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| Press Release |
UCLA Anderson Forecast Calls for Real Estate Slowdown in California;
No Statewide or National Recession Seen
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LOS ANGELES, June 21, 2006 — In its second quarterly report of 2006, the UCLA
Anderson Forecast anticipates a slowdown in real estate across the United States
and in California. But absent other factors that historically precede recessionary
conditions nationally and in the state, no recession is foreseen.
The National Forecast
In the latest report, released to the public today, 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.
But according to Leamer, the decline in residential investment and the associated
decline in construction employment will not be matched by a decline in manufacturing
employment, as the latter has not yet recovered from the recession of 2001. Unless
there is a decline in manufacturing employment, the national economy will avoid recession
in what Leamer calls “a close call.”
The California Forecast
The California forecast, by economist Ryan Ratcliff, takes note of the state’s slowing
real estate markets. Ratcliff concludes that the real estate slowdown will lead to a flat
housing market and a slower economy.
“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.
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.
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About UCLA Anderson Forecast
The UCLA Anderson Forecast, one of the most widely watched and often-cited economic
outlooks for California and the nation, is no stranger to accurate forecasts.
The forecasting team is credited as the first major U.S. economic forecasting group
to declare the recession of 2001. The team was also unique in predicting both the
seriousness of the early-1990s downturn in California, and the strength of the state’s
rebound since 1993.
Founded in 1952, the UCLA Anderson Forecast is one of the most widely watched and
often-cited economic outlooks for California and the nation. Award-winning for its
accuracy, the UCLA Anderson Forecast often breaks with consensus in its quarterly
forecast reports, which feature projections for major economic indicators, including
inflation, interest rates, job growth and gross domestic product growth.
About UCLA Anderson School of Management
UCLA Anderson School of Management is perennially ranked among the top-tier business
schools in the world. Award-winning faculty renowned for their research and teaching,
highly selective admissions, successful alumni and world-class facilities combine to
provide an extraordinary learning environment. UCLA Anderson students are part of a
culture that values individual vision, intellectual discipline and a sense of teamwork
and collegiality.
Established in 1935, UCLA Anderson School of Management provides management education
to more than 1,400 students enrolled in MBA and doctoral programs, and some 2,000
executives and managers enrolled annually in executive education programs. Recognizing
that the school offers unparalleled expertise in management education, the world's
business community turns to UCLA Anderson School of Management as a center of influence
for the ideas, innovations, strategies and talent that will shape the future.
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