"The Anderson Forecast"
I have found when talking about wine, politics or the future of the real estate market everyone has an opinion. The UCLA Andersons Forecast has traditionally been predicting doom and gloom for the California economy and the housing market. Their third quarter report was much the same but surprisingly not as negative as I expected. Their report “Soft Landing" says the economy will sustain growth in the next few quarters but not suffer the knock out punch of a recession and real estate will come out of it with only a few bruises.
Looking a bit rougher than the soft landing housing analysts had been expecting, the current housing downswing is unlikely to lead to economic calamity. That is largely because interest rates are historically low, the overall economy still is moving ahead, and builders are stepping up efforts to get their unsold inventories under control.
In the absence of a national recession, however, California's home prices are unlikely to experience significant declines, the Anderson report says. However, it also indicates short term buyers won't realize much, if any return on their money for half a decade.
The forecast predicts the Federal Reserve will cut the funds rate to 4.5 percent and unemployment will rise as sectors related to real estate suffer declines. However, strong business investments and the trade sector along with cheaper housing will serve to take the economy off the ropes for a 3 to 4 percent growth rate by 2008.
In California, existing home price declines began a year ago and are spreading to new regions each month, but non-real estate sectors will help keep the economy afloat as real estate takes a brief, shallow dive.
This distinction is significant, since it implies a slowdown instead of a recession. Historically, recessions in California have had major job loss in at least two sectors, such as construction and manufacturing. Without recession-sized job losses, a significant decline in statewide home prices is unlikely. However, a few regions where new construction is a significant share of overall sales may see some price declines, since builders historically have been more willing to lower prices than owners," the report says.
Anderson Forecast report author, economist Ryan Ratcliff, says to expect declines in building permits to bottom out in 2008, after which activity will begin to return to 2000 levels trimming residential construction jobs, real estate and financial services.
Leamer says, California home prices five years from now will be about the same as they are today, though lower in real terms by as much as 20 percent. "We do not predict a recession, nor do we predict a substantial decline in average nominal home prices. This forecast is based on two arguments. 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," Ratcliff said.
Looking a bit rougher than the soft landing housing analysts had been expecting, the current housing downswing is unlikely to lead to economic calamity. That is largely because interest rates are historically low, the overall economy still is moving ahead, and builders are stepping up efforts to get their unsold inventories under control.
In the absence of a national recession, however, California's home prices are unlikely to experience significant declines, the Anderson report says. However, it also indicates short term buyers won't realize much, if any return on their money for half a decade.
The forecast predicts the Federal Reserve will cut the funds rate to 4.5 percent and unemployment will rise as sectors related to real estate suffer declines. However, strong business investments and the trade sector along with cheaper housing will serve to take the economy off the ropes for a 3 to 4 percent growth rate by 2008.
In California, existing home price declines began a year ago and are spreading to new regions each month, but non-real estate sectors will help keep the economy afloat as real estate takes a brief, shallow dive.
This distinction is significant, since it implies a slowdown instead of a recession. Historically, recessions in California have had major job loss in at least two sectors, such as construction and manufacturing. Without recession-sized job losses, a significant decline in statewide home prices is unlikely. However, a few regions where new construction is a significant share of overall sales may see some price declines, since builders historically have been more willing to lower prices than owners," the report says.
Anderson Forecast report author, economist Ryan Ratcliff, says to expect declines in building permits to bottom out in 2008, after which activity will begin to return to 2000 levels trimming residential construction jobs, real estate and financial services.
Leamer says, California home prices five years from now will be about the same as they are today, though lower in real terms by as much as 20 percent. "We do not predict a recession, nor do we predict a substantial decline in average nominal home prices. This forecast is based on two arguments. 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," Ratcliff said.
posted by Ken Calhoon at 7:38 AM
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