by Calculated Risk on 9/28/2006 01:58:00 PM

The LA Times reports: UCLA Group Predicts Flat Home Prices

... the UCLA Anderson Forecast reiterates earlier projections that the deteriorating housing sector will slow state and national economic output and job growth through 2008. Although it doesn't rule out a recession, it doesn't expect one.
...
"Expect home prices five years from now to be about the same as they are today, though lower in real [inflation-adjusted] terms by 15%-20%," the forecast said.

Although the statewide average price might not decline, a few areas where about 40% of the housing stock is new construction — such as in Yolo and Placer counties — are expected to see drops as builders cut prices to move inventory ...

... the lack of a significant price correction is bad for the economy overall because it will lead to further job and productivity losses in the housing sector, said Edward Leamer, director of the UCLA Anderson Forecast.

"So while your happy homeowner is pleased by the fact that home prices are not going down," Leamer said, "the unhappy home builder is not going to have anything to do."

Leamer cautioned that the outlook was based on data trumped by recent reports showing that housing sales and starts were sliding more rapidly than the group had projected.

If the trend accelerates, he said, "then our forecast is too optimistic."
...
It expects inflation-adjusted economic growth to slow to an average annualized rate of 1.8% through the first half of 2007 and unemployment, now at 4.7%, to rise to 5.1% by the end of next year.
...
"While not a recession, it is hardly a pretty picture," the UCLA report said. "The combination of sluggish growth and rising prices will have the look and feel of a low-level stagflation."

In summary, UCLA is forecasting five years of flat nominal home prices (15% to 20% real price decline) and GDP growth of 1.8% through the first half of '07.