UCLA Economists Expect Housing Downturn to Pack Wallop

[mbperrin]

http://www.labusinessjournal.com/article.asp?aID=03996742.9525699.1159210.3800033.68412202.736&aID2=89161

By MATT MYERHOFF
Los Angeles Business Journal Staff

The end of an inflated housing market will likely lead to a recession after April 2006 that hits hard in Southern California, where so many jobs and so much economic activity are dependent on the real estate market, according to the quarterly UCLA Anderson Forecast.

Economists at UCLA's Anderson School of Management said in the report released Tuesday that the housing market is artificially propping up the economy, particularly in Southern California. They predicted that falling consumer spending on housing would precipitate a recession as it has in nine of the last 10 recessions.

Ed Leamer, director of the Anderson Forecast, said that despite many signs that California's economy is recovering, a recession can't be headed off unless the predicted decline in spending on housing is offset by much higher exports or military spending.

"Southern California has been producing jobs, but they all have to do with the real estate market, which is due for a turnaround," Leamer said. "We're going to lose $100 billion to $150 billion in reduced spending on homes by consumers, and you have to make that up, so it either has to be in exports or in defense spending." more....


Ruh-roh!

[cthrumatrix]

1. shhhhhhhhh ......CNBC is syaing all is ok!

[VegasWolf]

30. Exactly, I remember CNBC anchors saying buy Yahoo at 380.00

before it goes up again in 2000. I never watch that damn network anymore esp after their sponsoring the Dennis Miller garbage show.

[alarcojon]

2. Here's the part that scares me:

a recession can't be headed off unless the predicted decline in spending on housing is offset by much higher exports or military spending.

[getmeouttahere]

4. Like BushCo needs any encouragement....

in that area!

We're so fu**ed it's not even remotely amusing!

[barb162]

8. I think a lot of economists would dispute this sentence

like how about non-military spending, how about increased manufacturing, etc.

[1932]

10. That's a California-specific issue. Lots of military companies in CA.

Military spending generally isn't good for an economy because it isn't an investment in the future with huge returns. But, since CA has so many defense companies, it would help CA.

[Tempest]

20. The closing of military bases

Will offset any increases in military spending.

[shanti]

26. well, it won't be exports

cause we've outsourced everything!

[VegasWolf]

31. True, because this genius admin has exported all the manufacturing

jobs.

[cally]

3. In a sane world, the state government would deal with

it's debt now since all predict a recession. Instead we're in la-la land where state spending just happens. Cut taxes and increase spending and then blame someone else for state deficits.

If the recession hits next spring, we can say goodbye to Arnie.

[1932]

12. Most of CAs spending is on the right stuff: education, health, etc.

It's investments in the future which CA needs to make. If they don't, short term savings will cause long term huge losses.

CA's tax problem has to do with allocation of tax burden. The richest have the lowest burden.

[UCLA Dem]

21. We can thank prop. 13 for that. Plus, they're still trying to gut the

education system. People say they want the finest schools and unversities, but then they don't want to pay for them.

Over the last 4 years or so UC and Cal State have taken major funding cuts.

[AndyTiedye]

16. California's Debt is Largely Due to the ENRON RIP-OFF

Until Enron robbed the state blind (with the help of the * regime),
California was running a big surplus.

Then Enron stole 9 BILLION from us.

Arnie was put in to ensure that the state would not attempt to get
any of that money back.

He also slashed the "car tax".

Of course we're in debt now.

We should not wait until next spring.

If Arnie gets his special election this Fall,
WE SHOULD PUT A RECALL OF THE GOVERNOR ON THE SAME BALLOT!

[cally]

18. Enron is part of the problem

but CA has cut taxes on property, vehicles, and eliminated the highest tax rate. At the same time, spending has increased. Most of this increase is because of fixed expenses like health care. California has underfunded capital improvements for decades. We have to start addressing the problems.

[AndyTiedye]

23. Without Enron and Arnies Cut in the Car Tax

we would have had plenty of money to deal with all that.

We were running a budget surplus until they stole our electricity
and made us buy it back at 100x the cost.

[sendero]

5. I have no doubt...

... that there are housing bubbles. But not everywhere.

Where I live in far north Dallas, near Plano, housing has been going nowhere for years. I did a search for comparables in my area and I'd say that my house is probably worth about 20-25% more than what I paid in 1998. So, eight years, (say) 24% - not exactly barnbusting.

I suppose that it's because of what the dot.com bust did to this area, putting thousands of tech workers out of a job.

But again, this bubble situation is only in isolated areas as far as a I can tell.

[HockeyMom]

7. New York Tri State Area

is only second behind California.

[the other one]

9. 24% far outpaces inflation for the same period.

It may not be a bubble, but you could easily lose 15% in a general downturn. It might not be as bad as what will happen in Southern California and South Florida, but it will hurt plenty all the same.

[sendero]

27. Admittedly...

.... I'm using round numbers here. But 7 years @ 24% is 3.4% a year. (I realize that a true calculation would compound, but like I said "round numbers".

