Example of home for sale
A home for sale in Southern California. Photo by Alexander Nguyen

Despite continued low unemployment levels and a generally strong economy, the anticipated increase in demand for California housing has failed to materialize, and the market will likely weaken heading into next year, according to a UCLA economic forecast released Wednesday.

In his essay on the California economy, UCLA Anderson Forecast director Jerry Nickelsburg examined various theories for that lack of housing demand, such as a perceived exodus of people out of the state, increasing mortgage rates and uncertainty about the future.

Regardless of the reason, the result is a likely weakening of the housing market.

“With our national forecast for slowing economic growth, continued discussion on when the next recession will be — we don’t have one in our forecast — and the Fed indicating that the peak of the interest rate cycle could be near, we now expect weaker housing markets into 2020,” Nickelsburg wrote. “As a consequence, our forecast for housing starts in 2019 and 2020 has been revised downward, with a recovery in building beginning in 2021.”

Nickelsburg predicted the state’s average unemployment rate will increase slightly to 4.5 percent this year, sinking slightly to 4.3 percent in 2020 and 2021.

“Homebuilding will be lower by 4,000 to 5,000 units per year than previously forecast for the next two years, but then will accelerate to about 148,000 units per year by the end of the forecast horizon 2021,” he wrote. “This will be a response to easing zoning and regulatory requirements for developers and an expected reduction in interest rates by 2021.”

He predicted real personal income growth of 3.2 percent, 1.8 percent and 1.6 percent over the next three years.

On the national front, Anderson Forecast senior economist David Shulman wrote in his forecast that the U.S. economy, which had been growing at a rate of about 3.1 percent last year, will slow to 1.7 percent this year and then drop “to a near-recession pace of 1.1 percent in 2020.”

By mid-2021, however, growth is likely to increase to about 2 percent.

“The jolt from the very expansionary fiscal policies of the Trump administration will soon exhaust itself and there is a very real risk of a recession in late 2020,” Shulman wrote. “Meantime, the unemployment rate will continue to decline to 3.6 percent, before gradually returning to 4 percent.”

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