CHESSNOID

There are many economists and analysts who think the economy will recover late this year or early next year.  That is definitely a possibility but I don’t agree with that assessment.

I think the economy’s recovery is tied into the housing market.  Once the housing market starts to recover then I think we will have the bottom of the recession at hand.

While reading Forbes, I read an article about housing guru Ivy Zelman, who called the housing bubble 4 years ago. She feels that the housing market won’t bounce back until 2012 because of the current glut of housing inventory and the next wave of expected foreclosures. She makes complete sense and I definitely think she is right on the money based on her observations.

Forbes:

But according to Zelman, it’s way too soon for a rebound. “The economics don’t make sense,” she says. “There’s still a tsunami of expected foreclosures, and that has to abate before there’s a recovery.” Credit Suisse forecasted in December that, over the next four years, 8.1 million mortgages would go into foreclosure.

When foreclosures hit, cheap houses that banks are eager to unload flood the market. The oversupply and the lack of demand pushes prices down; the S&P Case Schiller Home Price Index showed an 18% year-over-year drop in October, (the most recent data available). As home values fall, homeowners owe more in mortgages than their properties are worth and are more likely to default – and then the cycle begins all over again.

Over 8 million more foreclosures in the next 4 years is extremely high and will impact the economy in such a way, I think this severe recession will be pushed into a depression.  (8 million homes times $200,000 average mortgage balance equals $1,600,000,000,000 in bank mortgage defaults. Forgive me if I left off some zeroes because my calculator doesn’t go that high.)

I am also taking into consideration of what unemployment is projected to be which is predicted to be in the double digits in many areas.

WASHINGTON (Reuters) -

All but five U.S. cities will experience job losses this year, with New York suffering the largest decline, according to a forecast released by the U.S. Conference of Mayors on Saturday.

Global Insight, an international economic forecasting firm that put together the outlook for the mayors’ group, projected that by the end of 2009 one-third of all metropolitan areas in the country would have experienced no overall job growth for the first decade of the century.

New York will likely shed 181,000 jobs this year, with more than 50,000 in the financial services industry alone, the firm said. Los Angeles will lose 164,000 jobs. Overall, 171 cities will see job losses in excess of 2 percent through 2009.

Unemployment rates will rise above 10 percent this year in 70 of the 363 metropolitan areas in the United States, Global Insight said.

The jobs are definitely tied into the housing market at least in this particular recession. I hope the recovery doesn’t take that long and that the new Obama administration is successful in its quest to solve the economy problem. I think it is best to follow that old saying: Hope for the best, but prepare for the worst.

Zelman does make another interesting observation that I agree with.  She doesn’t believe that the proposed stimulus plan will work but for a different reason.

The other indicator that Zelman is watching is the consumer balance sheet, or the average home buyer’s debt level. “The consumer has terrible, crazy credit right now,” she says. “And there’s a negative psyche towards their deflating asset – that keeps homeowners on the sidelines, because foreclosures are driving prices lower, jobs are being lost, and 401(ks) are being eroded.”

Signs of a consumer recovery, says Zelman, include an increase in personal savings rate and higher lending levels.

Zelman doesn’t believe that any of the proposed stimulus measures on the federal or state level, aside from “the government bulldozing foreclosed houses or buying them up,” are substantial enough to stop the downward spiral. She projects that just under half of all private homebuilders – which compose 75% of the industry – will go out of business by the time the market bottoms. That creates market opportunity for the surviving builders, but not for several more years.