Housing upswing seen as key to economic turnaround in 2009

2009 Economic Forecast: Job Loss & Oil Cost Got Us In; Housing Market and Stimulus Must Get Us Out
Friday, January 16, 2009 at 11:36AM
NAR Senior Economist Lawrence YunOn Thursday, January 15, hundreds of Chicagoland real estate professionals gathered in the Palmer House Hilton for the first "2009 Regional Economic Forecast" sponsored by the REALTOR Associations of Chicagoland.
The expert panel of forecasters was comprised of Lawrence Yun, Ph.D., Senior Vice President and Chief Economist, National Association of REALTORS; Gail L. Lissner, CRE, SRA, Vice President, Appraisal Research Counselors; Michael S. Miller, Ph.D., Associate Professor of Economics, DePaul University, College of Commerce; and James E. Glassman, Managing Director & Senior Economist, JPMorgan Securities, Inc., JPMorgan Chase & Co.
Mr. Glassman highlighted his belief that a combination of three storms--the energy crisis and summer 2008 hike in oil prices, the inflated valuation in housing, and national myopia--contributed to the recession we find ourselves in today. He cited that $100 a barrel oil prices were "a common thread for oil-consuming nations," pointing out that if the U.S. housing industry were to blame for the recession, it would not have become a global economic crisis.
Economist Michael Miller discussed the impact of labor on the economy, underscoring that this is the first recession that was triggered by a suffering labor market and not Gross Domestic Product, which was actually on the rise when the recession was officially declared. Regarding the housing industry, Miller reiterated the two words "supply" and "demand." There are too many homes, he says, and more people need to be brought in to eat up the excess supply. However, in order to achieve that, consumers need "both desire and qualification (the ability to qualify for loans)." Miller expects the job loss numbers to increase before we hit the bottom of the crisis, emphasizing the need for job creation.
Lawrence Yun, who is regularly quoted in the mainstream media as NAR's economist, shared data indicating that for the majority of the country, housing price decline is a correction. Prices were overinflated during the boom, and in some areas, prices more than doubled over the course of one year. "In 2006, people who had trouble borrowing $20 from their Uncle Bob could borrow a home loan," Yun quipped. "Prices have come down to justifiable levels."
The Midwest seems to be faring better by comparison than areas along the east and west coasts. "I don't see how the economy can recover without the housing market," he said, adding that the only thing to prevent another round of credit crunch in the future is an effective stimulus package, which NAR is lobbying to include measures that would positively impact the housing industry, such as raising loan limits and making the $7,500 first-time homebuyer tax credit permanent and eliminating the requirement to pay it back over 15 years.
Gail Lissner shed light on the Chicagoland and suburban condo market, discussing the slow down in downtown development, which in 2005 was producing record deliveries. Now, only 60% of downtown deliveries are under contract. Additionally, she shared, there were half as many transactions in 2008 as there were in 2005, which furthered Michael Miller's argument about supply and demand.