Washington State’s Chief Economist Arun Raha has been speaking this week about his expectations for Washington’s economy in 2010 and beyond, including his outlook for the local real estate market.
Raha said the nation’s big banks are in better shape and are mostly back to normal in terms of lending money to customers with good credit. But he said regional banks continue to struggle because they had so much invested in real estate and other sectors that were seriously hurt by the recession.
He noted that small businesses get their money from regional banks, so when they hurt, so do small businesses. That’s important, he said, because small businesses account for 64 percent of the new jobs in this country.
“Credit remains particularly tight for small businesses because they depend mostly on community banks,” Raha said, adding, “For growth we need private business spending to drive the recovery.”
He noted that if we don’t get private job growth we might get a second recession. “We’re not out of the woods yet,” he said. “We could get a double dip in the fourth quarter.”
We have been following the growing problem with Washington-based banks for a while now. This is definitely one of the biggest issues to watch for the state’s economy in the coming year.
The economist noted the federal tax credit for home buyers has been a help, something he referred to as incentivized growth. But he said there are a lot of homes and a lot of commercial buildings that are vacant now.
It will take at least a year for homes and longer for commercial buildings to be sold to the extent that they promote self-sustaining construction growth, he said.
Raha expanded on his outlook for real estate in a speech to the Washington Realtors yesterday in Olympia.
Raha said he expects the residential housing market to improve in 2011, while the commercial real estate market could take until 2012 to recover. Helping both will depend on the pace of economic recovery and some areas of the economy that still need to show improvement, he said.
This includes the easing of credit from community banks, consumer confidence and the absorption of excess housing, Raha said.
Although large, national banks have started lending again, credit still is tight at state-chartered community banks because they are “disproportionately” exposed to the slower commercial real estate market, he said. Consumer confidence also hasn’t improved because consumers are largely influenced by unemployment rates and the price of gasoline, Raha said. Washington’s jobless rate hit 9.5 percent in December, according to state Employment Security Department data.
Here’s a look at consumer confidence via the Conference Board:
I find it interesting that the disparity between the Present Situation Index and the Expectations Index continues to grow. The Present Situation Index hit a new low of 18.8 in December, while the Expectations Index has increased dramatically from a low of 27.3 in February to 75.6 in December.
So I guess the big question for the real estate market is whether people will be willing to (or if they are able to) buy homes on expectations alone.