A respected and often-cited economic forecast predicts a slowdown won't put the economy on the canvas and real estate will only suffer a few knock downs.

The third quarter University of California Los Angeles (UCLA) Anderson Forecast "Soft Landing with Turbulence Ahead" says the economy will sustain growth at no more than 2 percent in the next few quarters but not suffer the knock out punch of a recession and real estate will come out of it with only a few bruises.

Prepared just days before this week's announcement by National Association of Realtors that the housing market in August experienced the first nationwide median home price decline in 11 years days, the UCLA "Soft Landing" report seemed to predict the anticipated decline in home prices.

"It is only a matter of time before nominal home prices are down on a year-over-year basis," said Anderson Report senior economist David Shulman.

A similar forecast came days after the Anderson Forecast, during a National Association of Home Builders' conference echoing the Anderson Forecast.

"Looking a bit rougher than the soft landing housing analysts had been expecting, the current housing downswing is unlikely to lead to economic calamity. That is largely because interest rates are historically low, the overall economy still is moving ahead, and builders are stepping up efforts to get their unsold inventories under control," according to an NAHB release about the conference.

California forecast

In the absence of a national recession, however, California's home prices are unlikely to experience significant declines, the Anderson report says. However, it also indicates short term buyers won't realize much, if any return on their money for half a decade.

The forecast predicts the Federal Reserve will cut the funds rate to 4.5 percent and unemployment will rise as sectors related to real estate suffer declines. However, strong business investments and the trade sector along with cheaper housing will serve to take the economy off the ropes for a 3 to 4 percent growth rate by 2008.

In California, existing home price declines began a year ago and are spreading to new regions each month, but non-real estate sectors will help keep the economy afloat as real estate takes a brief, shallow dive.

"This distinction is significant, since it implies a slowdown instead of a recession. Historically, recessions in California have had major job loss in at least two sectors, such as construction and manufacturing. Without recession-sized job losses, a significant decline in statewide home prices is unlikely. However, a few regions where new construction is a significant share of overall sales may see some price declines, since builders historically have been more willing to lower prices than owners," the report says.

A new U.S. Commerce Department report, also out last week, says nationwide, sales of new homes rose 4.1 percent, the first sales gain since March, but sales in the West, the only region revealing a decline, dropped 17.7 percent. New home prices declined by 1.3 percent from a year ago August, to $237,000.

Anderson Forecast report author, economist Ryan Ratcliff, says to expect declines in building permits to bottom out in 2008, after which activity will begin to return to 2000 levels. Meanwhile, the drop in construction activity will cost California's economy 100,000 jobs through 2008.

The soft real estate sector, remaining flat with moderately falling prices through 2008, will also impact the financial activities market.

A companion piece called "2005: The Year the Tortoise Won the Race, Whither California Home Prices," by Anderson Forecast director Edward Leamer, makes the case that the real estate sector will be plagued by falling sales more so than falling prices and that will lead to the construction layoffs as well as "lowered brokers commissions."

Leamer says California home prices five years from now will be about the same as they are today, though lower in real terms by as much as 20 percent.

"We do not predict a recession, nor do we predict a substantial decline in average nominal home prices. This forecast is 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," Ratcliff said.

He does, however, note the possibility of additional risk due to the potential impact of "exotic real estate financing" and uncertainties about the effects of home prices on consumption.

Other forecasters have predicted such a combination of factors could be strong enough to deliver a knockout punch to both real estate and the economy in California and the nation.

Published: October 2, 2006

Use of this article without permission is a violation of federal copyright laws.

Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.