UCLA: Housing recovery will not come in '12

By Lily Leung

June 20, 2012

Work continues at the Carmel Pacific Ridge Apartments in Linda Vista. The multi-family market is on a roll and is expected to get hotter in 2013, according to an economic report from UCLA. — Howard Lipin / U-T San Diego staff

Home sales are hot and the labor market continues to see steady gains, but could positive indicators like these be too good to be true, possibly a mirage?

That's what economists at UCLA concluded in their 2012 economic forecast for California and the nation, which was released Wednesday. 

After poring over facts and figures, they found that while key numbers appear encouraging, a housing recovery in California likely won't come in 2012. It'll be more like 2013 or 2014.

Here are five key takeaways from the report's authors that support this argument:

--Homeownership will continue to fall. The rate of people owning homes peaked at 69 percent eight years ago. It will likely dip to 65 percent by year's end. Logically, if fewer folks are owning, then more will rent. The multi-family sector, which is hot now, is expected to grow hotter because household formations are expected to rise. The UCLA report predicts household formations will grow at "a robust 1.70 million run rate in 2013-14," up from a meager 327,000 in 2009. "Simply put there are too many young adults living in their parent’s homes, an untenable situation for all of the parties involved," the report said.

--Student debt has become unwieldy. National student debt is estimated at $1 trillion, and the consequences of that load on the economy could be explosive, according to Wednesday's findings. More 20 and 30 somethings are expected to move out of Mom and Dad's place, but what they owe in student loans could keep them from being homeowners. "And because student loan debt is not extinguishable in bankruptcy, it will impair the ability of younger people to buy homes in the years to come," economists said.

--Rentals as sound investments: More investors seeking higher yields are buying up apartments to satisfy that need. With Treasury notes, you'll expect a 2 percent return. With rentals, it's about 4 percent to 5 percent, according to the UCLA study. But what makes the investment sweeter is the high possibility of rent hikes, which increases returns. But a delicate balance must be struck, researchers said. Landlords could justify increases in rent because of low vacancy rates and higher demand, but increases that are too high could push some qualified would-be borrowers to buy.

The conclusion: UCLA's economists say the California economy so far this year continues to be shaky but will be likely be in recovery mode in the next two years. "While this news is a near-term downer, we are expecting 2013 and 2014 to be years in which the California housing market grows more rapidly than the U.S.," the report says. 

Source: UT San Diego