A University of California, Los Angeles, economic forecast report notes that U.S. home-price declines since 2006 amount to an estimated $4.5 trillion loss in wealth.
"Perhaps more astonishingly, stock prices are on track to either having their biggest decline in history or, if not that, their worst performance since either 1931 or 1937," concludes the latest UCLA Anderson Forecast, released today.
The wealth loss estimate is based on a national Case-Shiller price index, which estimates that home prices have dropped about 22 percent since their 2006 peak. And that is coupled with a stock-price decline valued at about $7.4 trillion since December 2007.
It is "no accident that the industries linked to the two most durable and most tied to wealth and credit of consumer assets — houses and cars — are suffering," concludes David Shulman, senior economist for the Anderson Forecast, in a section of the forecast report titled, "The Balance Sheet Recession."
Shulman says that the recession is "with us in full gale force," and is a globally synchronized event.
The short-term outlook is dreary. Shulman expects the national unemployment rate to rise to about 8.5 percent by late 2009 or early 2010, with an estimated 2 million jobs lost over the next year.
His forecast piece sums up the domino-like series of financial failures and rescues of the past several months, and notes, "It seems that everything that was once thought of as solid is now a liquid."
Treasury Secretary Henry Paulson’s pronouncement that the massive Troubled Asset Recovery Program would not buy illiquid mortgage securities as originally planned was a "contributing factor to the mortgage meltdown" in the commercial mortgage securities market, Shulman states.
"Whether or not the TARP funding will be sufficient and in what form it will take in the future remain open questions."
Oversight of TARP and the impact program spending, were the subject of congressional discussion this week (see Inman News), with some members questioning whether the program was staying true to its originally announced goals to curb the tide of foreclosures and take the bite out of the credit crunch.
Shulman said in his forecast report that he expects the federal deficit to grow above $1 trillion in the 2009 fiscal year, with a decline in real gross domestic product for four quarters.
It "will take quite some time for the financial system to heal and as we have argued, a new financial architecture will emerge out of the current crisis."
A separate report by Anderson Forecast Director Edward E. Leamer, titled, "You Haven’t Seen THAT Before!" states that there are a lot of unique factors with the current state of the economy that "limit the power of statistical forecasting, forcing us to rely more on hunches."
The housing market’s cumulative drag on the nation’s gross domestic product is the "greatest ever," Leamer states.
As for the stock market, Leamer noted that the Nov. 20 level of the Dow was 44 percent lower than on the same date last year, exceeding the decline "in any period in the 20th century except the Great Depression," which had a 72 percent year-over-year decline in June 1932, and the following recession, which was marked by a 55 percent year-over-year decline in March 1936.
Another forecast report focusing on the California economy, prepared by Jerry Nickelsburg, a senior economist, states that the previous quarterly forecast report did not anticipate "the spectacular Panic of 2008," which led consumers in the state to stop shopping and conserve resources.
"The state is going to share the national recession with negative economic growth through the middle of next year and high unemployment into 2010," Nickelsburg states.
He cites statistics from the Office of Federal Housing Enterprise Oversight stating that home prices in the state fell 25 percent from their peak at the start of third-quarter 2006, and Anderson forecasters expect that "this accelerating rate of decline will burn off the excess appreciation by early 2009."
Job loss and the general economic downturn in the state "will soften the California housing market even further," though, he also stated. "So foreclosures will continue" and home-building will decline through second-quarter 2009 before turning around the close of next year, according to his report.
The drop in consumption delivered a devastating blow to the economy, Nickelsburg stated, which was had already been hammered hard by the housing downturn.
His report anticipates a "rough 2009," with unemployment growing to a high of 8.7 percent in California next year and remaining at that level through 2010.
"The stalled California economy is simply not producing the jobs required for the new entrants to the labor force over the next couple of years to prevent these elevated levels of unemployment to persist once the job layoffs cease."
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