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Fast Facts Calif. median home price - January 08: $430,370(Source: C.A.R.)   Calif. highest median home price by C.A.R. region January 08: Santa Barbara So. Coast $1,135,000 (Source: C.A.R.)   Calif. lowest median home price by C.A.R. region January 08: High Desert $234,310 (Source: C.A.R.)   Calif. First-time Buyer Affordability Index - Third Quarter 07: 33 percent (Source: C.A.R.)   Mortgage rates - week ending 03/06/08 30-yr. fixed: 6.03% Fees/points: 0.5% 15-yr. fixed: 5.47% Fees/points: 0.5% 1-yr. adjustable: 4.94% Fees/points: 0.5% (Source: Freddie Mac)       eric@giatcorporation.com

Friday March 14, 2008

UCLA Anderson Forecast: Sluggish Economy On the Cusp of Recession   Forecasters Say Economy Doesn’t Meet Definition of a ‘True’ Recession  

LOS ANGELES -- In its first quarterly report of 2008, the UCLA Anderson Forecast remains confident the national economy was not in a recession through January 2008 and continues to forecast weak growth but no official recession in 2008.  As in their most recent forecasts, the UCLA Anderson Forecast sheds a negative light on the real estate sector as problems there continue to be a drag on the economy as a whole, particularly as the home mortgage crisis becomes a credit crisis.

In California, the economic outlook continues to mirror that of the nation, despite questions by some regarding the possibility of a state recession in the absence of a national recession.  The UCLA Anderson Forecast concludes that California is too closely tied to the nation for such an occurrence and the outlook appears much the same: slow growth as the fallout from the real estate sector slowly works its way out of the economy.

The National Forecast
In his national report, UCLA Anderson Forecast Director Edward Leamer holds fast to his belief that the U.S. economy is not in a recession and there is no recession to be feared in the immediate future, while admitting that there is a tenuous aspect to forecast. He writes, "Our no-recession forecast remains nervously intact. We see a lot of problems in the first half of 2008 as housing remains a drag on GDP growth and weakness in personal consumption contributes as well. We expect one quarter of negative GDP growth. The Fed continues to dish out good news for Wall Street with ever lower interest rates. The labor market is sluggish and unemployment elevates to 5.5 percent by the end of 2008. But the housing drag on GDP dissipates in the second half of the year and a normal economy returns in 2009."

According to Leamer, the recession risk is rooted in the insolvency problems that lending institutions currently face. "But," he writes, "Until I see evidence of a decline in spending by consumers and businesses because of credit problems, I am going to believe that this is just another symptom of 'recession depression.' Main Street is doing well, even as Wall Street suffers."

In an accompanying piece authored by Senior Economist David Shulman entitled, "The Credit Recession," it is opined that the U.S. economy has "become enveloped in an ever widening and deepening credit recession, as distinguished from an economic recession, that is working to constrict borrowing to all but the most credit worthy borrowers."

Shulman notes that lenders, once fearful of not making loans, are now fearful of making them as credit losses multiply.  Credit losses in the system are now in excess of $150 billion, on the way to $400 billion.  The credit recession has wide-ranging implications, from high-yield bonds to home mortgages.  The turmoil in the debt markets has been accompanied by a drop in stock prices. Ultimately, Shulman describes the current economy as, "a perfect storm consisting of the worst credit crunch in decades, falling house prices and $100 oil. If history and global experience is any guide, the hangover from the mid-decade credit boom could last for quite some time."

The California Forecast
UCLA Anderson Forecast Economists Ryan Ratcliff and Jerry Nickelsburg, look back at the California economy since World War II and make two conclusions.  First, the U.S. and California economies move together: there has never been a recession in California without a national recession.  Second, the California recessions have twice been amplified and extended by long-lasting structural adjustments -- the Southern California aerospace contraction in 1990 and the Northern California tech bust in 2001.  The recession-only downturns have been sharp-but-short contractions driven by temporary job losses in manufacturing and construction.  These recessions typically last less than a year, but both the aerospace and the tech adjustments took more than half-a-dozen years to complete.

