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The forecast is bad, we’re headed for recession, but “denial still runs strong.” So went the message from economists Chris Thornberg and Jon Haveman, principals of Beacon Economics, at their first annual San Diego economic forecast this morning.

I speak to Thornberg, who’s based in L.A., often for his take on the local happenings in housing and the economy. At his previous post as an economist with the UCLA Anderson Forecast, Thornberg was one of the people predicting recession and a housing crash back in 2005, while the boom raged on.

In his remarks today, Thornberg looked at the state and national scenes and predicted recession, further home price drops and more foreclosures at both levels.

I found this interesting — Thornberg characterized this year as “the year when people walk away.” He, like our Nerd’s Eye View economist Rich Toscano, pointed out a long time ago that falling home prices would mix with nothing-down loans to cause homeowners to abandon their properties when times got tough.

“Nowhere is it as easy as it is in California to just walk away from your homes,” Thornberg said this morning. “‘Walk away’ is going to become the word of the day.”

He spoke of the national “twin deficit” — that created by deficits in consumer savings and in national trade. And of the recent increases in the unemployment rates, Thornberg said there’s more where that came from.

“You never had a half-percent increase in unemployment in the U.S. economy that didn’t go up by another 1, 2, 3 percent,” he said.

Haveman, Thornberg’s partner, zoomed in on San Diego in his remarks. He said the four biggest threats to the health of the local economy were consumers, real estate, consumers and real estate.

In numbers, Haveman projected the region’s unemployment rate, currently at about 4.9 percent, to rise to a peak of 6.4 percent by the fourth quarter of 2009.

And the economists didn’t project a turnaround for the region’s housing market before 2010. In a “peak-to-trough” measure, they projected home prices will have fallen 38 percent when the market finally hits bottom. Prices for resale detached homes have already fallen 16.3 percent from the peak in November 2005, according to the Case-Shiller index. Thornberg said there will be no significant housing appreciation until 2012.

Still, Haveman pointed out the research and development funding coming into institutions like UCSD. That symbolizes the region’s viability to attract high-paying, skilled jobs.

“In the long run, the future for San Diego is very bright,” he said. “But there is going to be a significant and very painful downturn in the next couple of years.”


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