The University of California, Los Angeles, Anderson Forecast, put out by a team of economists at the university, released its quarterly report on the housing market earlier this week.
The Forecast calls, unsurprisingly for the Anderson team, for a slowdown in real estate sales across the United States, but falls short of predicting an actual recession.
Here’s what the Forecast’s website has to say about the new predictions:
UCLA Anderson Forecast Director Edward Leamer frames his forecast in an essential question: “[Will] housing difficulties be amplified by problems elsewhere in the economy, producing a nasty recession, or will the pathology be mostly contained in the real estate sector (including construction, real estate brokers and mortgage brokers)?”
He concludes that the problems will likely be confined to the real estate sector and will not produce a national recession.
Leamer, who does not expect real estate prices to fall significantly, notes that sales volume is what typically drops, and drops more precipitously than prices, as the price cycle lags behind the volume cycle. The number of homes sold will drop as owners decline to sell in a weak housing market. Prices, however, should hold. The real decline in the housing market, Leamer says, will come in “residential investment,” which includes construction of new homes, repair and remodeling, and brokerage commissions on the sale of new and existing homes.
The latest forecast is a continuation of the Anderson team’s softening tone when it comes to predicting what will happen to home prices and sales. For the last few years, the forecast has become infamous in real estate circles for predicting a real estate bubble that’s about to burst, but recently they’ve toned down their rhetoric.
That quote, “Prices, however, should hold,” is an interesting one. These are the same guys who, every time I’ve spoken to them, have assured me that the real estate market’s in deep, deep trouble.
Indeed, the last time I spoke to Leamer – who coined the phrase that San Diego’s the “Canary in the coal mine” for the nation’s real estate market – he told me that the canary’s been lying dead on the ground for some time now.
Maybe the canary just opened one eye?
Here’s what the website says about the California forecast, written by economist Ryan Ratcliff:
“We do not predict a recession, nor do we predict a substantial decline in average nominal home prices,” Ratcliff says. “This forecast it based on two arguments. There is not enough vulnerability in the usual sources of employment loss to create a recession, and the historical record suggests that average home prices do not usually fall without this kind of job loss.”
As in the national forecast, Ratcliff is acknowledging declines in real estate and associated job losses in real estate-sensitive sectors. But absent job losses in manufacturing or other sectors, there will be no recession, he says.
Hmm. No joy for the bubbleheads there from the group that’s normally the biggest cheerleader for a market crash. But, wait a minute, tucked down at the bottom of the press release on the website there’s this little nugget:
Ratcliff does note the possibility of some downside risk to the forecast, however, due to the potential impact of exotic real estate financing and uncertainties about the effects of home prices on consumption.
Now, that does sound familiar.