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Loren Faulkner

Tough Times Forecaste For California
June 23, 2008

Last week the University of California, Los Angeles (UCLA) Extension Real Esate Forecast was presented, in Los Angeles.

It is definitely a belt-tightening time, according to the report. The forecast was prepared and presented by Christopher Thornberg, Ph.D. Here are the main points released by the UCLA Extension Forecast:

"We're basically in a recession,” said Thornberg, defining a recession as a period of falling labor and capital capacity utilization.

 Despite reports of increased exports, the more significant trend is decreased imports, when the price of oil is factored out.

The real estate downturn will continue for some time, and is affecting commercial, as well as residential, real estate prices.

Thornberg predicts a 40% decrease in home prices overall from the peak of the real estate bubble to the trough of the real estate downturn. "Over 50% is a possibility, depending on the economy,” he said. 

In addition, consumer spending has begun to shrink, and will continue to do so. "This is consumer spending returning to levels appropriate to income,” Thornberg said.

Thornberg attributed increased consumer spending and decreased savings levels over the past 16 years to, first, the dot-com bubble and then the real estate bubble. With the real estate bubble deflating, there is nothing to support the inflated levels of consumer spending, he said.

The rise in consumer spending reported for May is attributable to tax rebates sent out as part of the federal government's economic stimulus package. The bump in consumer spending will be slight and short-lived, Thornberg said.

There is good news, however: The end result of the downturns in real estate and consumer spending will be a return to more affordable housing prices and sustainable levels of consumer spending.

Posted by Loren Faulkner on June 23, 2008 | Comments (0)