Monday, December 22, 2008

2009 economic predictions

by Ted Allrich
The Online Investor

The Worst:
More mortgages default. As loans that were made with teaser rates (lower so borrowers could qualify) move up from teaser levels, some borrowers won't be able to make payments because they've lost their jobs or their income isn't sufficient. In residential and commercial mortgages, credit card defaults will grow. Jobs will become more scarce. As demand for goods and services decline, more people will be laid off. While the government will create jobs, the private sector will continue to show weakness and be reluctant to hire until demand for goods and services shows consistent strength. Housing won't rebound for a while, maybe not until 2010. Foreclosures will stay high as more people lose their jobs. Autos will continue to stack up on lots. Again, with unemployment high, buying a car isn't a priority. The automakers will get loans to keep them going but with plenty of government oversight. Government may take control of one or more manufacturers. If you like the post office, you'll love a government-run auto company.

Even with very low interest rates, borrowing will be limited as banks will only lend to the most highly qualified borrowers and only on certain types of assets (mostly houses or other real property). Consumers are shell-shocked at the moment, worried about their jobs, their mortgages, their futures. The psychology of borrowing too much has been broken. While interest rates will be low, getting people to borrow money will be harder.

The Best:
A new president takes office with a different approach from the last one. Whether he'll be right or wrong will take time to judge. The new WPA (Works Project Administration from the '30s) will absorb some of the jobless. The new administration is talking about building up the U.S. infrastructure-more highways and bridges or repairing old ones. Interest rates will stay low. With weak demand for housing and autos, credit will be cheap, for those who qualify. Qualifying will be the hard part, but loans will carry very low interest rates. Housing will stay cheap. With too much inventory, too much unemployment, too many foreclosures, and too many restrictions on borrowing, homes will stay at bargain levels.

As always, I could be wrong, hopefully on the worst part, not the best. But given where we are today, these predictions seem reasonable.

To view full article, please click this link

No comments: