california economy in trouble?

________________________________

"Insanity: doing the same thing over and over again and expecting different results."

-Albert Einstein

"I don't feel enjoyment watching films that evoke passivity. If you need that kind of comfort, I don't understand why you wouldn't go to a spa." Chan-wook Park

________________________________

"Insanity: doing the same thing over and over again and expecting different results."

-Albert Einstein

for you, Mara:

Posted on Tue, Jun. 21, 2005 

Slower economy forecast for 2006
UCLA REPORT: STATE MAY SEE RECESSION IF HOUSING COOLS
By Therese Poletti
Mercury News

The California economy, which has shown signs of solid growth in the past year, will see much slower growth in 2006 and could even go into recession if the red-hot real estate market cools down, according to the latest economic forecast by the Anderson School at the University of California-Los Angeles.

Economists there, in a quarterly forecast released today, said most growth in the past year has been fueled by the sky-high real estate market in California and in the rest of the United States.

``We've got an economy driven by froth -- that's going to cause big problems,'' Christopher Thornberg, a senior economist of the UCLA Anderson Forecast, said in an interview.

Thornberg, who wrote a report in the forecast called ``The California Report: Beware the Froth,'' has turned more bearish about the real estate market in recent months. ``We have an economy that is acting like we are in the midst of a big boom when we are not,'' he said.

There has been recent debate over whether California and the Bay Area are in a housing bubble. Prices, however, keep surging unabated. Last month, the median resale home price in Santa Clara County jumped to $690,000, up nearly 17 percent from a year ago. Since 1997, real estate prices in California have soared 80.7 percent.

Thornberg said Federal Reserve Chairman Alan Greenspan missed the boat by not calling the current housing market a bubble, much as he did not identify the Internet bubble of 2000, which Greenspan referred to as ``irrational exuberance.'' In his report, Thornberg mocked Greenspan's obtuse language and his recent use of ``froth'' to describe some regional real estate markets.

``It still remains unclear to this author what definition of `froth' was intended to be used in this Greenspan speech, but an educated guess would be that it refers to many small bubbles,'' Thornberg wrote in his report.

Will bubble pop?

Thornberg said a bubble does not need to pop at the end to cause problems.

``A bubble is when an asset price becomes disassociated completely from the fundamental,'' he said. ``Rental prices remain weak. Mortgage rates are flat. Income growth is mediocre. There is no reason that a house should be worth 40 percent more today than it was two years ago.''

In their reports, the UCLA economists note that California has seen the largest increase in real estate prices of any state across the nation, exceeded only by Washington, D.C.

Today's is not the first of their reports to signal trouble ahead. They warned in September that the country could end up in recession by late 2005, a date pushed back by at least a few months in their latest forecast.

Thornberg cited two differences between the current run-up and previous housing run-ups -- a change in tax laws on capital gains and the sharp drop in mortgage rates. But even allowing for those, home prices have still ``clearly moved away beyond any rational level,'' he said.

This real estate run-up, Thornberg said, has kept the California economy moving forward. The average Californian has seen his or her home appreciate by about $40,000 over the past two years.

``People feel flush and they are spending accordingly,'' Thornberg said. ``Unfortunately that $40,000 check your average Californian has received is mostly illusion, and not real.''

One way the real estate boom has helped the economy is by adding jobs. In the period from 2003 to 2005, when California added 159,000 new jobs, the biggest drivers of those jobs were construction, finance, insurance and retail trade. These jobs are mostly real estate-related, from the building of new homes, renovating old homes to the financing and refinancing of home mortgages. Construction jobs grew 37 percent from 2003 to 2005, and finance and insurance jobs grew 36 percent in the same period.

If prices for existing homes flatten, or even decline, current homeowners are likely to stop looking to upgrade to pricier new homes, a trend that has fueled a construction boom. The construction industry and the mortgage industry will both feel the pinch and the job growth in California will be hurt as a result, Thornberg said.

Key indicator

While most economists are loath to predict exactly when a pop might occur in the real estate bubble -- and some don't agree that there is a bubble -- they do agree that a drop in U.S. home spending is a key indicator that can predict an economic recession.

Edward Leamer, director of the UCLA Anderson Forecast, said only two recessions have arrived without an early warning from the housing market, and one of those was the 2001 recession after Silicon Valley's dot-com boom. On two other occasions, once in 1951 and again in 1967, economies that faltered following sharp drops in home spending were revived by wartime spending.

``It seems highly unlikely that the U.S. will be able to avoid an 11th recession in which housing plays a major role,'' Leamer wrote in his report. ``We just don't know when it will occur.''

He thinks it's at least a year away, however. Leamer said recent economic data has convinced him that there is virtually a zero chance that a recession still start before April 2006. Two consecutive quarters of declines in the gross national product is the definition of a recession for many economists.

According to Thornberg, in both California and the rest of the United States, the economy has been driven by the unbridled consumption of Americans who spend virtually all their disposable income on goods and services, not saving a dime.

