Eric Hovde, one of the investment managers that I most admire, has predicted, along with Meredith Whitney of Oppenheimer, that there are additional shoes to fall that may create new risks in the financial markets. Whitney has predicted an additional 20% drop in residential real estate values in 2009. Hovde warns of the following shoes yet to fall in the near future:
- Commerical Real Estate - as businesses begin to feel more and more of the effects of the recession, commercial real estate mortgages are showing starkly rising default rates. This growing risk could affect $4 trillion of commercial real estate loans during 2009.
- Corporate Loans - As earnings continue to be revised downward in what could be an endless spiral, corporate debt defaults will continue to rise, business bankruptcies will rise, and the result will be growing risks to the financial system.
- Municipalities - With the downward deflationary pressures on real estate values, property taxes will need to be revised downward to compensate. There is a delay of about 18-24 months before municipalities are hit with the lower tax revenues resulting from reduced property value assessments. This will result in significantly lower revenues to cities, counties, and state governments, and will lead to another round of lay-offs as government entities are forced to slash budgets and payrolls during 2009 and 2010.
