Sweet Orange

What do homeowners think has happened to the value of their homes? According to Zillow’s Homeowners Confidence Survey, which came out at the beginning of this year and asked homeowners how much, if any, the value of their home decreased in 2008, the answers are as follows:

• In the South, 48% thought that their home lost value. The reality is that 70% lost value.
• In the Midwest, 59% thought that their home lost value. The reality is that 73% lost value.
• In the West, 70% thought that their home lost value. The reality is that 90% lost value.
• In the Northeast, 58% thought that their home lost value. The reality is that 71% lost value.

Zillow’s report also stated that 70% of U.S. homeowner thought that their home would increase or stay the same in the beginning of 2009.

Source: Marilyn Kalfus, “We’re beginning to admit our houses are worth less,” The Orange County Register, February 12, 2009

Chris Thornberg, a principal with Beacon Economics, had some comments on what the leading and lagging indicators of market recovery will be for this recession (AirTalk, Larry Mantle, August 7, 2009). (By the way, Tim Quinlan, a Wells Fargo analyst, says that the recession ended in June. Michael Murphy of New World Investor also says the recession is over. Maybe I’ll write more about that later.)

According to Thornberg, the following sectors of the economy are leading us to recovery:

• professional services
• export services

In addition, Thornberg states that, although the manufacturing sector is not growing, this sector  is “firming up.”

Before I go on to state what Thornberg sees as the sectors that will be the lagging indicators in this recovery, here is what Joel Kotkin, a fellow with the New America Foundation, says about the professional services sector:

Media coverage of America’s best jobs usually focuses on blue-collar sectors, like manufacturing, or elite ones, such as finance or technology. But if you’re seeking high-wage employment, your best bet lies in the massive “business and professional services” sector.

This unsung division of the economy is basically a mirror of any and all productive industry. It includes everything from human resources and administration to technical and scientific positions, as well as accounting, legal and architectural posts.–Joel Kotkin, “Best and Worst Cities for High Paying Jobs,” Forbes

Unfortunately for those of us who live in southern California, Forbes ranks Los Angeles-Long Beach-Glendale as the fourth worst area to find these jobs and the Irvine-Santa Ana-Anaheim area as the seventh worst.

Now for the lagging economic indicators: According to Thornberg, improvement in the following sectors of the economy will not show considerable improvement until sometime after the recovery has begun:

• construction
• finance
• retail

Thornberg, as well as most other economists, sees employment (which is a factor of all of the above mentioned economic sectors) as another lagging indicator. He also states that recovery in each sector will vary from region to region.

Note: For Beacon’s economic forecast, see Beaconomics.

GRAPH COURTESY BEACON ECONOMICS

Following are some numbers that show how Americans have changed the way they look at debt–and not for the better. As these numbers show, age does not always result in cautious actions.

According to the Employee Benefit Research Institute, the percentage of Americans that were 65 to 74 and had housing debt were as follows:

• 1992–18%
• 2004–32%
• 2007–43%

And the Employee Benefit Research Institute also states that Americans in the 65 to 74 age group had the following median amount of debt. Both numbers are in the equivalent of 2007 dollars.

• 1992–$24,609
• 2007–$69,000

The 2007 numbers are the most recently available. As updated numbers become available in the coming years, we will see if we return to our past more prudent debt levels.

A few options exist: The economy improves; we learn our lesson and become more financially prudent. Or economic conditions improve; we develop a short memory and return to bad habits that queue ourselves us for another ride on the bubble wheel.  Or, finally, “the crisis of 2008 represents something much more fundamental than a deep recession” and economic conditions change to the point that we have no choice but to return to our more frugal financial roots.

Source: Tom Lauicella, “Pay Off Your Mortgage,”  The Wall Street Journal

GRAPH: THE FEDERAL RESERVE/MY BUDGET 360

Note: The quote is from NY Times columnist Thomas Friedman.