UCLA Anderson Forecast predicts ‘normal’ California housing market
Despite a housing market that appears to be slowing down, construction jobs should continue to help drive job growth in Southern California over the next few years, according to a new report.
In a paper produced as part of the quarterly UCLA Anderson Forecast released Thursday, UCLA economics professor Jerry Nickelsburg said that sliding home sales volume — the number of homes sold in Southern California dropped 15.1% in May compared with last year, according to San Diego-based DataQuick — is masking a housing market that is becoming increasingly, as he put it, “normal.”
And when markets are normal, builders build.
The decline in sales compared with last year largely reflects an end to foreclosures and other so-called distressed properties that were flooding onto the market. Now that deluge is over, and inventory mostly consists of properties that traditional homeowners are trying to sell. That is a much easier environment for home builders to navigate, Nickelsburg said, which will make them more likely to launch new construction.
“This is a market where the transactions are not banks blowing out their supply [of foreclosures], which is very hard to predict,” he said. “You have a much more normal market. Prices are rising. That brings people off the sidelines, which increases supply. And all that gives builders some confidence that they’re going to get the prices they forecast.”
So, Nickelsburg said, they start breaking ground. Building permits in Los Angeles and Orange Counties grew 44% last year, according to data from the Census Bureau, and were up an additional 25% through March.
This is a good thing for the region’s economy, analysts say. One in every eight new jobs created in California since the start of 2013 is in construction, Nickelsburg notes. If the decline in sales reflected a drop in demand, that probably would dampen California’s relatively strong job growth. Instead, he said, building is likely to keep pushing the job market forward, at least to a point.
“We have no expectation of getting back to when we had 1 million people on construction payrolls” in the mid-2000s, he said. “But getting back to something like 700,000, we can do. And those are good jobs, reflective of a healthy economy.”
Overall, the UCLA Anderson Forecast predicts that job growth in California will pick up speed over the next year and a half, with nonfarm payroll employment growth of 1.8% in 2014, 2.3% in 2015 and 2.1% in 2016.
The unemployment rate, the forecast estimates, should drop to 6.8% next year and 5.9% in 2016.
It also predicts that West Coast cities like Los Angeles will continue to draw large amounts of Chinese investment as that country’s real estate bubble continues to deflate and investors seek safer havens for their money.
But nationally, the report states, “something is seriously wrong,” with a variety of long-term factors keeping this economic recovery from taking flight. Still, the forecast predicts gross domestic product growth of 3.6% in the second quarter as the economy bounces back from a tough winter, followed by solid but unspectacular 3% growth into 2015.