Expect Slower Mortgage Activity, Housing Growth in Central California

Falling home prices and an abrupt halt in housing starts don’t add up to a real estate market bust in Merced, Calif. It’s more like a souffle with the air slowly leaking out, the Merced Sun-Star reports.

Those words were how local economist Tapan Munroe described the area’s real estate market at a Tuesday morning forum on the local, state and national economy.

Whatever name you give it, the slump will mean slower economic growth in Merced this year, Munroe cautioned. High California mortgage costs have gotten so out of hand that a market correction is only natural.

Munroe, consulting chief economist for Capital Corp. of the West, the parent company of County Bank, presented his second annual economic forecast to an audience of about 125 at the Merced College theater.

Here’s what Munroe and fellow analyst Lon Hatamiya of Law and Economics Group, an Emeryville consulting firm, predicted for 2007:

• Home prices will continue to drop. After four consecutive years of double-digit appreciation rates, home prices grew by a scant 0.9 percent in 2006. This year, they’ll decline by 8.9 percent, according to Munroe and Hatamiya’s report. Munroe stopped short of calling the slump a bust.

“I would call it a bust if the home prices were to go down by 25 or 30 percent in a year. That would be a significant drop,” Munroe said.

But like much of the California housing market, an 8.9 percent drop after values appreciated 85 percent from 2002 to 2006 doesn’t qualify as a bust, Munroe said.

• New home construction will continue to decline. After California home builders pulled a record high number of new home permits in 2005, the county saw a 32.7 percent drop in home-building activity in 2006.

The slowdown mirrored trends across the state and country. Munroe predicts another big dip - 38.3 percent - in Merced County this year, as California mortgage loan costs remain challenging for many.

By contrast, Munroe said Stanislaus County will see a jump in home construction activity this year, a sign that home builders are responding to demand from Bay Area residents looking for cheaper housing within commuting distance.

The number of construction and housing industry-related jobs will drop. A California housing market clogged with inventory will send echo through Merced’s job market, eliminating jobs in construction, finance, insurance and home mortgage lending, as well as manufacturing.

The experts predicted an increase in jobs in only one sector - education and health services, due to the growing number of job opportunities at UC-Merced.

• Unemployment will creep upward. After hitting its lowest point in decades in October 2006 (6.7 percent) Merced’s unemployment rate will climb again to 10.4 percent this year, Munroe predicted.
• Population growth will slow. The county’s population has moved steadily upward for the past five years, growing by about 2 percent each year, which is twice the state average. It’s now at 246,000 residents. This year Munroe and Hatamiya predict growth will slow to 1.7 percent.

“That’s a reflection of the slowing economy,” Hatimaya said. “When there are fewer jobs and fewer opportunities, fewer people are moving (here).”

SOURCE: Merced Sun-Star