The economic outlook recession and opportunities
1 / 13

- PowerPoint PPT Presentation

  • Updated On :

The Economic Outlook: Recession and Opportunities By Dean Baker Co-Director of the Center for Economic and Policy Research (CEPR) The economy will be in recession in 2009; The housing bubble will continue to deflate.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about '' - Jims

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
The economic outlook recession and opportunities l.jpg
The Economic Outlook:Recession and Opportunities

By Dean Baker

Co-Director of the

Center for Economic and Policy Research (CEPR)

Slide2 l.jpg

  • The economy will be in recession in 2009;

  • The housing bubble will continue to deflate.

  • The commercial real estate market also saw somewhat of a bubble which has now peaked;

  • The financial sector will continue to see big losses from bad mortgage debt and other debt;

  • Consumption will fall off due to lost housing wealth.

  • State and local government spending will also contract.

  • Unemployment will rise about 7 percent in 2009.

Real house prices case shiller index l.jpg
Real House Prices (Case-Shiller Index)

  • House prices more than doubled between 1996 and 2006.

  • They have since fallen by more than 25 percent since 2006.

  • This corresponds to a loss of more than $4 trillion in housing wealth.

Slide4 l.jpg

House Prices Will Keep Falling

Well Into 2009

  • Supply

  • Inventories of new homes stand at more than 10 months of sales.

  • Inventories of existing homes stand at more than 11 months of sales.

  • Vacancy rates for rental and ownership units are both near record highs

Slide5 l.jpg

House Prices Will Keep Falling

Well Into 2009 (cont’d)

Vacancy Rates

Slide6 l.jpg

House Prices Will Keep Falling

Well Into 2009 (cont’d)


  • Disappearance of subprime/ Alt-A markets

  • Tighter down payment requirements in collapsing markets

  • Loss of equity means many current homeowners lack down payments

  • Less trading up

Commercial real estate boomed and is headed downward l.jpg
Commercial Real Estate Boomed and Is Headed Downward

  • Non-residential construction is up more than 40 percent since 2005.

  • Hotel construction more than tripled, manufacturing doubled, office construction up 50 percent.

  • Retail and office vacancy rates are rising rapidly.

  • Manufacturing might hold up.

Investment (Non-Residential Structures)

More losses in financial sector l.jpg
More Losses in Financial Sector

  • Delinquencies and foreclosures are rising rapidly, spreading from subprime to prime mortgages.

  • Many losses are being hidden by workouts with borrowers.

  • As house prices continue to fall, average loss per foreclosure will rise.

  • As the value of foreclosed homes rises (going from subprime to prime), losses per foreclosure will rise.

  • Home equity is a backdrop for other loans. With the loss of this backdrop, default rates are rising for other loans (e.g. car loans, credit cards, student loans).

The recession will worsen the situation in the housing market l.jpg
The Recession Will Worsen theSituation in the Housing Market

  • The economy is shedding almost 100,000 jobs per month, unemployment has risen from 4.5 percent to 6.1 percent.

  • Workweeks have gotten shorter, real wages are down more than 2 percent.

  • Existing homeowners will lose their homes. Potential homeowners won’t be able to afford homes.

  • Banks will be constrained in lending due to large loan losses.

  • Recession will also hurt demand for non-residential property.

Lost housing equity will depress consumption l.jpg
Lost Housing Equity Will Depress Consumption

  • Housing bubble fueled consumption boom.

  • The saving rate has been near zero since 2004.

  • Baby boomers near retirement have almost no wealth.

  • Savings will rise and consumption (70 percent of GDP) will fall.

State and local governments will cut back spending l.jpg
State and Local Governments Will Cut Back Spending

  • 1) Collapse of housing bubble lowers property tax collections and other fees.

  • 2) Lower consumption and fewer jobs reduce sales tax and income tax.

Possibilities for reform l.jpg
Possibilities for Reform

  • 1) Punish Wall Street – it’s their fault. The financial industry is a major source of inequality.

  • 2) Get the dollar down – move toward balanced trade.

  • 3) Fix health care – we need to cover people and we need it for the economy.