MultiFamily Market Outlook - 01/29/2009 (Plain Text Version)

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In this issue:
New Data Confirms Low Number of School-Aged Children in Multifamily
Multifamily Starts Drop, Despite Decline in Single Family Production
Competition from Vacant Properties Puts Pressure on Rents
2009 Economic Strife Could Make Record History
MFSI in Negative Territory Three Months in a Row

2009 Economic Strife Could Make Record History

After a year of economic recession, the contraction of the U.S. economy still is deepening. Moreover, the recession has become global, as places like Japan and the Euro zone have slipped into the red, and growth is slowing in major developing countries in Asia and Latin America. The way things are shaping up, 2009 could go down as the year where the first decline in global gross domestic product (GDP) in the entire postwar era is recorded. Among other things, this means that the U.S. no longer can count on exports to offset weakness in domestic demand.

The Federal Reserve has taken a number of steps in an attempt to stimulate the economy, cutting short-term interest rates aggressively and rolling out an impressive series of liquidity-enhancing or market-making innovations along the way. In addition to Fed activities, Congress, the Treasury and the FDIC have been delivering support to financial markets and the economy, but it’s becoming increasingly doubtful that the policies enacted or authorized so far—including prospective actions by the Fed as well as likely use by the Obama administration of the second half of the controversial $700 billion TARP initiative—will be able to cope with the powerful downward pressures in the economy. Additional fiscal stimulus now appears to be the only way to prevent the already serious recession from heading into a disastrous depression.

Fortunately, both the new Congress and the new Administration appear to recognize the extreme seriousness and urgency of the situation. The prospective fiscal stimulus package they are contemplating definitely will be big and it should be enacted quickly, although the Congressional process is bound to have some rough spots. Authorizations could approach or even exceed $1 trillion for 2009-2010, and the odds are in favor of passage by President’s Day in mid-February.

Public statements by the incoming Obama Administration and the Congressional leadership suggest that the key provisions will include extensions of unemployment benefits, tax cuts for most individuals and families (other than those earning high incomes), tax incentives for some businesses, funding of infrastructure projects and financial relief for state and local governments. NAHB’s current baseline (most probable) economic forecast for 2009-2010 assumes timely enactment of an $850 billion fiscal stimulus package.