Sluggish home sales cited in UCLA study

March 29, 2006

California employment over the next two years could grow at a slower rate than the population, the economists of UCLA's Anderson Forecast predicted in a report to be released today.

In their latest quarterly report, the Anderson economists said jobs will grow 1.1 percent this year and 0.9 percent in 2007. In comparison, the state's population growth has averaged 1.3 percent per year over the past five years.

UCLA economist Christopher Thornberg, a longtime bear on real-estate prices, said the jobs slowdown will be triggered by sluggish home sales, as the state's housing market continues to cool.

Declines in home-building could cause as many as 200,000 construction workers to lose their jobs, as well as cause layoffs of real estate agents and mortgage brokers. Those layoffs, in turn, could push unemployment to 6.3 percent by the end of 2007, compared with its current rate of 5 percent.

“When you have a slowdown in demand for workers, there's usually a rise in the unemployment rate as well as people not entering the work force as fast as they usually would,” Thornberg said.

Some economists warn that the Anderson Forecast, which has been predicting a housing slowdown for the past three years, could be overly pessimistic.

“I agree that employment is slowing down, but I don't think it will be nearly as drastic as they're forecasting,” said Alan Gin, economist at the University of San Diego.

Marney Cox, economist at the San Diego Association of Governments, stressed the forecast was predicting a slowdown in the rate of increase rather than a decline in jobs.

“Looking at San Diego, we just haven't seen a decline,” he said. “Most people, even in the construction industry, are not pulling back. They're just not rapidly increasing. And some sectors, like education and leisure and hospitality, are seeing strong growth.”

On the other hand, Esmael Adibi, economist with Chapman University in Orange, agreed with the Anderson economists, predicting that job growth will slow this year to 1.1 percent or 1.2 percent.

“Right now, we've got a lot of good news in the economy,” he said. “But looking down the road, we're not going to get the high engines of growth to replace construction or finance jobs.”

The Anderson Forecast's estimates of employment growth are intertwined with the economists' dour view of the state and national housing markets.

Over the past three years, the Anderson team, one of the nation's most respected group of regional economists, has issued repeated warnings about potential weaknesses in the housing market.

Over the same period, housing prices in some areas, such as San Diego, galloped ahead at double-digit annual rates, creating thousands of jobs in construction and finance. More than 25 percent of new payroll jobs in California over the past two years have been in the construction industry.

“Building 200,000 new residences per year, not to mention the current interest in fixing up existing homes in order to spend new housing equity as fast as possible, will tend to drive this (employment),” UCLA's Thornberg said.

In recent months, however, home sales, building permits and price appreciation have all slowed. And in some regions, including San Diego County, construction hiring has petered out.

“The trend is clear,” Thornberg said. “The only debate now is how hard a landing there will be and what it will mean for the general economy.”

Nationwide, the UCLA economists predict that new housing starts will decline to 175 million units per quarter by the end of 2007, a 25 percent decline from the peak last fall.

“Make no mistake,” economist David Shulman said. “This is a soft landing. Typically, peak-to-trough declines amount to 50 percent.”

Economist Ryan Ratcliff conceded that so far, San Diego County, which led most of the state with its housing boom in the early 2000s, is the only Southern California county to show unambiguous signs of a slowdown.

“Sales (growth rates) in L.A. and Orange counties hit a peak in late 2003 and have been gradually falling ever since, but nowhere near as sharply as San Diego,” Ratcliff said.

Dean Calbreath: (619) 293-1891; dean.calbreath@uniontrib.com