``This process will have a detrimental impact on the economy even if (real estate) prices don't fall,'' he wrote. ``The wealth creation that has fueled consumer spending will go away. All those people who were banking on continued appreciation of their house to finance their children's college education will suddenly find they need to go back to the old fashioned way of saving for the future -- spending less.''

--------------------------------------------------------------------------------
 

"I don't feel enjoyment watching films that evoke passivity. If you need that kind of comfort, I don't understand why you wouldn't go to a spa." Chan-wook Park

it is always harder to find a "mind clean" stone than a eye clean stone.

it is always harder to find a "mind clean" stone than a eye clean stone.

A Girl's Best Friend

"I don't feel enjoyment watching films that evoke passivity. If you need that kind of comfort, I don't understand why you wouldn't go to a spa." Chan-wook Park

________________________________

"Insanity: doing the same thing over and over again and expecting different results."

-Albert Einstein

"I don't feel enjoyment watching films that evoke passivity. If you need that kind of comfort, I don't understand why you wouldn't go to a spa." Chan-wook Park

it is always harder to find a "mind clean" stone than a eye clean stone.

"I don't feel enjoyment watching films that evoke passivity. If you need that kind of comfort, I don't understand why you wouldn't go to a spa." Chan-wook Park

we actually dislike huge houses...

a few weeks ago we went to san ramon to visit some friends, they have a 3500 sq ft home, its huge! very echoey sounding since they don't have alot of furniture.

anyhow we checked out the new shappell houses that are being built out there, there are a bunch of various 'styles' and sq ftage etc. we checked out the smaller ones we could afford and then the ones that were $2m!

the smaller ones we could afford were icky. we like our place much better.

the big ones that were $2m were ridiculous! 5500 sq ft! what do you do with that much space? there were a few random 'entry' or living room things, and then a huge dining room, 2 small off-from-the-table wine room areas, one actual wine room...what we did love was the kitchen and family room combo, very big and spacious with a nice flow...downstairs there were 2 guest rooms, one outfitted for a queen with walk in closet, big ole bathroom, french doors to patio etc. upstairs was a 'kiddie loft' or 'tv room?' and 3 more bedrooms including master SUITE which was a monster with a shower that was just frighteningly large and modern.

so here were our scenarios. you have two income family, husband and wife. no kids. too big for both of them and they are working the whole time to pay the mortgage. never enough time to enjoy the mausoleum house. second scenario. husband works, wife has kids, stays home. husband NEVER home because he has to pay for house and kids and all that, wife and kids can enjoy house but not dad, where is dad anyway? third scenario, retired couple, no kids. grandchildren but unless they are visiting every other week, house is too big for 2 retired people. esp all those stairs. fourth scenario, win the lotto! buy fab 2m house and never have to work, invite relatives and freinds to stay with you forever. enjoy house all the time.

so obviously scenario 4 is the only way you'd even be able to use all the space and enjoy the house!! otherwise you'd be working or lost in the house.

funny because many times people think bigger is better etc....but for us, give us a nice easy liveable floorplan with the basics plujs some, aka big kitchen and fam room combo with a nice fireplace, a dining room, a wine room, a pantry, 3 bedrooms, a few bathrooms, a nice patio and backyard area, a jet tub, dual masteer closets and a few other amennities and we are golden. we don't need 3 wine areas, or the master SUITE where you get lost. dual shower would be nice. but we are more about the amenities than having lots of SPACE necessarily.

________________________________

"Insanity: doing the same thing over and over again and expecting different results."

-Albert Einstein

________________________________

"Insanity: doing the same thing over and over again and expecting different results."

-Albert Einstein

"I don't feel enjoyment watching films that evoke passivity. If you need that kind of comfort, I don't understand why you wouldn't go to a spa." Chan-wook Park

A Girl's Best Friend

it is always harder to find a "mind clean" stone than a eye clean stone.

it is always harder to find a "mind clean" stone than a eye clean stone.

My fiance and I were looking at condos for fun in the West Los Angeles area.  Anything AROUND the $1 million dollar range is CRAP! (And that was far more than anyone should spend on a two bedroom condo.) 

We looked at some that were brand new, aesthetically nice - but such TERRIBLE workmanship.  They looked like they were slapped together for a quick sale.  Sure the granite, and wine cellars are nice extras - but why not spend the building money on more than a facade???

The only amazing condo we LOVED (in beverly hills) was listed at the mid $800k range.  And the realtor told us the bidding was much higher than the list price.  (Reminded me of when I lived in San Fran!)

But we're screwed - since we refuse to leave the city and move to the valley.

My family is from a small suburb outside of Malibu called Calabasas.  (If you watched the Jessica & Nick show - they lived there.)
Calabasas has always been an upscale area - but the costs are unbearable.

One friend of mine's family sold their 30 year old, 2,000+ sq. ft. house for almost $2 million.  (And it was in need of serious upgrading.)

In my parent's community, people were able to buy homes for $600,000 on the low-end in the early 90's.  Now... those homes are well over $2 million.  It's sick!

Maybe if we start saving now, my fiance and I can buy a house we love when we're 60! Woohooo!!