2009 = "Year of the THAW"

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028

Credited to: www.CNNMoney.com



2009: Year of the thaw
Why the great credit freeze of 2008 won't turn into the Great Depression of 2009.

(Money Magazine) -- Well, we were partly right. At this time last year, we said that the stock market would be increasingly volatile in 2008, that home prices would fall further and that a subprime blowup could propel the economy downward.
But not in our wildest dreams did we foresee anything like the kind of jaw-dropping, stomach-churning ride that lay ahead. The economy in recession (as most experts now believe)? The Dow off 40%? Credit markets frozen worse than Sarah Palin's hometown? Precious few saw all that coming.
Peering into the future is tricky in the best of times. But even though predictions always turn out to be flawed - it's impossible for even the smartest experts to nail this stuff perfectly - you cannot build a future without first guessing what challenges you'll face on the way there.
History is your best guide. It has taught us that recessions tend to push inflation lower; that stocks usually recover before the economy does; and that jobs recover later. Most of all, history shows us that downturns don't last forever - and that it's when people are most disheartened that rebounds begin.
The economy
The prediction: The recovery will begin in the second quarter of the year.
As 2008 draws to a close, fears of a recession seem almost quaint. For many people spooked by the vicious credit crisis and the 2008 stock market meltdown, the real fear now is the D-word. Six in 10 Americans believe a depression is somewhat or very likely, according to a recent poll by CNN/Opinion Research Corporation.
Take a deep breath, people. The catastrophic 10% annual decline in economic output that marks a depression is simply not going to happen, according to even the most pessimistic mainstream economic forecasters. The gloomiest of the bunch aren't calling for anything remotely close to the crushing 25% unemployment rate seen during the Great Depression that began in 1929.
That's partly because back in the days when people were cooking up bathtub gin, the unprecedented actions taken by the U.S. and European governments this past fall to help stabilize the global financial system weren't even imaginable.
Still, few of us will feel like popping champagne corks in 2009. The consensus among nearly 50 economists polled each month by Blue Chip Economic Indicators is that a recession (officially defined as two or more consecutive quarters of declining gross domestic product) started in July and will continue throughout the first three months of 2009 (see the chart to the right).
The economists estimate that the economy - staggering under the credit crunch and one of the worst housing busts this nation has ever seen - will continue to shrink by 0.1% in the first quarter. It will then start growing again, but sluggishly. GDP growth is forecast to hit about 2.5% by the end of 2009, below the U.S. economy's long-term annual growth rate of about 3%.
But this recession, even if it's relatively short and shallow, is likely to leave you feeling queasy for quite some time after it's officially over. One reason: The unemployment rate is expected to keep rising throughout 2009, to 7% by the end of the year (see the chart). Many other economists think it could top 8%.