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Kidicious
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Diety of Kidiverse
Mar 2003
time: 21:35
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The forecasts for the California housing market aren't nearly as good as Oerdin claims. This was in the Fresno Bee .
quote:
Housing fuels state economy
Renowned UCLA forecast warns booming sector is 'unsustainable.'
By E.J. Schultz / The Fresno Bee
(Updated Tuesday, March 15, 2005, 6:00 AM)
The best-case scenario for California's economy the next two years is tepid growth, according to a forecast made public today.
The worst case: The housing bubble bursts, leading to a recession.
Hailed as an economic savior in recent years, the booming real-estate market "is clearly unsustainable," according to the UCLA Anderson Forecast, whose quarterly forecasts are among the most widely watched in the state.
And if other sectors do not pick up the slack, "look for another downturn in the state," the forecast predicts.
The rapid rise in home values has driven consumer spending and created an overwhelming percentage of new jobs in the state — no more so than in the central San Joaquin Valley, where houses are sprouting like spring wildflowers. But with the expected slowdown in housing, "that's all at risk," said Christopher Thornberg, a senior economist with UCLA Anderson Forecast. "It's a ticking time bomb."
Home price appreciation created more than $1 trillion in wealth in the state from 2001 to 2004, according to the forecast.
But because home values can fluctuate, some of it is paper wealth and can disappear if values rise more slowly or decline.
Thornberg compared it to collecting a check each month in your mailbox and "a few months later you find out that the check is fake."
According to the forecast, nonfarm jobs will grow by 1.5% in the state this year, up from last year's 1% growth, but in 2006, the growth will slow to 1.2%. "I think that 2005 is going to be a decent year, but 2006, I've got huge concerns about," Thornberg said.
The best case is that the economy grows slowly, according to the forecast. "On the other hand," Thornberg writes, "a sudden rise in interest rates or some other spark that could cause the housing sector bubble to implode at a faster rate could cause another recession, both in California and the United States."
Though Thornberg says he is not certain about how the different forces may play out, "what is clear is that the downside is far more likely than the upside."
The forecast is especially ominous for the central San Joaquin Valley, where the building boom has fueled some of the strongest job growth in the state.
Of the 3,900 net new nonfarm jobs created in Fresno County last year, for instance, 2,100 were created in construction, an amount 31/2 times greater than that added in manufacturing, according to state jobs data.
One local economic development official is not overly concerned.
"I would not expect to see an immediate downturn," said Fred Burkhardt, director of economic development for the city of Fresno. "I just would not expect to see it expanding as it has." If anything, he said, a slowdown in residential construction could be offset by growth in commercial building, which is showing no signs of letting up.
"It's good. It's solid. It's consistent," said Burkhardt, noting that his department is getting about six inquiries a week from developers looking to build commercial projects.
Another good sign is that industries such as technology and tourism are showing signs of life, according to the forecast.
Indeed, business spending may be the economic key in the next two years.
The 2001 downturn was led by job losses in the so-called external economy, which includes industries that sell goods to customers from outside the area — manufacturing, for instance, according to UCLA Anderson Forecast.
But, unusually, the job losses did not spill over into the "internal economy," which is driven by construction, retail, education and health care, the forecast notes.
The reason: Rising home values have given a jolt to consumer spending.
From 2001 to 2004, the value of California's 7 million homes has increased by about $175,000 per home, resulting in a total rise of more than $1.2 trillion according to UCLA Anderson Forecast.
Appreciation of apartments has added an additional $440 billion.
"To put this in context, the personal income for the state was $4.7 trillion over the same period of time," the forecast states. "Hence, Californians have been essentially given a 30%-plus boost to their annual incomes due to the housing bubble we are currently experiencing."
Meanwhile, of the 243,000 private payroll jobs added in the state in the past two years, 122,000 can be directly tied to the housing market, according to UCLA Anderson.
"In short, a sector of the economy that makes up 10% of total private sector jobs is accounting for 70% of the total job gains."
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The appreciation in housing prices has been keeping the US economy alive at least as much as the tax cuts. I forecast a bubble burst followed by a recession. This time the cause is going to be falling consumer spending due to falling asset prices.
Flubber,
I make statements based on other things not changing. It's called ceterus parabus. You always bring up other things changing just to troll. And no I don't make universal statements. If I do I call them that. Stop trying to get me into your ridiculous arguments.
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10-03-2005 04:11
Smiley 
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