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.

4 comments for “What will the Savannah economy look like in 2011?

  1. rodger brown
    January 2, 2011 at 9:55 am

    i think a lot of folks would like to see somebody start commenting on the economy from an entirely new perspective. the collapse happened because everybody bought the myth of (fill in blank…stock market, real estate, dot com, housing bubble, etc) which is all based on steady growth. Only cancer grows continuously… Anybody who measures the economic recovery using old metrics like house prices, stock trading, interest rates, etc., is only setting us up for another — and even more disastrous — collapse.

    • bill dawers
      January 2, 2011 at 3:13 pm

      Thanks for the comment, Rodger. I agree: folks want a new form of commentary. I’m not sure precisely what that should be, however. We need to work our way to a sustainable economy (low public and private debt, high individual savings rate, re-investment in existing developments) that is not contingent upon population growth, new construction (while many older neighborhoods are emptying out), and other forms of growth, broadly defined. Savannah, like many other parts of the country, drank the “fast growth” potion and ended up pouring money (both public and private) into unsustainable projects and speculative real estate. That expansion has glutted the market to the point that prices are falling everywhere.

  2. Lee Maltenfort
    January 2, 2011 at 11:18 pm

    Both you and Roger are like many others, including myself: We can identify the problems but are unable to put together viable plans which can serve as solutions.
    Whenever I hear or read about a discussion such as this, I’m reminded what a software programmer told me about Microsoft. He alluded to a donut when talking about the original MS-Dos. Each time a bug was discovered, or technology advanced, he said, Microsoft didn’t go back to the drawing board and revise MS-Dos for efficiency. Instead, MS just put the equivalent of a bicycle tire tube patch on the donut. As the donut increased in circumference, an automobile tube patch was needed until the donut is now the size of one of the tires required for the huge earthmovers used in strip mining. While the earth movers are an efficient tool for an ill-conceived method of mining, MS is just as inefficient as ever.

    Now look at the parallels between modern local, state and federal governments’ solutions to infrastructure maintenance and modernization, medical care, education, etc., just for openers and the Microsoft mentality for operating system development and maintenance.

    Scares the hell out of me.

  3. bill dawers
    January 4, 2011 at 3:28 pm

    Thanks for the comment, Lee. That’s an interesting analogy for our current situation.

    FWIW, the just-released minutes from the Dec. 14, 2010, meeting of the Federal Open Market Committee of the Fed Board of Governors noted pretty much the same downside risks that I mentioned in my SMN column:

    “Others pointed to downside risks to growth. One common concern was that the housing sector could weaken further in light of the considerable supply of houses either on the market or likely to come to market. Another concern was the ongoing deterioration in the fiscal position of U.S. states and localities, which could lead to sharp cuts in spending and increases in taxes. In addition, participants expressed concerns about a possible worsening of the banking and financial strains in Europe, which could spill over to U.S. financial markets and institutions, and so to the broader U.S. economy.” More here: http://www.federalreserve.gov/monetarypolicy/fomcminutes20101214.htm

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