Housing prices in the country will see a “whiff of stagflation,” not a significant decline – this from the group of UCLA economists that was one of the first to declare a bubble in the housing market.

In the forecast released today, UCLA Anderson School of Management economists reason that homeowners will, if at all possible, hold onto their homes instead of selling in a withering market, according to the LA Times’ analysis of the forecast.

Reuters pulled this from the report:

While not a recession, it is hardly a pretty picture. The combination of sluggish growth and rising prices will have the look and feel of a low level of stagflation …

And the real estate sector growth that was once a major driving force in the economy in 2005 was said to drag economic growth so far this year.

While the economists don’t expect the market to get as dire as some have been saying it will, there will be struggles in the months ahead. The San Jose Mercury-News quoted one of the forecast’s authors:

“To be sure, we are not forecasting a recession,” senior economist Daniel Shulman wrote, “but the glide path of the economy is about to get bumpy as the housing market continues to deteriorate.”

I spoke to Edward Leamer, director of the UCLA Anderson Forecast, this afternoon. He said that a recession would require not just a significant job loss in construction and other real-estate-related jobs, but also a drop in manufacturing, like in the recession of 2001, when 3 million manufacturing jobs were lost.

“There’s still going to be a problem in the housing market, but the pathology will be restricted to that sector,” he said. “It’s not going to infect the rest of the economy.”

KELLY BENNETT

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