Study: Recession not expected. Check it out:
(Press-Enterprise, The (Riverside, CA) (KRT) Via Thomson Dialog NewsEdge) Sep. 28--California's economy may continue to slow over the next year as the housing market cools and job growth tapers off, according to a UCLA study released today.
But the Inland region may not be as harmed by the slowdown as other parts of the state, a UCLA economist said.
"The Inland Empire is experiencing the rosiest end of these trends," said Ryan Ratcliff, an economist with UCLA Anderson Forecast. "Construction growth is still strong in the Inland Empire, and there's been an uptick in manufacturing jobs."
Ratcliff said a recent exodus of residents from the coastal counties inland has resulted in a strong market in the region, unlike any other area in the state.
"But nonetheless, it is slowing down from what i t was last year," Ratliff said.
UCLA economists expect the production of new homes in the Inland region to fall next year as a result of slowing sales. That also means fewer construction jobs -- which have spurred much of the region's recent job growth -- will be added.
The forecast center predicts a statewide loss of 100,000 construction jobs between the start of 2006 and the end of 2008, or about a 10 percent drop in total construction employment.
A slowing real estate market also is harming real estate brokers and lenders, they noted.
A bit more foreboding for the Inland region, Ratcliff said, is that in Riverside County, new homes made up 40 percent of new sales, but prices continue to rise.
He said it's uncertain whether that data means falling house prices in the rest of the state haven't caught up to Riverside County or that conditions in the county are still favorable compared to the rest of the state.
Although the UCLA report calls for a statewide slowdown in the real estate market, economists do not expect a full recession. Ratcliff said recessions in the past have been caused by a parallel decline in two economic sectors, never by housing alone, and currently the rest of the economy looks healthy.
Still, though sales of new and existing homes have plummeted 30 percent in California since their September 2005 highs, there is no reason to expect a precipitous decline in home prices, the forecasters said.
UCLA economist Edward Leamer said builders who want to eliminate rising inventories are the first to cut prices, often through upgrades and subsidized financing rather than outright price reductions.
He said he doesn't expect home prices to fall more than about 5 percent over the next couple of years but may hold steady for five to 10 years.
One source of uncertainty in the UCLA forecast, Ratcliff said, is what toll the loss of rising home values will have on consumer spending by sapping feelings of wealth and making it more difficult for consumers to tap the equity from their homes to pay for large purchases.
By Josh Brown and Leslie Berkman
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Copyright (c) 2006, The Press-Enterprise, Riverside, Calif.
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