A few days ago, professors Anil Puri and Mira Farka of the Mihaylo College of Business and Economics at Cal State Fullerton issued a mid-year update of their economic outlook and forecasts for 2011.
The CSUF Outlook has the distinction of bringing together all of the elements of the complex Orange County economy to provide a big picture view of the future.
Chapman University’s annual economic forecast is another excellent document of this type.
These two forecasts are valuable because they understand the interdependency between real estate and the overall economy. This new CSUF report drills down from the national economic news to Southern California and Orange County.
What is interesting about the CSUF midyear forecast is that it predicts something unusual for the region’s real estate.
Specifically, it is predicting that our local economy will improve without the help of a booming real estate market. Through a complex formula and a survey of more than 600 business executives in Orange County, the forecast is for county employment growth to accelerate beginning in the second quarter.
Based on this data, the folks at CSUF have “revised slightly upwards our forecast for Orange County payroll growth to 1.4% (compared with 1.25% in October 2010), for an overall gain of 18,000 in 2011. We expect the county’s unemployment rate to average 8.6% for 2011 compared to a 9.6% rate for 2010.”
That’s good news. The highlights of the CSUF real estate section, according to the report, include:
• Confirmation of its October 2010 forecast, which predicted a housing market “hobbled by foreclosures and financing problems.”
• Slower economic growth that has adversely effected the move-up market.
• An expected increase in household formation as economic conditions improve, but the overall pace of this process will continue to be slow.
• An improved housing market toward he end of the year.
• CSUF maintains its forecast of below 5% increase in the median single family home price for the year.
• Sales activity is supported by low mortgage rates (though these are slightly up from rock-bottom levels), and this trend is expected to continue this year.
• The median housing price for existing single family homes in Orange County stood at $497,000 in February 2011 compared with $535,000 in February 2010.
The news that Orange County’s overall economic growth may improve while real estate wallows could be welcome or not. Certainly, if one’s economic health depends solely or largely on the state of real estate, this is not your year. On a larger scale, however, this is good news for everyone.
A healthy economy provides more income and jobs for existing residents and attracts new residents from out of the county. One recent example of this phenomenon is North Dakota, which has attracted thousands of new residents, due to the state’s oil boom.
When the local tide rises and business expands, there will be more demand for housing. The housing demand will reduce existing inventory, which will create a return to the normalcy we have come to expect here in Orange County for the past few decades.
Though it is not likely to return soon, the normalcy may not be far off. Nationally, the U.S. Commerce Department announced earlier this week that sales of new single-family homes increased in March to 11.1%, far more than expected. And though prices fell slightly from a year ago, the inventory of new houses on the market was at the lowest level since August 1967.
So, the tide is rising. Having seen several years ago the effects of a real estate tsunami here in Orange County, no one wishes for that. We hope instead for a return to that old normal, where buyers had to prove their economic solvency before making the biggest purchase of their lives, and where the cycle of supply and demand is nothing to be feared.
STEVE SMITH is a Costa Mesa resident and a freelance writer. Send story ideas to smi161@aol.com.
