California Real Estate Market Will Not Lead State Into Recession
According to state economists, the real estate slowdown is not going to be a cause of recession in the state. Those that feel the housing industry is the primary catalyst in economic development in California will have to live with the fact that as real estate prices find their equillibrium after the intense run up over the past few years, the economy will survive and not dive into a recession.
Other than the decelerating real estate sector, “all has been steady as she goes” in the state’s economy this year, said Ryan Ratcliff, an economist with the UCLA Anderson Forecast, which releases its quarterly report on California today.
Even in real estate, there were not any surprises, Ratcliff said. After multiple years of double-digit price inflation, housing prices, as expected, have flattened across the state and even declined in some areas, a trend that the UCLA forecasters expect to continue.“If you buy a home today, you could sell it for about the same price in five years,” said Ed Leamer, director of the UCLA Anderson Forecast. Of course, after accounting for inflation, the house’s real value would have declined, he noted. UCLA is predicting that consumer prices will rise 4.5 percent this year, 3.3 percent in 2007 and 2 percent in 2008.
Leamer predicts California real estate will remain sluggish for a long time — at least five years — but with little price deterioration other than the failure to keep up with inflation.
“Relative to the historical norm, California homes are about 60 percent overpriced,” he said. “It takes five years to get rid of that.” After that period, he expects home prices to appreciate at a rate about 2 percent above the inflation rate. via the San Francisco Chronicle
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Comment by mikey on 28 September 2006:
There is and will be a recession in housing in California and throughout the nation. The only questions are how deep and how long as well as it’s economic ripple effects on related businesses and industries.
You DON’T need to be a UCLA related RE industry Turkey with a Phd to figure THAT one out !
Comment by Jeff on 28 September 2006:
It’s hard to see that there wouldn’t be widespread economic issues if many homes go into foreclosure. Obviously if you can’t afford your mortgage you can’t afford many other things either. For everyone that is foreclosing there are going to be just as many close to foreclosing scraping together change from the couch to make the payment. Seems that it could great a definite tighten effect on consumer spending.
What do you think?
[trackback – http://www.housingbubblewatch.com
Comment by yotsuya on 28 September 2006:
So:
1) Price will stay flat for 5 years
2) Housing is 60% overvalued
3) After 5 years, housing will no longer be overvalued
So he’s saying we will see massive inflation (12-13%) over the next 5 years? Because the dollar will have to lose 37.5% of its value through inflation to make this scenario happen ($1.60 5 years later has the same buying power as $1.00 today). Am I reading his comments correctly? Is it time to dump the dollar and buy Euro or Chinese Yuan?
Comment by Cal on 28 September 2006:
“Relative to the historical norm, California homes are about 60 percent overpriced,†he said. “It takes five years to get rid of that.â€
So we are apparently going to have 10% inflation over the next 5 years, and Leamer doesnt see any problem with that.
Comment by Peter Coy on 29 September 2006:
Here’s something I wrote for BusinessWeek’s Hot Property blog about how the housing downturn may leave the stock market unscathed. (It’s looking smarter now that the Dow is on the verge of a record.)
http://www.businessweek.com/the_thread/hotproperty/archives/2006/09/merrill_lynchs.html
Comment by Ryan on 23 November 2008:
whoops.
Comment by Lee Shoemaker on 17 September 2009:
It will take years to chisel the mud off Ryan Ratcliff’s face after that Hindenberg forecast. Sadly, the banking and public sectors use these “experts” to make monetary policy and others which actually worsens the situation. Advice to Ryan: “Real Estate is California”
Lee the Geologist