What next? That's the question Dr. Chris Thornberg of Beacon Economics was attempting to answer for the audience attending the Oxnard Economic Outlook put on by the Oxnard Chamber of Commerce I attended this morning.
Dr. Thornberg explained that the biggest issue is the national economy-a lot of uncertainty out there for a lot of reasons. Basic economic indicators are not that hard to read, but to figure out what Fed Chairman, Ben Bernanke, President Obama and Congress will do and how that will impact the recovery, well, that's hard. Clearly, he says, we're at the bottom, the question is how strong will the recovery be? He says according to the "Public Opinion Meter" the recession is over. Dr. Thornberg is not so sure. The economy today is 4% smaller than a year ago. Across the board, unemployment is stabilizing but that just means that job losses are lessening, not reversing. But the silver lining is that as bad as unemployment is in California, it is in better shape than the United States.
So what shape will the recovery take? He said some are predicting a "V" shaped recovery-a quick rebound. Others are predicating a "U" shaped recovery, basically the same but not quite as quick. Then there is the cruel "W" shaped recovery which I don't need to elaborate on or the "L" shaped recovery that isn't a recovery at all. Whichever you pick, Dr. Thornberg wryly states it will certainly be an "S" recovery, as in SLOW. He explains that underlying problems are not fixed. Some relief for symptoms, yes, but that the road to health will take some time.
Dr. Thornberg also does not believe home prices have bottomed out completely, despite the widely watched Case-Schiller Index showing home prices in many markets have had an increase. He attributed some of that increase to seasonal buying, low interest rates and low inventory. He stated that 15% of all homes mortgages are either delinquent or the properties have been foreclosed on and still owned by the banks. There is also much craziness in the commercial real estate market but we don't hear about it as much since much of that is handled in back rooms. And he doesn't think that low interest rates will continue for long. His emphatic message was if you were thinking about a refinance, DO IT NOW. We may be seeing inflation in 1 to 1½ years and interest rates will go up. He pointed out that FHA is a disaster and so is Fannie Mae and Freddie Mac (the major sources of home financing in the U.S.) and were it not for the Fed buying the bonds to support them they would be in serious trouble. This cannot continue indefinitely.
But despite his warnings, Dr. Thornberg thinks the longer term outlook for California is good and may emerge much stronger from this crisis. In the meantime...there are no easy fixes.