As the calendar ticks toward the end of another year, many economists and financial analysts are already debating what is to come for the US economy in 2009. Some predict more despair and a deepening recession. Other more optimistic prophesiers have suggested housing, credit and other sour sectors could rebound in the latter part of the coming year. As 2007 concluded, it was noted that 2008 would be one of the most impacting in US economic history, and it was. The encore in 2009 could be as awesome, or even greater.

Housing prices still continue to take a nose dive. A new report Tuesday (December 30) showed home prices declined by 19 per cent in year over year prices for the month of October. Home prices have receded back to early 21st century levels after a tremendous boom to kick start the millennium. Some predict the New Year will bring a housing market turnaround for the second half of the year. However, cautious pundits believe we may see no end to the real estate trouble until at least 2010.

One reason for hope in housing in the coming year is that the costs to buy a home are at historic lows and at some point; someone will be compelled to begin buying up already discounted properties. With the low sale prices in many markets, as evidenced by the fact that all 20 Case-Shiller indexes have declined in average home sale price the last several months, sub-5 per cent mortgage rates have begun to draw out some savvy home buyers and more cautious property investors who have been sitting on their hands.

Speaking of credit markets, the fortune of this hard-pressed financial sector is closely tied to the housing market. Borrowing many has never been cheaper as the Fed funds rate sits at .25 and might reach zero. Mortgage refinances have been popular lately as high-rate mortgagees are seizing openings for lower-rate refinances. The government continues to work through its bailout program. Five billion dollars were just allocated to assist GMAC, which should help support the struggling auto makers.

Oil provides another curious commodity for 2009 speculation. At just $39 per barrel, oil goes into the New Year over $100 less than its mid-July record high price over $147 per barrel. Analyst expectations for near-term price movement have ranged from lows around $25 to high marks in the $60-70 range for 2009. Volatility has been common for oil this year, as has been the case for many speculative markets.

Most American consumers and businesses are hoping that oil and other market factors remain in place to keep fuel prices closer to $1 than $4 per gallon in 2009. Holiday travel has likely been much more pleasant for the winter holiday season than it might have been had gasoline prices not dropped roughly $2.50 since the summer season. Many businesses are also hoping that prices stay low as business activity and demand for fuel picks up next year.

The dollar also poses a curious case for 2009. The mighty greenback appears very vulnerable as cautious money is moving to gold and other less risky investments. Speculators appear to believe the recession will drive down the dollar’s value in 2009.

Retail has also crawled through the holiday season. Holiday sales have been down 4-8 per cent in many product areas and most major retailers have posted earnings losses for the third quarter and recent months. Sale racks are filling up as retailers look to clear out merchandise. What remains to be seen is whether consumers resolve to shop for deals or count their cash in the coming weeks and months of the New Year.

Market Recap

The Dow gained 184 points on Tuesday, a day after dropping 31 in a see-saw day Monday. Home prices plunged again in October. Year over year price declines grew to 19 per cent. December consumer confidence dropped to an all-time low. GMAC received a $5 billion government bailout package. Oil sits just below $40 per barrel, hovering around the $39 mark.

Neil Kokemuller
Wednesday, December 31, 2008
12:24 AM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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