Elliot Pollack 2010 Forecast

I was at a breakfast this AM where Elliot Pollack (Phoenix economist) gave his forecast for 2010 and beyond. Retail and office is particularly bleak. Residential appears to have bottomed, however, we'll be piddling around the bottom for some time. He says that we grossly exceeded the price trend in '05 and '06 and have overshot on the way down. The good news? 40-50% appreciation once foreclosures have been resolved. The bad news? It could be 4 - 5 years.

USA is doing much beer than AZ. Arizona and Michigan are fighting to be #50 in job growth. Our population growth has nearly stopped (+1.4% and 1.0 comes simply from births v deaths). He says AZ economy will not improve until population growth returns, which will likely happen after USA is back up & running for awhile.

Robert Sarver hosted the breakfast and talked about the difference between '09 and the RTC days. He said that you could buy a dollar from the RTC for $.30-.40, but not so today in the commercial real estate (and commercial paper) markets. He said thanks to the internet and sophisticated, widely advertised sales efforts, it costs a dollar to buy a dollar these days. He said, sure - it is significantly discounted from the existing debt - but you are paying what it is really worth.

Pollock said there will not be a major office building built in PHX for 5 - 7 years. He said 1991 - 1995 was the same scenario. That forecast concerned only office, but I can't imagine retail will be any better. Again, residential construction will materially pick up 4 - 5 years from now, once foreclosures have been resolved.

One recurring theme - the economy is not doing well, but it is slowly getting better and is no longer fragile. I have to throw this in - he compared 12/08 and 12/09 data and the obvious point was how much better things are today than a year ago across the board. The big question - will Bernanke be able to soak up all the liquidity before inflation arrives? He can't start mopping too soon or he risks repeat of 1937 - premature tightening and another leg down. Pollack says Fed will maintain easy money through 2010, including buying up mortgages if need be. Helicopter Ben will not oversee the onset of deflation.

Thought you might be interested...