Housing Market to Slow Economy

The UCLA Anderson Forecast predicts a slowing housing market will lead to lower economic growth in California but not an all-out recession.
By: HOWARD FINE: Los Angeles Business Journal Online
California’s economy is headed for a “soft landing” as the slowing housing market puts the brakes on economic growth, according to the quarterly UCLA Anderson Forecast to be released this morning.

But, the forecast says there is little chance of a full-blown recession like the region experienced in the 1990s. A stabilized manufacturing sector and continued growth in other sectors like professional and business services should offset drops in real estate-related employment.

The forecast calls for housing prices to flatten over the next year as rising interest rates take hold and for payroll employment growth to slow to about 1 percent in 2007 from 1.8 percent in both 2005 and 2006.

“The real estate slowdown will lead to a flat housing market and a slower economy. We do not predict a recession, nor do we predict a substantial decline in average nominal home prices,” the forecast states. “There is not enough vulnerability in the usual sources of employment loss to create a recession and the historical record suggests that average home prices do not usually fall without this kind of job loss.”

The forecast does predict some pain over the next year, especially in real estate-related industries like finance and construction. Construction employment, for example, is projected to fall 3 percent in 2007, a sharp contrast to employment growth rates topping 6 percent in both 2004 and 2005.

And there are some wild cards in the forecast, including manufacturing employment. “If we do see another round of job loss in manufacturing, all bets are off,” the Anderson forecast says.

Another uncertainty is impact on consumers if they find themselves upside-down financially from exotic mortgage loans or squeezed by continued high energy costs.