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AP
Growth Outlook Worst in 5 Years
Monday September 10, 1:05 pm ET
By Jeannine Aversa, AP Economics Writer
Ailing Housing Market and Credit Woes Could Mean Sluggish Economy


WASHINGTON (AP) -- Strained by an ailing housing market and credit woes, the economy in 2007 is expected to log its worst growth in five years and should be somewhat sluggish next year.
The No. 1 risk, though, is that the economy will lose its footing altogether and fall into a recession, forecasters say.

A forecast released Monday by the National Association for Business Economics puts the growth of gross domestic product at 2 percent for this year. The pace was 2.2 percent in the group's previous survey, in May.

If the latest prediction proves correct, growth would be the weakest since 2002. Back then the fragile economy was emerging from a recession and grew by just 1.6 percent.

Economic growth for next year also was downgraded slightly. The economy is now projected to grow by 2.8 percent in 2008, versus 2.9 percent in the previous survey.

GDP is the value of all goods and services produced within the United States. It is considered the best barometer of the country's economic fitness.

With the weaker outlook, the forecasters are concerned about the risk of recession. More than 60 percent of those responding cited recession "as the major risk facing the economy over the next year, while only a third cited inflation as the greatest problem," the group said.

Those most concerned about the threat of recession tended to cite problems in the higher-risk "subprime" mortgage market and potential declines in home values as the most likely forces that could short-circuit the 6-year-old economic expansion, the group said.

Mortgages entering foreclosure hit a new record in the spring. Higher interest rates and weaker home values have made it difficult for a growing number of people to pay their mortgages. As defaults have soared, lenders have been forced out of business. A spreading credit crisis has roiled Wall Street.

To help the economy, the forecasters predicted the Federal Reserve will lower its key interest rate, now at 5.25 percent. Cuts this year and next would drop this rate to 4.75 percent, the forecasters said.

The survey of 46 forecasters was taken from Aug. 2 through Aug. 23, the period that the credit markets really seized up. That forced the Fed to pump billions of dollars into the financial system and to cut its interest rate to banks for loans.

Forecasters' projections, however, were gathered before Friday's release of a Labor Department report that showed that for the first time in four years, employers actually cut jobs. The economy lost 4,000 positions over the month.

That weak employment report prompted some economists to predict the Fed might slice its key rate by as much as half a percentage point on Sept. 18, its next regularly scheduled meeting. Others, however, think the Fed will lower by one-quarter percentage point at that time.

Just a month ago, at the Fed's last meeting on Aug. 7, Fed policymakers still believed the threat of inflation posed the biggest risk to the economy. Ten days later, however, it offered a more grim assessment of economic conditions as a credit crisis gripped Wall Street. In that assessment, the Fed made no mention of inflation.

National Association for Business Economics: http://www.nabe.com

Arlos wrote:The whole thing is being caused largely by the implosion of the mortgage market, which only got to where it was because the rules were relaxed and all meaningful oversight ceased. This allowed the snake-oil salesmen to run riot, massively over-inflate the housing bubble based on loans that people never had any hope of repaying, and now it's going to collapse and drag the rest of the economy with it. (Not that the economy was ever that strong to begin with. Profit margins were huge, real job growth was never that strong, etc.) In any case, you can lay the relaxing of rules and oversight right at the feet of the GOP, since they were the ones who did it.

-Arlos

Arlos wrote:The GOP has nothing whatsoever to do with it now being harder to get a loan. That's entirely the actions of the loan COMPANIES, as the collapsing situation has them so risk-averse, they aren't giving out money at all, basically. Hell, it's still unsure if Countrywide, which controls 20% of the entire mortgage market, will survive this crash. If Countrywide goes, then things really will go to hell in a handbasket.

So far, to their detriment, Congress hasn't done dick-all about the situation, and yes, I blame not working on a solution directly on those responsible (because they're controlling things): the Democrats. They should be doing more to stabilize the situation, and keep doomsday scenarios from occurring (like Countrywide going under), but they haven't done crap. The SOURCE of the problem, however, is multifold, including a large helping of simple greed and venality, but it was the GOP-controlled congress that relaxed the rules and oversight in the first place.

Basically, loan companies were allowed to sell off their interest in the loans, and bundles of mortgage-backed securities were traded and snapped up as part of hedge funds, etc. Effectively, bad mortgages were allowed to become this decade's version of Junk Bonds that we had in the 80s. The bills started coming due to those who had thee loans but couldn't in a million years afford them (in many cases because they were sold something they didn't understand, and were promised they could always re-fi out of it), and when those folks couldn't pay, foreclosures started happening, and the whole financial market based on those mortgages collapsed like the house of cards that it was.

So, in any case: yes, I blame the GOP for helping create the problem, and the Democrats for not getting their shit together to help fix it.

-Arlos

Tikker wrote:choosing to live in high population, highly desirable areas negates any reason to whine about high demand/low supply housing prices

Narrock wrote:Tikker, I was born and raised in California. My family and most of my friends live here. It's hard to just up and move somewhere else and leave people you care about behind.

Arlos wrote:Isn't Rocklin the boonies for Sacramento, kinda like being in Vacaville for Silicon Valley? About all I know about the place for sure is that it is where the 49ers used to have training camp, and it gets furnace-level hot in the summer.

Not surprising to see them so desperate to sell, though. Sacramento is one of the areas in the country most impacted by the housing bubble bursting, home values are starting to drop, sometimes precipitously, as they way overbuilt compared to current demand.

-Arlos

Tikker wrote:

Narrock wrote:Tikker, I was born and raised in California. My family and most of my friends live here. It's hard to just up and move somewhere else and leave people you care about behind.

I'm not debating that, but a pretty big portion of folks don't live and die in the same town/city they were born in

lyion wrote:There's also that wonderful Maximum Security Prison with the worst murderers in California housed in Vacaville, ensuring wonderful property values.

Narrock wrote:

lyion wrote:There's also that wonderful Maximum Security Prison with the worst murderers in California housed in Vacaville, ensuring wonderful property values.

The prisons don't affect the housing markets in Folsom, Vacaville, or anywhere in the bay area or Sacramento.

Tacks wrote:

Narrock wrote:

lyion wrote:There's also that wonderful Maximum Security Prison with the worst murderers in California housed in Vacaville, ensuring wonderful property values.

The prisons don't affect the housing markets in Folsom, Vacaville, or anywhere in the bay area or Sacramento.