Housing slowdown, state woes are forecast
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER
September 28, 2005
In a glum view of the state's economy, UCLA economists warned yesterday that a slowdown in housing prices is coming that could severely weaken the economy.
The widely followed UCLA Anderson Forecast said the economic outlook is mediocre at best and that a deep drop in housing prices could prompt a recession by the end of next year.
"The California economy right now is built on housing," said Christopher Thornberg, an economist at the University of California Los Angeles. "The housing market is still hot right now, but at some point in time in the next several months, housing is going to peak."
Thornberg said that when the housing boom ends, every sector of the economy will feel the impact. He said he is especially concerned about how tightly the state's job market has become intertwined with the housing boom.
Over the past five years, much of the job growth in California has been in professions tied to the housing market: construction workers, real estate brokers, mortgage lenders and bankers. Other fields that once fueled the state's growth – such as factory work or information technology – have been on the decline.
Thornberg worries that if the housing market freezes, many of the workers involved in housing could find themselves looking for work. He noted that year-over-year sales of housing units have already declined by nearly 10 percent in San Diego County and 16 percent in San Francisco.
"If we see the balance of the state starting to follow the Bay Area and San Diego in their cooling trends, the countdown begins," his report warned.
The Anderson economists' concern about overheated housing prices was shared yesterday by Federal Reserve Chairman Alan Greenspan, who warned that a rise in interest rates could spark "a fall in the prices of risky assets."
In a speech the day before, Greenspan warned that speculative borrowing was driving up the price of housing and that certain borrowers and lenders "could be exposed to significant losses" if housing prices collapse.
Economists say Greenspan is trying to cool the housing market gradually, in the hope that it will not collapse.
"Greenspan understands the huge implications of having the housing market come unglued," said Michael Swanson, economist at Wells Fargo Bank. "He's working the bully pulpit, jawboning to raise awareness and put some fear of risk back into the market."
Peter Morici, economist with the University of Maryland, said Greenspan is "getting increasingly frustrated by his inability to curb the housing market, much the same as he was unable to curb the bubble on the stock market when he talked about the 'irrational exuberance' of investors in 1996."
Morici said Greenspan is "quite concerned that the housing market is oversold and that when the market readjusts, it could hurt the economy too much."
The Anderson Forecast has warned over the past couple of years that the rise in housing prices could have a dire effect on the economy if prices collapse.
In the current quarterly forecast, economists Thornberg and Michael Bazdarich evaluate a host of risks to the national and state economies, ranging from rising gasoline prices to the aftermath of Hurricane Katrina.
Katrina and rising energy prices have put a dent in consumer confidence. The Conference Board, a corporate-sponsored think tank in New York, reported yesterday that its consumer confidence index fell nearly 19 points to 86.6 in August, the sixth-biggest drop since the index was created in 1967. The decrease was larger than the 17-point decline in confidence after Sept. 11, 2001.
However, the Anderson Forecast said Katrina will not have much of an impact on the state or national economy, even if it props up the price of gasoline. "Gasoline prices are already leveling off, and the rise in prices has not affected consumer spending patterns," Thornberg said. "Consumers are spending faster than ever."
The economists are much more concerned by housing prices.
Statewide, California still appears to have a vibrant housing market. According to the California Association of Realtors, the median price of homes sold jumped 20 percent over the past year to a record $568,890.
However, there are signs that the market has slowed sharply. In San Diego, which long boasted some of the nation's fastest-rising housing prices, prices rose only 0.1 percent from July to August. Prices in Palm Springs, Ventura and Monterey counties declined for the month.
"We were the first part of the country to feel a real estate rush, and now we're the first to be getting a slowdown," said Stan Sexton, a broker at New Horizons Realty in La Mesa.
Sexton said there are more than 300 homes on the market now in La Mesa and the College Area, a high number that he attributes to people wanting to take their equity to the bank.
"Prices have leveled out," he said. "Everyone's trying to cash out now, but it's too late. Now they've got hundreds of properties to compete with. A lot of agents like myself have more activity than accomplishment. Negotiating is taking longer, you don't have people lining up making multiple offers, and you have a lot more buyers coming in with lowball offers."
Lisa Vander at Pacific Blue Investments in Solana Beach said that "we're definitely at the top of the market now. We're waiting for the indicators that will show sales prices start declining."
But some real estate professionals maintain that the market is strong.
"If you look at demand driven through job growth, availability of low interest rates and the supply of homes on the market, San Diego seems to be in very good shape," said Joe Anfuso, chief financial officer of Shea Homes.
Anfuso said demand for homes in San Diego still outpaces supply, which should continue to prop up the value of the homes.
Thornberg challenged the view that real estate is in short supply in California.
"The current pace of building is at about 1.7 homes per new worker in California, almost twice the long-run national pace of 0.9 new homes," he said. "We do indeed have a housing shortage in California, but it is for low-income apartments."
signonsandiego.com
--------------------------------------------------------------------------------
Dean Calbreath: (619) 293-1891; dean.calbreath@uniontrib.com
|