Today’s economy fits neither of these patterns -- our economy is in "uncharted waters." There are some negative signs, such as job loss in real estate related sectors, but it is unlikely that these sectors can create enough job loss to generate the 2-3 percent declines in non-farm payroll employment that have characterized past recessions.

The forecast is for a very weak California economy in 2008. The "double-whammy" of construction and financial activities job loss will continue to drag at the economy. The economists write, "The current state of the California economy and our forecast fall short of the weakness in previous historical episodes that we’ve chosen to label recessions ... Based on comparing the current economy to past recession episodes, we once again conclude that real estate weakness will remain a significant drag on the economy, leaving us treading water in 2008 -- but not slipping under the waves into recession."

About the UCLA Anderson Forecast
UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state’s rebound since 1993. More recently, the Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast on the Web at http://uclaforecast.com.

About UCLA Anderson School of Management
UCLA Anderson School of Management, established in 1935, is regarded among the very best business schools in the world.  UCLA Anderson faculty are ranked #1 in "intellectual capital" by BusinessWeek and are renowned for their teaching excellence and research in advancing management thinking.  Each year, UCLA Anderson provides management education to more than 1,600 students enrolled in MBA, Executive MBA, Fully-Employed MBA and doctoral programs, and to more than 2,000 professional managers through executive education programs.  Combining highly selective admissions, varied and innovative learning programs, and a world-wide network of 35,000 alumni, UCLA Anderson develops and prepares global leaders.

 

 

 

UCLA Anderson School

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U.S. mortgage rates rise Average 30-year fixed-rate mortgage below 5.9% since beginning of year   Mortgage rates rose this week but were still below year-ago levels, according to Freddie Mac's weekly survey.   The 30-year fixed-rate mortgage averaged 6.13% for the week ending March 13, up from last week's 6.03% average. The mortgage averaged 6.14% a year ago. "However, for the first 11 weeks so far this year, the average 30-year fixed rate is still below 5.9%, and the average 30-year rate in January was the lowest since July 2005," said Frank Nothaft, Freddie Mac vice president and chief economist. The 15-year fixed-rate mortgage averaged 5.60% this week, up from last week's 5.47% average. The mortgage averaged 5.88% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.58% for the week, up from last week's 5.34% average. The ARM averaged 5.90% a year ago. And one-year Treasury-indexed ARMs averaged 5.14% this week, up from last week's 4.94% average. The ARM averaged 5.42% a year ago. To obtain the rates, the 30-year and 15-year fixed-rate mortgages required payment of an average 0.5 point, while the five-year ARM required payment of an average 0.6 point and the one-year ARM required an average 0.7 point. A point is 1% of the mortgage amount, charged as prepaid interest. The relatively low mortgage rates contributed to more favorable buying conditions, Nothaft pointed out. "The combination of lower house prices and lower mortgage rates contributed to a more affordable market for homebuyers," he said. "The National Association of Realtors reported that January's Pending Home Sales Index held unchanged from December, contrary to the consensus expectation of a 1% slide, signaling that existing home sales in February could hold steady from January's level."

 

 

The market Watch

 

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Foreign buyers eye U.S. homes

Many take advantage of dollar's weakness, but are they getting skittish too?

 

 

Some second-home buyers coming to the United States to scoop up property in the shadow of Walt Disney World are finding that it is, indeed, a small world after all -- especially when it comes to getting a bargain.

 

The current weakness of the dollar has led some foreign buyers to projects like Lake Buena Vista Resort Village & Spa, a condo hotel development in Orlando, Fla.

About 64% of buyers at the resort are residents of countries other than the United States, said Larry Cohen, senior vice president of the development. When they vacation there, they also stretch their money on purchases from discount clothing to golf clubs, he said.

"These people buy so much while they're here, they have to ship it back," he said.