That may be lower than the official CPI, but it is not significantly lower than the real inflation rate IMHO.

[WhiteTara]

11. I think the housing in Dallas

is just recovering from the incredible over building in the 80's. There were so many buildings going up all the time that the joke as I remember it was that Dallas would be a great city if they ever finished building it.

[1932]

14. If you bought or refinanced and then the value dropped even just $10,000

You might be screwed. $10,000 is a small percentage of the average home's values, but given that most Americans have stagnating wages, where are they going to get that money?

[sendero]

28. My house is....

.... paid for and I don't intend to ever mortgage it :)

[AndyTiedye]

15. The Big Gains in House Prices are in BLUE STATES!

SOME of it is a speculative bubble, to be sure, but I think a lot of
people are voting with their feet. That is one kind of "voting" that
Diebold can't fiddle with. Of course, the media won't talk about that.

[section321]

24. Southern California is a rather large "isolated" area.

When someone can sell a rundown, 2 bedroom 900 square foot house in a bad neighborhood for $430K, something is seriously wrong. (Actual experience of my Mom's friend two months ago in Downey, CA).

The population of Southern California is around 20 million people in LA, Orange, Riverside, San Berdoo, San Diego. That makes us more then an "isolated area."

[Ezlivin]

25. Yeah, but meanwhile in NE Tarrant County...

In May there were 864 homes on the foreclosure list in Tarrant County, up 23.8 percent from the year before, according to figures for the Foreclosure Listing Service.

The speculation is that all those home-equity loans are now causing foreclosures as owners tap out on their vastly overextended credit.

We plan to sell and bail out of this area next year.

[sendero]

29. Foreclosures...

.... in Plano are also high and have been for years.

And the new "no down", "no qualifications", "get an ARM" lending practices are definitely going to hurt us all in the end.

[edhopper]

6. While it's true

that the housing bubble is more prominent in some areas, it is likely that when it collapses it will have wide spread effects. Remember when the dot.com bubble burst the whole stock market fell. Not just the no-value tech companies. Most of our present economic growth is from the housing boom. Without it we are f*cked.

[Deja Q]

13. I see more 'for sale' signs up, even in NEW yuppee housing blocks.

So we've peaked.

And the more people lose their jobs, the more this is going to happen.

[nini]

17. it'll hurt the investor types more than those who are in for the long haul

I fully expect to see a 10-15% loss in property value after buying a new house in the next few months. Because my goal is to pay off this house and stay there I can ride out the down turn and eventual rebound. I will get the most of the existing equity I have now so it makes sense to sell now and buy.

IF I was buying for an investment only over 3-5 years - I wouldn't do it at this time. It's too risky.

[Boomer]

22. Jumping ship

One of my co-workers has just put his home up for sale -- he wants to cash in on his inflated equity before the market goes bust. He and wife are cutting family possessions down to the bone, so they can move into an apartment.

[RawMaterials]

33. sad thing is what do young

people do. lets say they have a good job and money for a small down payment, but yet cant afford a House. sit and wait or jump in and buy locking in a very low interest rate.

[Boomer]

34. Low interest rates on an devalued house?

That's not much of a bargain, frankly. You could end up losing LOTS of money, even with a low rate.

[nini]

36. I thought of that but it wasn't worth the hassle

I'll ride it out and if it collapses so bad I lose everything then the economy is going to be so screwed it'll be a nightmare anyway.

I have to plan on retiring one day and I don't want a house payment or rent. But I'm old enough that I can't take a chance either.

[thinkingwoman]

37. we're in the same boat

I'm buying in the next few months and planning to hold for at least a decade or more.

I'm buying a house to live in for the next few years, but in a college town where renting it out is always an option, so I can hold as long as I need to.

[UCLA Dem]

19. I hope we find another way to boost the economy b/c housing prices in

California are out of control. Pretty soon no one is going to be able to afford housing.

Last year the median housing price in Orange County (for those not familiar with Socal, its a very wealthy suburb heavily republican known for being very expensive) was $500,000. This year the median house price for all of CA is $500,000. Thats even out in the boonies!

Its completely crazy. We need to find another way to keep the economy healthy.

[NNguyenMD]

32. ah yes, the "a renter's" society where the wealthy own the homes

and everyone else pays gouging rent to live in them.

[siliconefreak]

35. don't know about a "renter's society"

...but for now, at least in California, renting is a better deal than buying.

[AX10]

41. Too bad I couldn't get some French investors...

and go into the really 'Red' areas and buy up all the real estate and then rent to all those Bush-loving flag wavers. :D

[Miss Chybil]

38. "...or military spending." Uh, oh.

:cry:

[AX10]

39. Then the economy will go into a deep recession and...

the Democrats will still lose, not because of (Diebold) but because they have no balls (like Dickless Durbin).

[Sgent]

40. Rental prices

are one of the chief methods of determining how much a house is actually worth. If $600k house is renting for 2k/month, then it is significantly overvalued for the long term. A correction would bring it down to 300k or so.