The housing bubble is bound to pop, creating a sharp decline in
real estate costs that could trigger a recession, several
economists at the UCLA Anderson Forecast said.
The business school issued its quarterly economic forecast
Wednesday, an evaluation considered by many to be one of the
leading independent economic forecasts in the nation.
The event took place at the Korn Convocation Hall in the UCLA
Anderson School of Management.
Though economists have warned of an imminent crash in the
housing market for months, real estate prices have remained
steady.
But Michael Bazdarich, a senior UCLA Anderson Forecast
economist, said “housing activity is at an unsustainable
level right now.”
The housing boom, which Bazdarich called “the beast that
wouldn’t die,” has befuddled economists during the last
two years, declining then rebounding three separate times.
“This is a market that shows a lot of ups and downs, a lot
of short-term volatility,” Bazdarich said.
Though eight of the last 10 recessions since World War II have
been prompted by crashes in the housing market, Forecast Director
Edward Leamer said a recession caused by a burst in the housing
market is unlikely.
Economists at the Forecast also discussed the future of
California’s economy, which economist Ryan Ratcliff predicted
would be sluggish next year, with little overall growth.
As one of the state’s strongest sectors, construction will
likely take a 2 percent loss in jobs.
“Construction has been a major source of growth in
2005,” Ratcliff said. “Construction sort of blows
everyone else away.”
Other job sectors would not likely suffer a drop in the next
year, Ratcliff said.
Ethan Harris, managing director and chief U.S. economist at
investment bank Lehman Brothers, shared what he called a
“Wall Street perspective” on the year’s economic
developments.
He said American consumers have been spending at an
unsustainable rate and will likely soon shift from the current
attitude of spending to one of saving.
Tax cuts, 0-percent car loans and a booming housing market have
created “the caffeinated consumer,” Harris said.
Panelists also discussed the future of the Federal Reserve,
which will soon be under new leadership after longtime Chairman
Alan Greenspan steps down.
Economic adviser Ben Bernake is poised to replace Greenspan,
whose 18-year career has been highly praised.
Harris said he expected “a return to democracy” at
the Federal Reserve after Greenspan’s “benevolent
dictatorship” comes to an end.
Throughout his tenure at the helm of the Federal Reserve,
Greenspan has been known to govern his agency more authoritatively
than past chairs.
Some experts say his almost legendary legacy of shrewd
management at the Federal Reserve will be hard to live up to.
“A financial crisis hits, and he waves his magic wand and
the market comes back,” Harris said.
Until Bernake successfully fields his first financial crisis,
Wall Street’s respect for the Federal Reserve will be low,
Harris said.