The Breakdown | Explaining Southern California's economy
Business & Economy

UCLA Anderson Forecast: Housing market helps Calif. economy

 Construction workers build a home in Palo Alto, Calif.
Construction workers build a home in Palo Alto, Calif.
Paul Sakuma/AP

Because of its improving housing market, California is a bright spot in the country’s tepid economic recovery, according to the latest UCLA Anderson Forecast released Thursday.

The forecast says California’s economy continues to grow at a faster rate than the country’s. The state's unemployment rate will continue to fall through 2014, and next year should average 6.8%.

While home prices have risen sharply in the state, home sales have been flat at best.  Senior Forecast Economist Jerry Nickelsburg is less focused on the quantity of home sales, and more on the quality. He points out that that foreclosures now make up less than 7% of all home sales in California. 

"That’s good news," says Nickelsburg.  "It means that housing markets in California are finally normalizing, and that gives rise to new construction."

That new construction is fueling job growth. Nickelsburg says about 12% of California’s job gains in the past year have come from the construction trades.  

In another section of the forecast, Economist William Yu predicts California’s real estate market could see increasing investment from China.  Yu runs the numbers to compare a condominium in Shanghai to one in Los Angeles. 

...we can see that the Shanghai condo was sold for $995,000 and the L.A. condo was sold 
for $830,000 in March 2014. However, when we take a closer look, we find that the properties are quite different. The Shanghai condo is smaller (1,248 sf) than the L.A. condo (2,116 sf). Thus, Shanghai’s price per square foot is almost twice as much as L.A.’s. Second, the monthly rent 
for the Shanghai condo ($1,400) is much lower than L.A.’s ($3,300).

Investors may be attracted to the LA market, where a condo would produce higher income than a comparably priced unit in Shanghai.  In regard to China's real estate market, Yu acknowledges that it's puzzling that the average Chinese household can even afford a condo priced at nearly $1 million. For him, this is evidence that a housing bubble in China can't continue, and that the "smart money" is moving to real estate markets in the U.S.  

California's market has a few advantages over the rest of the U.S., Yu writes.  Geographically, Los Angeles and San Francisco/San Jose are direct flights away from major markets in China, and the Golden State boasts a mild climate and large Asian communities.