Personal Finance

Top Five Personal Finance Predictions for 2011

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A New Year is a chance for a new beginning and an end to old, bad habits. But for the financial market and economy, it’s not necessarily going to be a year of renewal. My prediction is that conditions will mainly remain consistent with 2010. Here are my top 5 forecasts.

1. Home sales will continue to fall.

Market watchers predict 2011 will be another sour year for the housing market, with an overall 7% decline in home sales nationally, according to Fiserv Inc.  Headwinds include a sour job market, stricter lending standards and an overall lack of confidence in the buying market. A recent Fannie Mae survey found that 30% of Americans say they’re more likely to rent their next home, not buy.  Unless we see employment improve and fewer foreclosures on the market, it’s impossible to predict a rebound in housing in 2011.

2. Student loans will make more headlines.

While news outlets focused on the mortgage crisis and credit card bubble, stories about student loan defaults got somewhat buried. But in 2010 we learned that student loan debt has eclipsed credit card debt in this country. And the default rate is soaring – and expected to keep at it. In the last year we’ve seen more books and documentaries on the subject, turning people’s attention to what some are calling the next bubble to burst.

3. Job creation will improve – albeit slightly.

Businesses are in no rush to hire in 2011, especially after learning how to be lean and mean during a recession. The 15+ million unemployed Americans may need to switch industries or rethink their career strategy, since it’s fair to say that their old job is no longer as in demand as before. Add to that rising taxes and health care costs and it’s challenging to feel upbeat about the job market in 2011. Labor forecasters say the average unemployment rate will be 9.5% in 2011 and 8.6% in 2012.

4. Mortgage rates will continue to go up.

A funny thing happened on the way to economic recovery. As consumer spending rose and as gross domestic product got upwardly revised for 2010, investors started to get jittery about inflation.  In turn we saw a year-end sell-off in the long-term treasury market, specifically the 10-year bond. As prices fell, yields rose, triggering an upward climb in mortgage rates, as well, since 10-yr treasury yields and mortgage rates move in tandem. One thing is certain: the days of rock-bottom interest rates are gone.

5. Entrepreneurship will boom.

Finally, a silver lining.  With few jobs, more Americans will be inspired to start businesses, in particular the Gen Y group that’s recently graduated from college and baby boomers entering retirement. The Gen Y crowd, with their optimism and free rent in mom and dad’s house, will increasingly find ways to innovate and become their own boss. On the other end of the spectrum the 55+ crowd, already the fastest growing age group of entrepreneurs – will keep up the momentum, as they seek more financial security in retirement.

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  • Profile facts

    This week on Intelligent Investing, we’re taking a look at the crystal ball and coming up with some predictions for 2011.

    What’s likely to move the real estate market next year? Find out from Boston Properties ( BXP – news – people ) Chairman Mort Zuckerman. What is to become of Wall Street in the age of reform? Jack Bogle takes a look at the market from 30,000 feet and more than half a century if investing. Plus, James Wolfensohn, former head of the World Bank, brings his unique perspective on the global economy and philanthropy.
    John “Jack” Bogle On Fundamentals
    Steve Forbes: Well, Jack, good to have you with us again. I have to ask you a question–I think I know the answer–in terms of what you see ahead for 2011, the next 12 months. Your time horizon seems to go beyond one year.

    Jack Bogle: Yeah, nobody can predict. While the economy will probably stumble its way a little bit higher, I don’t look for anything big on the economic front, any big gains. But we’ll probably stumble through this recession and this slow growth that’s following it. But in terms of the stock market, there’s no point in predicting the stock market for a year because a stock market is based on two simple

  • Adam

    My predictions for 2011 as an investors perspective will be a good one specially for those people who are smart enough to invest in right place in right time. 2010 was a mixed up year for many investors not many of have become rich,there was ups and down in the market,but if you plan and invest accordingly this year may be a good one.My suggestion will be to invest on Real estate as “Farnoosh Torabi” said,other then this if you are planning to invest in luxury commodity market you can choose some brand name like Gucci,LVMH,Tiffany etc.Of course there will be a competition in the market.So you need to be very smart and updated in-order to survive. So invest but smartly so that you don’t fall in any kind of debt trap.

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