Everything You Wanted to Know About the Current Financial/Economic Crisis
The Bravern Residence in Bellevue hosted an intimate educational seminar for the areas top agents this morning with keynote speaker Professor Michael Palmer. On the way there during our carpool, we wondered if this was going to be a sales pitch on how great the market is and why buyers should buy at Bravern. However, it wasn’t. The guest speaker and professor of finance with Leeds School of Business (University of Colorado) delivered an informative 2-hour presentation on the national and global economy whereby he discussed the past, present, and future. Mr. Palmer addressed issues such as the sub-prime market, Greenspan’s push on rates, consumer confidence/spending, unemployment rates, and of course his prediction on how much longer we should expect this recession to last.
According to Mr. Palmer, the economy got into this mess by creating unsustainable bubbles which were created between 2002 and 2006 by over stimulation (monetary & fiscal). As a result, the housing bubble was the first to burst. Statistics on foreclosures were presented to support this idea, although it’s not really any new news.
- Foreclosures in 3rd Quarter ’06: 223,223
- Foreclosures in 3rd Quarter ’07: 446,726 (+100%)
- Foreclosures in 3rd Quarter ’08: 765,558 (+71%) and the highest since records began in January 2005.
In addition to the slide of home prices, the world has been affected by other factors which were identified as:
- Fannie Mae/Freddie Mac bailout on Sept. 8th
- Lehman Brothers failure on Sept. 12th
- Merrill Lynch take-over by B of A on Sept. 15th
- AIG $85 billion rescue plan on Sept. 16th
- Washington Mutual take-over by JP Morgan on Sept 25th
- Federal Reserve rescue of commercial paper markets on Oct. 7th
Palmer also discussed how household debt has skyrocketed and personal savings have plummeted — creating a even stronger decline in consumer confidence.
Another interesting topic was the feds lowering of interest rates and how the intention of doing so is to fuel consumer confidence. However, Palmer states that, “While lower interest rates might make us feel better — they have done little up to now to stimulate buying or lending or to restore confidence.” Most importantly to note was that lending institutions appear to have no tolerance for risk. The money pumped into system from the feds appear to not being trickling down to public quite yet. Instead, it appears that lending institutions are placing money into secure investments to shore up assets rather than take the risk at lending. This is displayed below (notice how little return they’re willing to except rather than taking any risk at higher returns):
But, what kind of Realtor would we be if we didn’t end with the good news? Palmer’s prediction is that the nation will experience an 18-month recession. Since the nation began experiencing it’s recession in December of ’07, Palmer pointed out that we’re already 12 months in with U.S. history showing an average of 13 months for previous economic troubles since 1900. That would place an expected recovery by the 2nd or 3rd quarter of ’09. However, since these predictions are national, Palmer communicated a more probable rebound happening sooner for Seattle based on a number of factors including our employers (Microsoft, Boeing, Expedia, Amazon, etc.) and the metropolitan area being the fourth largest export market in the nation with Japan, China, and Canada.