that the nation's economic performance is expected to be "almost as close as you can get to avoid the technical definition of a recession." That means low growth in the nation's gross domestic product -- about 1 percent in fourth-quarter 2007 and in first-quarter 2008.”
Home-price declines are expected to drop through the end of 2009 and perhaps further out. Shulman notes that Florida, California, Arizona, Nevada and parts of the Northeast are probably most susceptible to larger price drops.
The report confirms that credit tightening in the mortgage market has complicated property purchases in high-priced states such as California, and confirmed that the mortgage industry is moving toward "more full documentation, real cash down payments and more serious income standards -- and that's going to take a lot of people out of the market at the current price structure."
The difficulties in the mortgage market could lead to some painful adjustments in home prices. "I don't think lending standards were ever as lax ... and that's the cause of the problems," Shulman observes.
The forecast anticipates a 10 percent decline in U.S. housing prices "that will likely extend into 2009."
Shulman notes that the current real estate downturn is "completely different from anything we've previously experienced. We've never had the run-up in house prices we saw between 2000 and 2005."
THE GREAT DEPRESSION
Don’t get nervous, but Shulman comments that the national scope of the real estate foreclosure problem in some ways resembles the Great Depression. Consumer spending is projected to drop, and auto sales are expected to hit the lowest level next year since 1998.
"Although it has taken longer than what we had previously forecast, the effect of housing weakness has finally spilled over into consumer spending on durable goods," the report concludes. "Nevertheless, we are still sticking to our story that we will not have a classic recession."
With next year’s presidential election looming, Shulman predicts that the mortgage crisis will provide some haut theater, noting that it's possible that the country will get "a whole new mortgage finance system when it's all over."
ON A POSITIVE NOTE
On a positive note, the report stated that the nation's trade sector is improving and a strong global economy should increase exports.
The Anderson Forecast expects the Fed to cut the federal funds rate from 5.25 percent to 4.5 percent by the end of this year. "The cuts will be undertaken to support the economy, not specifically to bail out the financial markets."
The rate of housing starts is expected to average 1.35 million units in 2007 and 1.43 million in 2008, according to the report.
The National forecast calls for real GDP to be 2.1%, 1.7% and 2.5% in the first, second and third quarters of 2007 (marking six quarters of below trend growth), then expects the economy to return to trend in the fourth quarter and in 2008, averaging 3.5% growth during that span. The unemployment rate is expected to rise from February’s 4.5% to 5.0% by the third quarter, then gradually decline.
Weakness in the housing market "is finally spilling over into consumption spending," the report states, and the U.S. economy has transitioned from "locomotive" to "caboose" among global economies.
"Today, Europe and Japan are strong and the U.S. is lagging. With the Euro-area expected to grow at 2.6 percent, the United Kingdom at 2.7 percent and Japan at 2.4 percent, our estimate of 1.8 percent (for the United States) is the laggard.
"Furthermore, China continues to grow at a blistering double-digit pace and India is not too far behind," the report states, and the global economy "is powering the stock market to new highs."
U.S. export growth, growth in business investment and especially commercial structures, and continued spending by wealthy consumers "will keep the U.S. out of recession in 2007," Shulman expects. The housing decline should be behind us by mid-2008, he states.
CALFORIA REPORT
A separate part of the Anderson Forecast focusing on California's economy predicts that the state is to escape a recession, though the report's author states that the difference between a sluggish economy and a recessionary economy "is getting smaller all the time."
That report observes that mortgage defaults and foreclosures "continue to occupy center stage in any discussion of local housing markets," and that most mortgage defaults have occurred in owner-occupied homes. The report notes that the California counties with the highest foreclosure rates are those with "middle-of-the-pack home prices, but extremely high usage of adjustable-rate mortgages -- exactly the combination we'd expect when working families stretch beyond their means to buy a home."
"But in spite of all this bad news from real estate, the wider California economy is mostly unfazed: job growth has slowed only slightly and we've seen only a minor uptick in unemployment," notes economist Ryan Ratcliff
About 27 percent of all job creation in the state from 2003-05 was from the construction sector, compared with about 11 percent from 1990-2005, the report states.
While previous forecasts anticipated "significant job loss" for the construction sector, Ratcliff notes in his report that construction has remained flat since early 2006, while the real estate finance sector "has lost enough jobs in 2006 to bring growth in financial activities to a halt."
Home builders have been hit hard by the downturn in the U.S. real estate market, and a second economic report by the Anderson Forecast, by economist Jerry Nickelsburg, points to a statistical anomaly -- while demand for housing is down in Los Angeles County, and permits and prices are down for new homes, the data suggest that employment in residential construction is not falling.
Analysts are reaching the conclusion that statistics are missing the unemployed workers, and it’s likely that undocumented workers do not appear in the data.
"They are the 'trabajadores escondidos,' or hidden workers. They are not on payrolls so they do not appear in the Payroll Employment Survey nor in the Unemployment Insurance Claims." Nickelsburg notes. "The official unemployment rates are understating the unemployment, as they are unable to count the hidden workers." And these workers have been an important force in the industry.
Shulman remarks that there may be an issue with immigrant workers in the construction industry "getting paid off the books."
Strength of the commercial building industry may have served to buoy construction employment during this residential decline, the report suggests.
THE CONCLUSION
Ratcliff states that there are some mixed signals for real estate in California, such as a decline in median sales price of about 10 percent in some counties over the past year, "but some counties have actually seen appreciation accelerate in the last six months, and median sales prices for larger geographies are universally higher."
