Sustained Real Estate Recovery Not Seen Until 2015

The state and national economies have hit bottom and are gradually improving, but the recovery will be slow and home prices in California aren't expected to begin a sustained recovery until 2015.

That was the word Tuesday night from Dr. Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. Dr. Adibi spoke before an overflow crowd at the annual Outlook 2012 dinner sponsored by BIASC's Orange County Chapter in Costa Mesa.

Adibi pointed to the recovery after the housing recession of the early 1990s, which saw the market zig-zag along the bottom for several years during the eight-year cycle before things really started to take off in the latter half of the decade. The current downturn is now in its fifth year.

He also said the key to recovery in housing and homebuilding is job creation, which in turn leads to household formation among the critical 25- to 40-year-old cohort that is the prime group for family and household formation. Unfortunately, California lost more than 1 million jobs during this recession - which was by far the most severe of any of the 11 national recessions since World War II. During 2011 and 2012, he forecasts that the state will generate about 419,000 payroll jobs and another 55,000 self-employment positions, meaning the state has a long way to go until unemployment numbers finally return to pre-recession levels.

He said the market will recover sooner if job creation takes place more quickly than expected.

In more positive news, Adibi said it was highly unlikely that the U.S. economy would undergo a double-dip recession. What worries him most, he said, is if the European Union countries aren't able to strike a deal on repackaging sovereign debt. While U.S. trade with Western Europe is relatively low compared to other companies, the fallout among European banks would have a domino effect on the U.S. financial system, which would likely lead to a new recession here.

Building industry professionals at the event indicated they weren't surprised by Adibi's forecast. Interestingly, some companies involved in the first steps of developing infrastructure for new projects said their business has significantly improved in recent months - and that these projects will be hitting the market in two or three years, about the time the market is predicted to be recovered.