Xtremehkr
Dec 8, 2004, 06:50 PM
Link (http://www.latimes.com/business/la-fi-uclaecon8dec08,0,158730.story?coll=la-home-business)
Economists at UCLA have invoked the B-word again.
In an outlook to be formally released today, forecasters say California and the nation are beset by a housing "bubble" that will depress construction next year, slowing the nation's economic recovery.
Yet the fallout from the bubble in California won't be devastating, according to the UCLA Anderson Forecast. Indeed, the Golden State's economy will expand at a faster clip than the nation's in 2005, thanks in part to a recovering Bay Area, the widely watched forecast says.
All in all, next year is shaping up as "solid but not spectacular" for California, said Christopher Thornberg, a UCLA Anderson Forecast senior economist and author of its state outlook.
Across California, nonfarm payroll jobs are expected to grow 1.6% next year, up from 0.8% this year, the UCLA forecast says. Personal incomes are projected to increase 5.2% next year, compared with 5.6% this year.
Although UCLA economists have raised the specter of a housing bubble in previous reports, they are now identifying it as the biggest risk to the U.S. economy. <snip...>
<...>UCLA economists pointed out that inflation-adjusted home prices have risen by more than 5% annually over the last five years, five times the usual rate. Prices nationwide are now 25% above their historical long-term average, they said.
In the eyes of the UCLA analysts, the main culprit for California's housing bubble is excessive price increases rather than overbuilding.
"People here have been buying homes as if prices are going to go up 10% every year" forever, Thornberg said. But when prices finally level off or even decline, he suggested, consumers will curb spending, and that could slow the state's economy.
It's too hard, Thornberg added, to predict just when the bubble will burst — or whether it will simply deflate slowly. "Bubbles, once they get going, tend to take a life of their own," he said.
In Southern California, particularly, housing prices continue to appreciate by at least 20% a year. Evidence is emerging, however, that prices are starting to flatten on a month-to-month basis as the supply of homes on the market grows.
The UCLA analysts foresee the number of residential building permits slipping in California to 204,800 next year from 207,000 this year.
The state's building industry trade group is forecasting a similar trend but it considers the decline marginal.
"It's a pretty bright projection for 2005," Nevin said. California builders are on pace to construct the most homes in 2004 than in any year since 1989.
Outside of California, overbuilding is viewed as the main problem by UCLA. One telling statistic: The nation has added one new residential unit for every adult added to the population over the last two years. The historical average is one unit for every 1.7 new adults.
The bottom line: Today's pace of construction can't be sustained, Leamer said. Housing starts nationwide are expected to slow to 1.8 million units next year from 1.94 million this year.
Given the less than stellar accuracy the government has had in prediction job growth over the last few years, how will this bubble affect the economy as it stands now.
The housing sector has been the bright spot in the economy for the last few years.
Any thoughts on what the outcome may be?
Economists at UCLA have invoked the B-word again.
In an outlook to be formally released today, forecasters say California and the nation are beset by a housing "bubble" that will depress construction next year, slowing the nation's economic recovery.
Yet the fallout from the bubble in California won't be devastating, according to the UCLA Anderson Forecast. Indeed, the Golden State's economy will expand at a faster clip than the nation's in 2005, thanks in part to a recovering Bay Area, the widely watched forecast says.
All in all, next year is shaping up as "solid but not spectacular" for California, said Christopher Thornberg, a UCLA Anderson Forecast senior economist and author of its state outlook.
Across California, nonfarm payroll jobs are expected to grow 1.6% next year, up from 0.8% this year, the UCLA forecast says. Personal incomes are projected to increase 5.2% next year, compared with 5.6% this year.
Although UCLA economists have raised the specter of a housing bubble in previous reports, they are now identifying it as the biggest risk to the U.S. economy. <snip...>
<...>UCLA economists pointed out that inflation-adjusted home prices have risen by more than 5% annually over the last five years, five times the usual rate. Prices nationwide are now 25% above their historical long-term average, they said.
In the eyes of the UCLA analysts, the main culprit for California's housing bubble is excessive price increases rather than overbuilding.
"People here have been buying homes as if prices are going to go up 10% every year" forever, Thornberg said. But when prices finally level off or even decline, he suggested, consumers will curb spending, and that could slow the state's economy.
It's too hard, Thornberg added, to predict just when the bubble will burst — or whether it will simply deflate slowly. "Bubbles, once they get going, tend to take a life of their own," he said.
In Southern California, particularly, housing prices continue to appreciate by at least 20% a year. Evidence is emerging, however, that prices are starting to flatten on a month-to-month basis as the supply of homes on the market grows.
The UCLA analysts foresee the number of residential building permits slipping in California to 204,800 next year from 207,000 this year.
The state's building industry trade group is forecasting a similar trend but it considers the decline marginal.
"It's a pretty bright projection for 2005," Nevin said. California builders are on pace to construct the most homes in 2004 than in any year since 1989.
Outside of California, overbuilding is viewed as the main problem by UCLA. One telling statistic: The nation has added one new residential unit for every adult added to the population over the last two years. The historical average is one unit for every 1.7 new adults.
The bottom line: Today's pace of construction can't be sustained, Leamer said. Housing starts nationwide are expected to slow to 1.8 million units next year from 1.94 million this year.
Given the less than stellar accuracy the government has had in prediction job growth over the last few years, how will this bubble affect the economy as it stands now.
The housing sector has been the bright spot in the economy for the last few years.
Any thoughts on what the outcome may be?
