Thursday, December 08, 2005

Real Estate Prices ‘Unsustainable'

"Housing activity is at an unsustainable level right now," says Michael Bazdarich, a senior UCLA Anderson Forecast economist. Quoted in a story in the Daily Bruin, UCLA's student newspaper, Bazdarich was one of several voices from the respected institution as it issued its quarterly economic forecast.

Here's an exceprt from the Daily Bruin story:
Though economists have warned of an imminent crash in the housing market for months, real estate prices have remained steady.

But Michael Bazdarich, a senior UCLA Anderson Forecast economist, said "housing activity is at an unsustainable level right now."

The housing boom, which Bazdarich called "the beast that wouldn't die," has befuddled economists during the last two years, declining then rebounding three separate times.

"This is a market that shows a lot of ups and downs, a lot of short-term volatility," Bazdarich said.

Though eight of the last 10 recessions since World War II have been prompted by crashes in the housing market, Forecast Director Edward Leamer said a recession caused by a burst in the housing market is unlikely.
This excerpt comes from a story in the San Jose Mercury News on the same forecast:
According to the University of California-Los Angeles' Anderson Forecast, the state's real estate market remains robust but has hit a plateau. While this will probably lead to job losses in housing-related industries such as construction and finance, other sectors should hold steady in the coming months.

The result will probably be a couple of years of what UCLA forecasters are calling ``anemic'' growth for the California economy.

``We're not going to see a recession,'' said Ryan Ratcliff, an economist at UCLA. ``But we are going to see some mediocre growth.''

UCLA economists have been projecting a slowdown in the state's housing market for a couple of years. And while there are growing signs that the real estate market is easing, Ratcliff noted that there have been other such pauses in recent years that were followed by sharp rises in prices and volumes of homes sold.

Still, forecasters at UCLA warn that any slowdown in the housing market will have widespread implications for the state's economy. Rising housing values have been one of the primary drivers of California's economic recovery, with increased prices fueling consumer spending, new housing construction and a big chunk of jobs created in the state.
And finally, another story from the Scripps Howard News Service (Ryan Ratcliff is a senior economist with the Anderson Forecast who wrote the California projection for this quarter):
Ratcliff forecasts a 20 percent decline in housing construction over the next year, which he estimates will lead to a 2 percent drop in construction jobs. That would drag down the overall rate of job growth in California, from the recent trend of about 1.3 percent per year to less than 1 percent.

While that's certainly not good news, UCLA sees it as insufficient to lead to panic selling in the housing market.

— The Boy in the Big Housing Bubble