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California's Housing Industry Remains Sluggish

Economist predict recovery may begin in 2013.

California's housing industry will stay sluggish this year but start rebounding in 2013 while its jobless rate remains high, falling below 9 percent only in 2014, according to a UCLA forecast released Wednesday.

"While there will be a robust recovery in California residential construction, we do not find the evidence in favor of it beginning in 2012 compelling," UCLA Anderson Forecast Senior Economist Jerry Nickelsburg wrote
in his California economic forecast. "Rather, we continue to forecast that the recovery in residential construction in California will begin to take off in earnest in 2013."

According to Nickelsburg, housing starts in the state will likely remain at about one-quarter of the national rate for the balance of the year, with much of the activity being in multi-family housing markets.

But he predicted that construction permits will jump by about 40 percent in 2013, then soar dramatically in 2014 to reach 130,000 permits -- double the U.S. rate.

The delay in the housing recovery in California can be attributed to factors such as a shift in demand favoring multi-family housing in coastal areas and continued high unemployment, Nickelsburg wrote.

He added that while some national indicators seem to suggest a turn-around is near, there is no reason for immediate optimism in California.   

"Unfortunately, it is difficult to find objective evidence to come down on the side of a turn in California real estate and residential construction this year," he wrote.

"What we are left with is the hope that a slowing decline in prices and a decline in foreclosures signals such a turn, but like heat rising off the alkali pans of the desert, these data might well be a mirage.

"It is not that a recovery won't begin in 2012, it is only that what we are seeing now is anything but convincing in that regard."

The forecast also predicts steady but slow gains in employment for the balance of the year, with growth of 1.9 percent for 2012, 1.8 percent in 2013 and 2.5 percent in 2014.

The unemployment rate will remain around 10.6 percent through the end of the year, and average about 9.7 percent through 2013 but dip to 8.3 percent in 2014, according to the economic forecast.

On the national front, UCLA Anderson Forecast Director Edward Leamer predicted that Gross Domestic Product and job creation will remain weak in the near-term, with GDP growth expected at 2.4 percent by the end of 2013, then up to 3.4 percent in 2014.

Leamer predicted the national unemployment rate will be 7.7 percent by the end of 2013.

In the meantime, Leamer wrote, the nation needs to focus its efforts on workforce development to re-energize the labor market.

"We need to take a deep breath and accept the fact that two bubbles
have disguised the inferior quality of our educational system," Leamer wrote.

"Good jobs in the United States in the 21st Century will require humans to do things that are not suited to the capabilities of far-away foreigners, robots or microprocessors. We need a workforce that can think creatively and solve the new problems, not merely recall the solutions to old problems."

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