The Anderson School of UCLA as well as Chapman University in Orange, independently reported their forecasts for the economy in California.  In the LA Times, the headlines were positive, but every radio report was decidedly negative.  The body of the work reflected better times ahead in 2011.  In essence their position is that California, they predict, will outpace the nation in job growth predicting between 183,000 and 195,000 jobs added in 2011, but it will be slower than past recoveries.  Exports to Asia are thought to be the little engine that could, with growth expected to come from computer manufacturing and electronics, aerospace etc.  Housing, however will remain a drag as will high unemployment.

By coincidence I had Dan Hamilton of the California Lutheran Center for Economic Research and Forecasting speaking at a marketing group breakfast yesterday.  Their report, due on December 15th, will be more of the same albeit a little more pessimistic.  Professor Hamilton would not give anything away in their latest report, except to say that while there would be small revisions to their previous forecast slightly to the negative.

There was a lot to take from his presentation, not the least of which is that Cal Lutheran may be one of the best university’s in the nation for students wanting to develop economic forecasting models.  One thing Hamilton said that was really interesting is that the nation still has too many homeowners.  I have never heard this before.  I knew we sold homes during 2005-6 to people who had no business owning, but to hear that there is a quantifiable umber that we should have is really nothing short of amazing.  His group’s position is that in 2007 we hit a national home ownership percentage of 69%, because of easy lending, lax standards and unnecessarily low rates.  This he said was unsustainable.  Further that we won’t see housing truly begin its recovery until that percentage gets down to 64%.  This means we still have about 3 million homes that need to be repossessed and I presume ultimately purchased by investors.  That is an incredible concept.  He also said that the spread between the 3 month LIBOR and the 3 month Treasury spiked during the economic crisis’ peak, giving them empirical data to add in their model.  Call it a fingerprint left behind that will allow them to better predict future bubbles in housing… This spike was never before experienced going back decades, and offered as evidence that the financial crisis was truly a one of a kind event.

In the end the prediction was that housing will not improve until employment does and that we should not expect a recovery in housing until mid 2012.  So the good news is that California will recover, the bad news is that it will not be quick and that the time to buy still needs to be viewed in a long term as the housing volatility will continue for the foreseeable future.

I’ve got more on this presentation including talk about inflation vs. deflation, so stay tuned.