What will the Savannah economy look like in 2011?

In my City Talk column for Jan. 2 in the Savannah Morning News, I envision two scenarios for 2011.

One scenario is for “slow but steady growth,” with the local economy buoyed by public infrastructure projects, ongoing strength of major employers, strong tourism, a strengthening of the local labor market, etc.

The other scenario is decidedly darker, with housing keeping us from any substantial growth:

Home prices are falling again across the country. According to S&P/Case-Shiller, prices in Atlanta hit a post-bubble low in October. Atlanta led the nation with a 2.9 percent decline from September.

I’ve been writing for months about the certainty of further home price declines once it became clear tax credits and other government incentives created a false bottom for real estate.

That false bottom may have given critical breathing room to banks with too much exposure to real estate, but it also lured a lot of young buyers from the sidelines.

Many of those mortgages will be under water soon if they aren’t already.

Georgia ranks sixth worst in the country in the percentage of residential mortgages with negative equity. Sometime this year, more than one-third of the state’s mortgage holders will owe more than their homes are worth.

Housing is just one of the economic headwinds we’ll be facing in 2011 — and it’s going to be a problem well beyond next year.