Tuesday Morning: UCLA Predicts Two More Years of Housing Weakness

Good morning.

News item: UCLA economists now predict the housing slump will last  two more years in California. "The pipeline of mortgage resets suggests it may be mid-2009 before California sees a normal housing market again," economist Ryan Ratcliff says.  (Aside: Funny, you hear a lot of real estate professionals saying the market IS normal right now.)

Pull quote: "Builders used to sell 14 homes a week; now it's four a month," said Redlands-based subcontractor Randy Becker, who has laid off 40 people. "When I lay people off, I tell them it's nothing personal, but I can't make any promises."

Another news item: The Commerce Department reported this morning that construction of new homes fell in May and is now running 24% behind last year's pace.  The May decline -- 2.1% on a month-to-month basis -- followed small gains in March and April, and was the poorest performance since January. Construction was weakest in the South and West.

Photo Credit: Reuters

Comments

[Linda Slocum]

The November housing predictions by California economists said we'd likely have a 2-year "levelling off", so this is no surprise.

Remember that much of the new construction activity was largely investor-driven, with investors writing contracts with the builders, and most commonly flipping the properties by using the "buyer's" money to close, thus the investor never truly took possession. They were riding the run-up in prices, since the contract with the builder was generally signed at least 6 months before close of escrow. When the rate of the run-up in market prices slowed down, the investors simply went elsewhere, mainly out of state.