Hot Housing Market Still 'Cruising'
UCLA Anderson Forecast, among the first economic prognosticators to proclaim that California's housing boom was peaking, is now singing a slightly different tune.
The housing boom isn't quite over yet, it says.
Although signs of slowing are starting to crop up in certain regions, "there is lack of convincing evidence of a slowdown in the big picture," according to UCLA's quarterly forecast on California's economy to be released today.
Southern California "is one part of the state that's got some zip in it," said Ryan Ratcliff, an economist and author of the latest forecast. "We're not accelerating but we are still cruising along at 80 to 90 miles an hour."
However, the state's housing market will probably begin to slow over the next two years. That would lead to a loss of 2% of the jobs in construction and other real estate occupations and force Californians who have tapped into their homes' equity to rein in spending, Ratcliff said.
Such a scenario points to "anemic" growth for the state's economy in 2006-07, but not a full-blown recession, he said.
Ratcliff's view contrasts with previous UCLA forecasts that pointed to a possible real estate-led recession. With so much of the state's economy dependent on the housing sector, they argued, signs of deceleration were cause for concern.
The Anderson Forecast, best known nationally for having accurately predicted the 2001 recession, has long argued that real estate prices in California and the U.S. are unsustainable, partly because property values have climbed far faster than personal incomes.
As recently as September, UCLA Anderson Forecast economist Christopher Thornberg said California's housing boom appeared to be peaking, and the resulting slowdown was expected to produce weak economic growth over the next two years and a possible recession by the end of 2007.
In researching the latest report, Ratcliff said he wanted to take "a deeper look at the data before proclaiming the end of the real estate boom." His conclusion: It depends on whether you see the glass as half empty or half full. Ratcliff falls into the half-full camp.
He found that the year-over-year rate of home-price appreciation was no longer growing in the Bay Area and was growing slower in Southern California. But price changes are still running about 18% above year-ago levels. That suggested to him that although the pace of price growth may be slowing, "we're still a long way from prices flattening out."
