California’s housing market slowdown is rippling through the economy but the likelihood of recession-size job losses over the next two years remains small, according to a new report on the state’s economy.
Economists at the UCLA Anderson Forecast also maintain that the latest residential real estate boom market will cycle into a soft landing rather than a crash like the one in the early 1990s.
“We’re going to see real estate-related employment slow down,” said Ryan Ratcliff, who wrote the report.
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He concludes that the state’s economy is at a tipping point but there will be positive job growth over the next several years.
The forecast’s “buzz word is sluggish but no recession. That forecast is then what leads into the soft landing in real estate,” he said.
Ratcliff does not see a recession on the horizon nor a decline in home prices. He cites two reasons for the latter.
Historically, sustained declines in home prices are “extremely” rare and occur only during recessions and in hard-hit places such as California during the early 1990s.
He notes that since 1975 there have been only two periods of negative price movement. The first a one-quarter dip in 1982 and the second the prolonged slump in the 1990s. Both came during recession.
Over the next two years, recession-driven job losses are not anticipated although the real estate sector could see some contraction.
“It seems unlikely that California would experience the 10 to 25 percent drop in nominal home prices that some observers have predicted without a major 1990s-sized recession,” Ratcliff said.
However, while some markets could see prices slightly lower than a year ago for a period five years forward, prices are not likely to be lower than today, the report said.
However, the huge appreciation gains of the past few years are history. For example, UCLA’s forecast came a day after real estate information provider DataQuick Information Systems reported that the median price of a Southern California home increased an annual 6.4 percent in May. That is the smallest gain since a 6.2 percent increase in July 2000.
The biggest difference between this forecast and the last one is that the slowdown that was expected in this quarter is being pushed back to the next quarter.
UCLA anticipates that California will have nonfarm employment growth this year of 1.8 percent and 1.2 percent the next two years.
That compares with a national rate of 1.5 percent this year, 1.1 percent next year and 1.3 percent in 2008.
Reflecting the real estate slowdown, construction employment should grow by 4 percent this year then fall 3.1 percent next year and 5.2 percent in 2008.
Ratcliff said construction employment has hit a plateau in Southern California and the Bay Area while the Central Valley has lost about 3,000 sector jobs.
The strongest sector in the UCLA forecast is professional and business services, with employment increasing 3.1 percent this year, and 2.2 percent each of the next two years.
Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., agrees with UCLA’s assessment.
“Definitely the boom is over,” Kyser said of the housing market. “As you drive around you see more price-reduced stickers.”
The Los Angeles area should also fare better construction-wise in the coming months because of some mass transit and commercial building projects that are under way or about to start.