The Big Gamble
Economist Christopher Thornberg on Real Estate and the Economy
“I am fairly optimistic but for the wrong reasons”, began Christopher Thornberg of Beacon Economics on the state of real estate and the economy as a whole.
Speaking at the Asian Business League’s 2011 Real Estate Conference, Thornberg pointed out that things are improving but mostly because the government is“doubling down” on policies that are not free and will be more difficult to unwind as they progress.
Likening it to seeing the train barreling down the tracks from afar, he noted that “we can get off the tracks but we had better start soon.”
Less down on the economy than in past years, Thornberg noted that the recession in technical terms ended in 2009 and recovery is underway, led by exports and consumer spending. But the problems in housing and construction will linger.
In a more traditional recession, housing and consumers are victims of an external shock. In this recession, however, consumers were the shock. They were overspending. Thornberg therefore does not see a “bounceback” in the traditional way.
But home affordability has not been this good since 1968, which Thornberg argues is a good thing, especially in California where housing is already so unaffordable.
As for mortgage issues, we are over the hump and the worst is behind us (even though there are still bad loans to work through).
High oil prices? Not a problem (to the economy) since it is still lower than in the past as a percentage of consumer spending.
Inflation? Deflation? None of the above.
Public spending? There will not be a wave of municipal defaults, especially now since municipal income is rising.
Ulitmately he argues that the federal deficit will have to be fixed and someone will have to feel the pain. He sees 3-4% growth this year but a slowdown in 2013 due to government programs that are pushing demand forward.
If you would like copies of his power point presentation, email me at email@example.com and I will forward it to you.