When will Utah's housing market stabilize and normal business and lending activity resume?

Probably not soon enough for most. Local economists are mixed about Utah's prospects in 2009, saying the still-contracting economy makes the timing of any recovery a moving target.

While Wells Fargo economists see more job losses and more cautious consumer spending in 2009, they say Utah's economy may bottom out by the second half of the year if the Federal Reserve interest rate cuts, lower mortgage rates and a stimulus package of up to $800 billion proposed by President-elect Barack Obama succeed in unfreezing the credit markets. Without a healthier flow of credit, it will be hard for the economy to stage a solid recovery from recession.

Rees Petersen, vice president and regional investment manager of Wells Fargo's private bank division, believes that much of the current recession is driven by fear among consumers and businesses, rather than weak economic fundamentals.

"The current crisis is real and scary, but a lot of that is fear-based," Petersen said at an economic forum Tuesday. "Yes, there is too much debt among consumers. There are bad loans out there, and there was a housing price bubble. But the crisis is also aggravated by consumers who are delaying or won't make that big purchase because they are worried about their jobs, and businesses who won't invest to increase their productivity because they fear they won't be able to renew their loans."

Not that there's anything wrong with being financially prudent. He said that what's occurring is an unavoidable "deleveraging," or reduction of debt, by both households and corporations. After a two-decade expansion of credit availability, consumers' attitudes toward spending and debt have changed following the sharp dive in stock and real estate asset wealth in the past year.

"But we've swung from one extreme to the other, from being a culture that uses debt to being debt averse. And that's a dangerous reaction because not all debt is bad," Petersen said. "The government has been good at addressing fiscal policies but they also need to address the fear that consumers and investors now have."

"Many are looking for Obama to play the same role as Franklin D. Roosevelt [who held inspirational fireside chats during the Depression years] to talk people back from the brink," he said.

To put things in perspective, Petersen pointed to significant differences between the ongoing recession and the Great Depression. He said he doesn't expect unemployment to rise to the extremes (from 3 percent to 25 percent) that were seen during the Depression years because of the stimulus being applied to the economy. So far, national unemployment in the current recession has risen from 4.5 percent to 6.7 percent, and is expected peak at around 9 percent in mid-2009, he said.

Gross domestic product shrank 30 percent during the 1929 crash, but the current economy only contracted 0.5 percent in the third quarter of 2008, and is expected to contract 1 percent in 2009. And the fiscal measures being implemented today are the opposite of those put in place after the 1929 crash, he said.

In fact, Wells Fargo economists believe that the worst of the credit crisis may be over (barring any surprises) as financial institutions have begun to rebuild their balance sheets with the help of the Fed's interest rate cuts and capital injections from private equity funds and sovereign wealth funds.

In addition, the globally-coordinated fiscal and monetary actions by international banks in the current recession should also help mitigate its severity and duration, Petersen said.

But Mark Knold, chief economist for the state Department of Workforce Services, isn't quite as upbeat.

"You probably can get some semblance of a rebound in the latter part of 2009, but that doesn't necessarily translate to job growth, which is typically a lagging economic indicator. Businesses usually take their time before they're convinced the uptick in orders are sustainable. Only when they're convinced of sustainable growth, then they'll hire more workers."

Wells Fargo economists believe the Utah housing market may be bottoming out as the steep decline in mortgage rates, continued growth in the state's natural population, and sharp drops in housing starts help to reduce the glut in inventories. But Knold remains sceptical, saying the state may not have as vibrant a job market to absorb the excess homes.

"Lower interest rates may stimulate refinancing, but I'm sceptical of real home-buying activity because there's a real skittishness in this market," he said. "There's enough population growth to fuel demand for housing here. But the credit markets are still frozen for the most part and now there's job insecurity.

"The psychology of fear is a big influence on what people will or won't do," Knold said. "There needs to be some real positive economic indicators, such as a rebound in housing activity and tax revenues starting to stabilize and increase -- and hopefully it could come via the fiscal stimulus-- before the economic news starts swinging to the positive and the media starts picking that up. But this is a powerful downturn. I don't see it going away in one to two years. There could be a multi-year correction," he said. "The economy could turn the corner in 2010, but there has to be a fundamental revaluation of capitalism, its structure and foundation, and that doesn't take place overnight."