshore.

    And “Say hey, Willie”, why did you get rid of Glass-Stegal in 1999 and let the Blood-Sucking Vampires on Wall Street affix their fangs to the neck of the country? Oh yeah, that revolving door between Goldman-Sachs and the Sec. of Treasury that’s gone on for decades, regardless of “party” in office… “Shhhhsh!”

    We’ve been living off the savings and productivity of other countries for decades. Our drunken sailor government has us 60 trillion in the hole counting unfunded liabilities, the commercial real estate market is about to hit the skids of foreclosure, higher end home owners are following the lead of the subprimers, and golly gee, there are literally hundreds of trillions of “dollars” of liability tied up in derivatives ready for vaporization. The fuse is lit and there is no putting it out.

    The general attitude by many of the tax siphoners? I kid you not here. Last November I was conversing with a full-time B.L.M. employee about the general collapse of affairs and he said, and I quote, “I don’t care. I work for the government.”

    I could not believe what I heard except I heard it. He backtracked a bit, chagrin for his slip etched all across his face, but the hole in his foot was bleeding badly. “Limp away”, you $##@5#$!” is all I could think. Character revealed.

    Thornberg apparently hasn’t figured out that the dollars days as the worlds reserve currency are over. The patient is terminal and the gravedigger is warming up the backhoe. The “Petrodollar” that was created by Rockefeller’s boys Nixon and Henry the War Criminal shortly after we abandoned any dollar peg to gold is kaput. When you simply “print” trillions upon trillions, whether via the printing press at Treasury or in the form of loans, the world does indeed notice. They are not going to pay for our drunken largess anymore.

    Let’s see. Who else predicted this mess, but says to dig a foxhole instead of blinding oneself with optimism? How about Jim Rogers, a real-life guy instead of a theoratician. Worth a billion here and a billion there, he’s been saying to get the hell out of the dollar for several years, that the party is over, that austerity is going to be our future, that we’ve spent ourselves into penury, and guess what? He’s right and this idiot Thornburg is wrong.

    The rest of the world is about to tell us that they refuse to use our dollars anymore. The dollar is approaching a state of worthlessness. As a nation we produce paper and weapons, and that’s it. We’re financial deadbeats. We’re so far in the hole that every day is another day where we drown in collective cognitive dissonance, denying the obvious.

    We cannot pay back what we owe and the rest of the world knows it. The Piper is on his way to collect his dues. We danced, partying like it was 1999 for decades on end. Thornburg and his “Feel Good” delusions are no different than “Happy Days are here again”. Let’s see – that took the deaths of 50 million people to get those “Happy days’ back.

    Kunstler’s “The Long Emergency” and “A World Made By Hand” is our future. Buy a shovel, a pick. and a hoe. Learn what your grandparents knew, or yes, perish the thought.

  4. jgo says:

    Thornberg is correct that the flaws in the government’s intrusions into the economy have not been corrected. If anything, most congress-critters are climbing over each other to try to make it worse. Some of these flaws have been around for a while, having been put in place as early as the Carter admin.

    Until we remove those artificial incentives to body shop, instead of employ, we’ll just keep having depressed compensation and one recession after another in one economic depression that keeps getting deeper, and durations of unemployment keep getting longer, and under-employment (not fully employing the skills, knowledge, experience, etc., of those in the population) will keep on getting worse, and, drowning in this over-flowing talent pool the executives will contine to whine of shortage.

  5. drew says:

    “Montana’s median home price has remained relatively stable (although sales remain relatively low)” What stupid thing to say! If you have a thousand of bags of peanuts to sell, but only sell two for ten dollars to people who have more money than common sense then yes, I guess you could say the price is stable. But it seems like a smarter option would be to just lower the price and sell them all.

  6. ol Trapper says:

    Let’s see now!
    HOME FORECLOSURES
    SMALL BUSINESSES CLOSING
    SEASONAL UNEMPLOYMENT WITH NO GUARANTEE IN THE SPRING
    HIGHER FUEL PRICES
    HIGHER INTEREST RATES
    HIGHER HEALTH CARE COSTS
    EXPIRED or REDUCED BENEFITS
    HIGHER TAX FORECASTED
    This fool from California must be smoking so good stuff but here it’s called BS

  7. jgo says:

    Yes, ol Trapper.
    And the CPI is racing up faster than PPI, and the money supply has exploded as the federal debt is monetized, but we’re told
    “There has been no inflation” so the old folks and disabled relying on the Socialist Insecurity Abomination won’t be getting a cost of living increase.
    Meanwhile, unemployment insurance claims continue to follow seasonal patterns at/near record levels.

  8. Felix Jimenez says:

    “The forecast would improve if the value of the dollar continues to fall, feeding an export boom.That would help the situation enormously,” he said and linked this to increasing the value of the Chinese currency . There are other more ominous ways to arrive to the same effect: As Molloy said above “the dollars days as the worlds reserve currency are over”…at least that is the conversation going on at this moment among the G-20 and probably is not happening yet because if they do have some reserves in US Dollars those funds have to be dumped slowly, not affecting their own interest.When this finally happens,(Not a matter of IF but WHEN) maybe the World will be able to buy more american products, but having the effect of today’s “printed” trillions upon trillions of dollars,the inflation will affect the local economy and probably the way the US have to pay for this will be reducing the quality life that everyone take for granted at this moment.
    Is not quality life what we treasure the most?
    Probably the future is not that bright by 2012.