As the price of real estate continues to increase, especially
with the high cost of living in California, UCLA’s Anderson
School of Business economists and corporate contributors concluded
in their June 21 quarterly forecast that there will be a slight
slump in the real estate market.
After years of anticipating that California home prices would
soon begin to plummet, Anderson revised its original conjecture
after it did not follow suit with the actual economic trend.
But though real estate prices will begin to decrease, it will
not be enough to create an economic recession.
“There will be a reasonable dip, but no crash,” said
Chris Cagan, director of research and analytics at First American
Real Estate Solutions.
Several Anderson analysts also said a housing market dip could
lead to job losses in some industries, especially construction.
The prediction of a slowdown in the real estate market did not
come as a surprise to many forecast attendees.
Addressing an audience of mostly corporate businesspeople, Mike
McCook, president of Kenwood Investments, asked members of the
crowd to raise their hands if they thought real estate was never
going to slow down.
The crowd laughed at the nonexistent show of hands.
Analyzing the current and future condition of real estate value
and its effects on employment, the 2006 forecast predicts that home
prices will barely change in the short term, but by 2008, they
could drop by 4.1 percent.
Edward Leamer, director of the Anderson Forecast, began the
event by jokingly requesting that audience-members keep their cell
phones on, in case they were called and told their house was
offered a sale before house prices begin to decrease.
Real estate is the best indicator of a recession, and if the
real estate market is headed downwards, it could cause problems for
the overall progress of the economy, Leamer said.
He added that if there were to be a significant recession, job
loss would come mainly from the construction sector.
However, he also said a housing market slowdown could lead to
lower commissions for real estate brokers, and could eventually
produce job loss in that sector as well.
Anderson Economist Ryan Ratcliff said a significant recession,
though not immediately predicted by the forecast, could lead to job
loss in all “real estate-sensitive sectors.”
But despite its speculation, the forecast concluded that though
California’s economy would grow slowly, such a major economic
depression would be unlikely.
“It won’t be a cold, it won’t be a flu, it
won’t be a plague,” said Cagan, referring to the
prediction that California’s economy would only suffer minor
setbacks.
The slowing housing market, which would increase interest rates,
could cause stagflation, which is a combination of stagnant
economic growth and rising inflation that could lead the economy
downhill.
But whatever the forecast predicts for the future of real
estate, Richard Ziman, Chairman of American Value Partners and a
keynote speaker, warned that the Anderson real estate forecast
could well be just as wrong as it was a few years ago.
“Do not come away with any specific conclusion of what
will happen six months from now. There is a possibility that things
can get much uglier,” Ziman said.