Although my expertise, with over 25 year’s experience, lies in the selling and leasing of office and industrial buildings in the suburban Boston area, over the last 8 weeks or so I have been besieged by customers and clients alike soliciting my opinion on the subject of when I think we will come out of this spiraling economic downturn. I would much prefer to discuss commercial real estate specifics. I assume that I am being queried on this subject because I have experienced three of these downturns (recessions) in my commercial real estate career as opposed to the fact that I am now a lot older than I was in the 1981-82 period when interest rates reached stratospheric levels of 22%. I am by no means an economist or anything of the like, although I have been “accused” of being a student of economics. Maybe because I have survived these downturns, but probably none quite like the current one, one assumes that I could perhaps predict better than others who have not experienced 3 of these major financial tsunamis.
As to how long this downturn will torture the country, my best guess for the bottoming out of this recession would be for that to occur sometime late in the third quarter of 2009. Unfortunately, if that were to occur, it would indicate the length of this current recession – a recession typically lasts 10 months and we have officially been in this one for about 12 months – would be about 20 +/- months long. Again, while certainly not an expert on housing, my best guess for the bottoming out of housing prices would be for that situation to take hold sometime during late summer of 2009. I can’t help but think that the Federal Reserve will continue to drive down interest rates to whatever level it take to jumpstart the housing market.
Based on my experience with these past downturns, until employment bottoms out sometime in mid 2009, housing prices bottom out according to the timetable stated earlier, foreclosures peak toward the end of 2009 and the jobless rate also peaks toward the end of 2009, economic growth/expansion should not occur until sometime in early 2010. My fear is that this projected schedule of events could be turned on its head if job losses begin to accelerate at too rapid a rate. If one thinks things look pretty bad today, I believe that if the jobless situation does in fact take a sharp turn for the worse, then the situation could get a lot uglier than ever imagined. While an unemployment rate between 8-10% would not bode well for a speedy economy recovery, it would in no way compare with the economic “hurt” inflicted on so many people in the 1930’s when the rate reached as high as 25%. After these events play themselves out completely, I would suggest that housing prices will begin to rise again probably towards the end of 2010 and maybe as late as the first quarter of 2011.
It is quite apparent to even the casual observer of this economic crisis that any news, whether positive or negative, which of course seems to be overwhelming these days, causes investors/buyers to overreact in ways which I have never witnessed before. I would attribute this “constant state” of overreaction to one thing more than anything else, i.e., uncertainty. Whether it is uncertainty over corporate lay-offs, stock market prices, increasing costs of food and energy, 401K’s or should I say “201K’s”, it is all very negative, but if my projections are close to being correct, the majority of us should begin to smile again by this time next year.