Economist blames U.S. credit crunch

FRIDAY, FEB. 22, 2008

Inflation and a credit crunch are the biggest problems threatening the U.S. economy as it nears a recession, Eugenio Alemán, a senior economist and vice president of Wells Fargo & Co., told real estate professionals Thursday afternoon.

“Today we are going to a recession because we have credit issues, not because we have a crisis in the housing market,” said Alemán, keynote speaker at an annual forum on Inland Northwest real estate. “The housing market has been in recession for two years, almost.”

Speakers made analogies to a turbulent airplane ride and a rowing crew stroking in different directions to describe parts of the regional residential market. Despite acknowledging a slump evident in 2007 sales, they continued to stress they see a brighter outlook for the region compared to the national housing market.

Continued moderation of sales and slight price appreciations are expected in Spokane County this year, said Brett Sullivan, vice president of Sullivan Homes Inc. and president of the Spokane Home Builders Association.

“It really is a great time to buy; I know we’ve been saying that for a long time,” he said.

Realtor Richard Jurvelin, of Windermere/Coeur d’Alene Realty, described changing dynamics in the Kootenai County market for pricey homes.

“Under $300,000, there is a market; over $300,000, do your homework if you want to sell,” Jurvelin said.

Organizers expected about 600 attendees, down slightly from last year, said Grant Forsyth, an Eastern Washington University economist and chairman of the Spokane-Kootenai Real Estate Research Committee.

The Spokane commercial real estate market was “very active” last year, with two large buildings sold to investors, said Larry Soehren, vice president of Kiemle & Hagood Company. He foresees fewer vacancies and rents increasing slightly.

“Our property-investment market has been discovered,” Soehren said.

Inland Northwest retail real estate, however, is expected to slow from the “fever pace” of the last two years, said Chris Bell, an associate broker for NAI Black.

On the national scene, Alemán called the subprime problem a “non-issue,” saying most mortgage loans are being paid on time.

But while strong employment for several years has prevented a recession, he contended, the country now is “very, very close to recession” because inflation and unemployment both are climbing.

“The last time that this happened was in the 1970s and ‘80s, and we call that period a period of stagflation,” he said.

Though the Federal Reserve has been slashing interest rates, it will need to start increasing interest rates quickly if expectations about inflation change, Alemán said. In that case, the economy would enter a 1980s-like recession, he asserted.

Also, banks aren’t lending as much money, even if interest rates drop, because less is available to them, he said.

About the housing market, Alemán said, “There’s plenty of room to go down, sorry to tell you.”


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