U.S. real estate has always been a popular option for buyers around the globe, said Tu Packard, senior economist for Moody's Economy.com. The appeal lies in the general stability of the country compared with others throughout the world.

"Add to that the fact that the dollar is so weak and interest rates are low and house prices are at their lowest in years... it's a compelling combination for a home buyer," she said. The U.S. dollar's trade rate is the weakest it has been since the 1970s, she said.

But some industry watchers are wondering if foreign appetite for U.S. real estate could be waning these days. International buyers could be feeling some of the same jitters that domestic buyers are, concerned chiefly about home-price drops to come.

"People are hesitant to enter the market right now, given the uncertainties," said Lawrence Yun, chief economist for the National Association of Realtors. That could be the case for not only U.S. residents but for foreign buyers as well, Yun said.

Like Americans, these investors could be watching for a bottom before they buy, said James Gaines, research economist for the Real Estate Center at Texas A&M University. These buyers in particular aren't pressured to make a move quickly, since a second home or investment is often a purchase that can wait, he said.

"These are people who have the ability to sit and wait and see what the market does," he said. Anecdotally, he's heard of a lot of "tire kicking" as well as some sales from foreign investors interested in areas of Texas.

Where they're buying

After sensing that a renewed interest in U.S. real estate from abroad was brewing, the National Association of Realtors did a study last year on the topic.

Almost one-third of NAR members surveyed had at least one international client between April 2006 and April 2007. Buyers were often coming from Mexico, the United Kingdom, Canada, India and China. Forty-nine percent of them made their U.S. purchase in the South region of the country, followed by 31% who sought out real estate in the West.

Forty-seven percent of foreign buyers purchased a U.S. home as a vacation home for family and friends and 22% made the purchase as an investment and rental opportunity. Thirty-one percent bought the home both for a place to vacation as well as a place to rent out.

Twenty-eight percent of foreign buyers made their U.S. home purchase with cash.

The weakness of the dollar helps explain why the very wealthy are making purchases in major international cities, including New York, said Francois Ortalo-Magne, associate professor of Real Estate and Urban Land Economics at the University of Wisconsin in Madison.

"Some (very specific) housing markets are better understood as luxury markets for the international elite than markets for dwellings for the local workers. The weakness of the dollar makes New York attractive," he said in an email interview.

But other markets are also experiencing interest from abroad.

Many buyers are attracted by the lights of Las Vegas, and about 10% of sales in the luxurious CityCenter development have been to foreign buyers, said Tony Dennis, executive vice president of the residential division for the development. Residential units will be marketed to more foreign buyers in coming months, he said. CityCenter is a multibuilding, multiuse development on the Las Vegas Strip that is being built by MGM Mirage.

And in Seattle, residents of Asian countries are seeking out second homes they can vacation in or investment properties they can rent out, said Bob Christian, chief operating officer of Century 21 North Homes Realty. He thinks that the strength of the Seattle economy is attracting foreign investors to the area.

"In the American market, the domestic market, there's a lack of consumer confidence. International buyers are coming in and saying 'If you don't buy, I will,'" he said.

A trip that pays for itself?

According to NAR research, Florida has the distinction of being the state most popular with foreign home buyers. Florida is followed by California, Texas, Arizona and New York.

While single-family homes and town homes are still the most popular investment for foreign buyers, condos are gaining steam: Between April 2006 and April 2007, 22% of homes purchased by foreign buyers were condos or apartments, according to NAR.

Cohen, from the Lake Buena Vista Resort Village & Spa, said the condo hotel model is attractive to these buyers because the room can be rented out to hotel guests when the owners aren't using it, and the property is low maintenance because there is a crew already in place.

These days, the weakness of the dollar is also giving some visitors a way to finance their trip, he said. He has noticed some of them buying American goods for friends and family, with plans to mark them up to charge for the service.

"They put a little profit in there for themselves, and if they do it enough they'll pay for whole vacation," he said.

 

The market Watch