Christopher Thornberg, principal of Beacon Economics, delivered the Beacon Economics 2010 Orange County Forecast. I attended, and I report to you today.
Irvine Home Address … 6002 SIERRA SIENA Rd Irvine, CA 92603
Resale Home Price …… $899,900
Burning beacon in the night
Can’t feel its heat, or see its light
That single solitary guide,
it must get lonely there sometimes
The Beacon — A Fine Frenzy
It was lonely being right about the Housing Bubble. Surrounded by a world gone mad, solitary voices of reason like Christopher Thornberg, principal of Beacon Economics and formerly with UCLA Anderson Forecast, were ridiculed. He watched as his opinions were disdainfully set aside as the ravings of one of those “bears.”
I recently attended Beacon Economics 2010 Orange County Forecast hosted by the Building Industry Association. Christopher Thornberg gave the keynote address, and he was fantastic. When you compare his presentation with the awful UCLA Anderson Forecast Orange County, you fully appreciate what UCLA lost when he moved on.
The PowerPoint of his presentation is BIASDDec09.pdf
One slide that caught my attention was the one below that shows the inflation adjusted house price change since 1997, the last bottom. I covered this issue in the post called 1997 where I demonstrated that house prices are still well above where they should be if market conditions that existed in 1997 are extrapolated to today. Chris Thornberg’s chart matches my observation — Orange County is still vastly overpriced by historic standards, and so is most of California.
Another slide that caught my eye is the delinquency and foreclosure chart. See those two little bumps on the left side? Those where the catastrophic market-crushing foreclosure crises of the 80s and 90s — our current mess is four-times as bad, and we have not hit anything that looks like an identifiable peak. Yikes!
Beacon Economics is predicting a “W” shaped recession as shown on the slide below. Basically, if you were to take the 3 huge downspikes and imagine a big “U” that ties back in to the 3rd quarter of 2011, you see what would have happened if the Government would have done nothing. All GDP growth between now and 3rd quarter 2011 is a direct result of Government intervention. Like a surfer riding out a wave, our economy and our housing market is trying to drift to shore where we can step off in the surf without going underwater. Do you think the Government’s efforts will be successful? Homeowners sure hope so.
The big questions he raises generally pertain to Government policy. In the oral presentation, Mr. Thornberg lamented the difficulty of predicting where the economy is going when it isn’t economics he is trying to forecast, it is Government policy. As was discussed in Who Will Fix the System? our housing market is more dependent upon decisions in Washington than any other factor.
Notice from the summary that Christopher Thornberg is not calling a bottom in housing; in fact, since he is calling for a double-dip, he isn’t calling the bottom of the recession either.
On the subject of financial regulation, Christopher Thornberg was adamant that the problem is one of incentives; investment bankers and other Wall Street players pocket copious cash on manipulated market moves. As long as the system rewards volatility and malinvestment, we will have booms and busts where the winnings are privatized and the losses collectivised.
One thing he said that caught me by surprise was his characterization of Ron Paul as either a lunatic or a moron. Ouch! I know where he is coming from, Ron Paul’s ideas are loopy; shutting down the FED, eliminating the IRS, and so on; however, Ron Paul’s loopy ideas now making sense (and perhaps they never were loopy to begin with).
I don’t envy Christopher Thornberg’s task; he is making a living telling people what they don’t want to hear. It must be costing him money. He would certainly be more popular if he shilled like the UCLA Anderson Forecast Orange County, but his personal ethics get in the way.
I admire that….
Irvine Home Address … 6002 SIERRA SIENA Rd Irvine, CA 92603
Resale Home Price … $899,900
Income Requirement ……. $190,170
Downpayment Needed … $179,980
20% Down Conventional
Home Purchase Price … $380,000
Home Purchase Date …. 11/26/1996
Net Gain (Loss) ………. $465,906
Percent Change ………. 136.8%
Annual Appreciation … 6.4%
Mortgage Interest Rate ………. 5.18%
Monthly Mortgage Payment … $3,944
Monthly Cash Outlays ………… $4,920
Monthly Cost of Ownership … $3,590
Baths 1 full 2 part baths
Home Size 2,516 sq ft
($358 / sq ft)
Lot Size 6,783 sq ft
Year Built 1971
Days on Market 1
Listing Updated 1/14/2010
MLS Number P717571
Property Type Single Family, Residential
Community Turtle Rock
Turtle Rock Broadmoor Model G. Secruity gate & double door entry; 3-car garage. Fresh 2-toned painting, scraped ceilings. New floorings-upgraded carpet and laminated wood. New vertical blinds. Above-ground spa w/new cover. Downstairs master BR w/remodeled master bath. New grainte kitchen countertops, stainless stell sink w/GE range & dishwasher. Bonus/game room has a pool table and antique light fixture. Brand new water heater w/earthquake straps in garage. Overlooking community park and pool. Many upgrades unmentioned. Priced below market value for quick sale, please hurry!!
Many upgrades unmentioned. If they are worth mentioning, shouldn’t you mention them? It isn’t like people are worried that you might run over on your description word quota.
This is the first really desirable property I have seen where I did not recoil with revulsion at the price. Does that make it reasonable? Based on my calculations, this property would cost about $3,600 per month to own. I imagine it would rent for that much (I didn’t pull comps), and I can see where someone at an income level to afford $3,600 a month might want to own a property like this long term. This is a debtor’s prison I might be willing to sign up for… if I could afford it. There are worse places to spend the next decade.
This seller is going to really annoy the neighbor at 6232 SIERRA SIENA Rd Irvine, CA 92603 who I profiled in Doubling Time by offering this comparable property for $370,000 less. Perhaps it will be a dose of reality, but most likely it will prompt further denial.