California's Economy: Housing Downturn Should Be Hurting More Than It Is, UCLA Forecast Says

RISMEDIA, June 20, 2007-(MCT)-For several years, the folks behind the quarterly UCLA Anderson Forecast have been predicting the imminent bursting of the housing bubble. And when that happened, they figured, it would drag down the state’s economy.

Well, after years of prophesying the end is near, it’s finally here. New housing permits are falling. Home prices have reached a plateau and are even falling in parts of the state. And in some areas, construction jobs are dwindling.

And the state’s economy? Surprise! It’s doing OK.

That’s an unexpected turn of events that has the economists at the UCLA Anderson School of Management a bit puzzled.

“While the broad outlines of the real estate drag story have come to pass, the California economy has held up better than expected in the last six to nine months,” reads the latest UCLA Anderson Forecast released.

The man who wrote the California section of the report is Ryan Ratcliff, an economist at UCLA Anderson.

In an interview Monday, Ratcliff said he’s not exactly sure why the housing slowdown hasn’t had a bigger impact. Before the slowdown, the real estate boom had made large contributions to job creation and earnings in the state.

“Anytime this has happened in the past, it has taken a bite out of the overall economy,” Ratcliff said. “Our models say it should happen. So why isn’t it?”

The baffling data includes the number of construction jobs. While residential building permits began falling sharply two years ago, the number of construction jobs kept rising before hitting a plateau for the past year.

However, the reports notes: “We’re not out of the woods yet.”

Ratcliff notes that in recent months, the state has begun to lose some construction jobs and the number of home sales continues to slump. At the same time, foreclosure rates are rising.

For the rest of 2007 and the start of 2008, Anderson forecasters expect the housing market to continue cooling and to finally impact the job market. But the strength in the rest of the economy should keep the state out of recession.