1. Home Values: Home values will continue to decline during 2012 and I do not expect the bottom of the real estate market to be reached until the 3rd Quarter of 2014. My best guess for any type of sustained recovery in the housing market is no sooner than the 3rd Quarter of 2021. The number of homes in foreclosure will double or triple from 2011 levels and home values will drop by another 15% to 20% by the end of year. I do not expect to see any real recovery in the housing market until at least 2022. A massive number of bank-owned homes (Real Estate Owned or REO property) will be turned into rental properties by the banks and/or mortgage servicers and many more foreclosed on homes will be sold in bulk sales to investors for the same purpose.
2. New Home Construction: At its peak at the end of 2005, homebuilding accounted for about 6.2 percent of overall economic activity. Now, it is only about 2.4 percent. U.S. housing starts in April 2009 hit their lowest level on records dating to January 1959. While multifamily starts (mainly for apartment units) have given them a lift, 2012 be the weakest year ever for construction of single-family homes. We are turning into a Nation of renters rather than homeowners and I anticipate that trend will really take-off next year.
3. Big Banks: One of the top 10 United States banks will fail or be forced into a take over by the end of the year. My best guess is Bank of America. BOA will be forced into liquidation under the too big to fail provisions of the Dodd Frank Act. The FHFA as conservator of BOA may impose the Chapter 13 principal reduction program for all loans owned and serviced by the Bank.
4. Unemployment: The unemployment rate will not drop below 7.00% at any point during the year and will be above 8.00% for at least half of the year. With our educational system in disarray, and technical skills at an all time low among US workers, the fact of the matter is that all of the good jobs are in China, India, Viet Nam, Brazil, Thailand, and Argentina.
5. DOW Jones: I expect the DOW to drop below 8,000 based on the failure of at least 2 of the major Euro-Zone banks, the devaluation of the Euro, the bankruptcy of at least 3 Euro Zone countries, the failure of the Iraqi state, and the need for further US military intervention in Iraq.
6. Chapter 13 Relief: FHFA will implement the NACBA Chapter 13 mortgage principal reduction program for all Fannie and Freddie owned residential mortgage loans by June and the number of new Chapter 13 cases filed in the 3rd and 4th Quarters of 2012 will reach historic levels.
7. Fannie and Freddie: The Federal Reserve will continue to loan billions of dollars to Fannie and Freddie to cover repurchase obligations and to purchase RMBS bonds in an effort to save the secondary markets, the investors and US and foreign banks. Fannie and Freddie will enter the final liquidation process after the November elections. The Fed will also make every effort to keep interest rates near zero and we will probably see another effort at Quantitative Easing, Round 3.
8. The War that Will Never End: The United States will be forced to launch a massive land invasion of Iraq from Kuwait in order to try and bring order to a state dissolving from an internal civil war between the Kurds, Sunnis and Shiites. The civil war will be funded and supported by Iran. One motivation (publicly) will be to protect some 8,000 United States workers at our massive embassy in Bagdad. The primary motivator for US intervention, however, will be the desire to save the region and the world’s oil supply from Iranian domination.
9. Nuclear Nightmares: Early in the New Year, Israel, with technical and logistical support from the United States, will launch a major military strike on all Iranian nuclear facilities and Iran will respond by deploying massive world-wide terrorist attacks and will engage in efforts to cut off all sea routes for the shipment of oil from the Gulf Region. The uncertainty of all out war with US troops on the ground will be present throughout the year and active US military intervention is at least a 50-50 bet.
10. Tom Miller and the Attorney Generals: The attorney generals will finally reach a meaningless settlement with the bankers and mortgage servicers arising out of the false documents or Robo-Signing scandals. I anticipate that the California Attorney General will agree to join in the settlement at the last minute. I give the New York Attorney General a 50-50 chance of agreeing to join in the settlement. The settlement will have no impact on solving the housing crisis as the cash awards of some $1,250.00 to each homeowner subject to a “wrongful” foreclosure will not coverage their moving and storage expenses and allowing the banks to supervise their own principal reduction programs with over 75% of the so-called settlement funds will make the HAMP program look like a outstanding success.
11. The Elections: The Republicans will hold their noses and finally nominate Romney who will then select Governor Chris Christy of New Jersey as his running mate. Obama will counter by dropping Biden and selecting Hillary Clinton as his Vice Presidential nominee. SCOUTS will declare the Health Care Law unconstitutional by middle of June but the Obama-Clinton ticket will still win the November election with less than the majority of votes, and the Democrats will take back the House, but then lose the Senate to the Republicans.
12. Gas: With all of the problems in the Mid-East, not to mention the financial crisis in Europe, I expect the price of a regular gallon of gas to top $5.00 by the 2nd Quarter, with a substantial chance of going much higher. If you happen to have large petroleum storage tanks on your property, then you need to fill them up while gas prices are still hovering around the $3.10 per gallon range.