Forecasters Call for U.S. Turnaround in 2010

Forecasters at Chapman University in Orange, Calif., are even more confident now that their forecast calling for the U.S. economy to begin turning around during the second half of 2009 is right on target — given the latest economic data.

During the midyear forecast update conference held Wednesday, Chapman President James Doti pointed to a number of factors as positive signs that a recovery from “The Great Recession” — as it has been labeled — is imminent:

• The federal government’s $782 billion stimulus package is starting to have a positive effect on consumer spending, while also helping to lift the financial and banking sectors “out of the woods” and resulting in an improved lending environment
• Initial job claims have dropped since April
• The stock market was up 18 percent in a recent three-month period
• Consumer confidence has picked up

While these are all good news for the housing sector as well, Doti noted that unlike prior deep recessions where consumer spending was able to get the economy into recovery mode rather quickly, this time he expects the recovery to be slower and more protracted.

Key to this prognosis is a $10 trillion drop in household wealth due to the 40 percent drop on Wall Street, plus large declines in home prices. Added to that is consumer savings, which have grown at a rapid pace from practically nothing to almost 6 percent. All these factors are extremely limiting to future consumer spending.

Still, despite weak consumer spending and with insignificant growth of residential construction expected to continue, Chapman is forecasting the nation’s real Gross Domestic Product to decline by 2.9 percent for 2009 before turning the corner and growing 2.4 percent in 2010.

After soaring to price levels of four times the median family income at the peak of the housing bubble, housing affordability has come back down to earth at 2.8 times the median income. Housing prices, Doti believes, are also close to their bottom, projecting that prices will appreciate by 3.7 percent next year due to pent-up consumer demand for housing.

While this is good news, it does not mean that foreclosures will end abruptly either. With such a steep and pronounced recession on tap, job losses expected to continue this year, and the possibility that home prices may decline a bit more before going positive next year, homeowners who were already in financial turmoil still face the prospect of foreclosure.

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