There’s no question that California’s housing market is cooling, with sales volume dropping. But the good news, according to an influential forecasting group, is that the state will manage a soft landing, experiencing only mild economic deceleration.
“The weakness in the real estate sectors will slow everything down a little bit, but not enough to get an actual recession,” said Ryan Ratcliff, an economist at the UCLA Anderson Forecast and author of a new report on California titled “At the Tipping Point.”
Once-lavish runups in home values will slow and even sag, according to Ratcliff’s projections.
Inflation-adjusted home-price appreciation, which was in double digits from 2002 through 2005, will be 7.5 percent this year, 0.3 percent in 2007 and negative 4.1 percent in 2008, the report forecast.
Residential building permits are predicted to decline from 208,900 in 2005 to 179,000 this year to 160,400 in 2007.
The housing slowdown will cause job losses, primarily in the construction and financial sectors, Ratcliff said. That’s not surprising since sectors related to real estate fueled creation of 30 percent of new payroll jobs in 2005.
Jobs such as mortgage lending, mortgage brokering and real estate brokering are expected to take a hit. Slow but steady growth in financial services jobs in such areas as securities, insurance and banking will offset those losses.
“The total impact on the financial activities category will wash out to be basically flat,” Ratcliff said. “Finance will lose some of its steam but not actually lose [net] jobs.”
That leaves construction as the single sector most likely to feel the impact.
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A full-blown recession generally is triggered by job loss in at least two major sectors. But most sectors are chugging away at decent levels.
“No other sectors in California employment [in addition to construction] look like they can be the second half of the double whammy,” he said.
While California employment has returned to the same level as before the 2001 recession, the geographic distribution of jobs has changed. Job growth in Southern California has been stronger than in the north, the report said.
In 2000, the Bay Area contributed 22 percent of California jobs and Southern California’s share was 53 percent. In 2005, the Bay Area had 19 percent and Southern California 54. The Central Valley accounted for most of the remainder.
Ratcliff said that was in part because real estate-related finance jobs were heavily concentrated in Southern California.
The Bay Area is picking up, he said, with big boosts from increases in leisure and hospitality jobs.
“The Bay Area economy is finally starting to show an acceleration of job growth for the first four months of the year relative to what we saw last year,” Ratcliff said.
Professional business services and retail and wholesale trade helped tourism boost the Bay Area job count.
“I think the Bay Area economy is finally getting to the point where there are enough other sectors that have started growing again that the slowdown in construction and other real estate related sectors will be softened,” Ratcliff said.
Another big division between Northern and Southern California is in personal incomes.
There the Bay Area holds sway, accounting for 24 percent of personal income in 2004, even though it has just 17 percent of the population.
Southern California, with 48 percent of the population, has 47 percent of the income, while the Central Valley has 7 percent of income and 10 percent of the population.
The Bay Area’s highly educated population accounts for the disparity, Ratcliff said.