Experts: Housing slump to persist

Yes, the country is in a recession. No, Orange County housing prices will not rebound in the next couple years. Those were the blunt predictions of two Chapman University economic analysts at their annual mid-year Economic Forecast Update on Tuesday at the Costa Mesa Hilton.

The analysts agreed that the only good local economic news they had to offer was that parking for the event would be free.

They expect Orange County to lose 18,000 jobs this year.

On the other hand, they said, the picture is much brighter nationally. Because the “magnitude of this drop has placed housing prices at a rational level,” the United States will probably see the bottom of the real estate market sometime in 2009, according to Chapman President Jim Doti.

“Nationally, we believe we’re through almost all of the housing price drop,” he said.

As new construction of homes declines, and more and more people enter the age range at which they are looking to start families, the demand will catch up to the supply soon, Doti predicts.

Orange County, however, is in a different boat because it experienced such an enormous appreciation in housing values compared with the national average, he said.

“Orange County housing prices went up way, way more, so there is much more room for them to go down,” economic researcher Esmael Adibi said.

At the peak in housing prices the average Orange County family would have to spend more than 50% of its income to make the monthly mortgage payment — 18% more than the historical average of 32% — but now that figure is down to 38%.

In addition, Adibi believes, the local housing market has a couple more factors contributing to its grim outlook. The researchers predict trends in the housing market by considering things like job creation and unemployment.

Because Orange County is so intertwined with the mortgage and construction industries, the county lost a higher percentage of its jobs than most other California counties, according to recent statistics, and the damage may even be underestimated, Adibi said.

“These numbers are bogus because they don’t count all of the undocumented workers that [worked in construction],” he said.

Fortunately, they predict the county will get 14,000 jobs back in 2009.

To make matters worse, floundering construction usually doesn’t affect housing prices until years after, according to the Chapman analysts.

“We don’t think the brunt of the drag in construction spending has been felt yet,” Adibi said.

Cal State Fullerton and UCLA also do economic updates that relate to Orange County.

CSUF had its last update in April. It was given by the dean of the business college, Anil Puri, who agrees the housing downturn isn’t over yet but thinks things might be looking up as early as the beginning of next year.

Still, he said, the economy has to improve before the housing market improves.

“So long as the employment situation is weak, there are job losses and gas prices are rising, things are not going to get any better,” Puri said.

“I think Orange County is in no worse shape than any other area.”

Puri agrees with UCLA economic forecasters that the country is not technically in a recession.

“Recession is not defined by most people at the regional level. Recession is defined as two quarters of negative GDP growth, which we haven’t had,” he said.

The Chapman economists didn’t stop at predicting the economy.

They also made their annual presidential forecast based on a mathematical analysis of some important economic factors like how the gross domestic product changed during the incumbent’s presidency.

They said it has been eerily accurate.

The last time they were wrong was when Bill Clinton defeated George H.W. Bush in 1992.

So who will win this year? Barack Obama by a margin of 2.4% over John McCain, they said, because of the economic downturn during George W. Bush’s presidency.

The prediction didn’t draw any applause.

HIGHLIGHTS

Some predictions from Chapman University economic analysts at their annual mid-year Economic Forecast Update:

 Orange County will lose 18,000 jobs this year, but get 14,000 of them back next year

 The housing slump might hit rock bottom nationally in 2009, but in Orange County it will probably last at least until 2010

 Barack Obama will be the next president of the United States, beating John McCain by 2.4% in the general election

 At the peak in housing prices the average Orange County family would have to spend more than 50% of their income to make their monthly mortgage payment.

ALAN BLANK may be reached at (714) 966-4623 or at [email protected].