California’s nightmare | FT Alphaville

California’s nightmare

Things are already extremely rotten in the state of California, and are likely to worsen, according to forecasts by two teams of homegrown economists. reports, (emphasis FT Alphaville’s):

California’s unemployment rate will soar to between 12 percent and 15 percent by next spring and remain in the double digits until at least the beginning of 2012, according to forecasts released by two teams of University of California economists.

The state’s unemployment rate has not reached those heights since the Great Depression.

The projections – one released today by UCLA’s Anderson Forecast, the other last week by UC Santa Barbara’s Economic Forecast – paint a grim picture of declining economic growth, lower retail sales, a troubled housing market and falling office prices lasting through much of 2010.


The economists of both universities say the job market will worsen despite the Obama administration’s $787 billion national stimulus package, which aims at creating or maintaining 3.5 million jobs over the next two years.

California has been hit particularly hard by the crisis in US housing and real estate more broadly. Calpers, the state’s giant pension fund, lost more than a quarter of its assets in the fiscal year that started on July 1 2008 largely because of its aggressive foray into real estate, the Wall Street Journal reported in December.

The University of California economists are not optimistic about the outlook for either housing or non-residential real estate, SignOnSanDiego said:

UCLA projected that office markets will remain sluggish through 2010 in San Francisco and Los Angeles, 2011 in Silicon Valley and 2012 or later in San Diego County and other areas of the state.

UCSB projects double-digit declines in California home prices in 2009 and 2010.

But while UCLA believes the “continuing downturn in residential construction is leading to a shortage of housing that could help the market stabilise as early as the end of this year”, the team as UCSB expects continued forclosures.

As Dan Hamilton, director of the UCSB forecast, rather colourfully put it:

…government programs designed to help people stay in their homes are like “putting a very loose-fitting bandage over a festering sore.”

Related links:
California’s debt downgraded amid budget crisis – FT
California debt issue raises $6.5bn – FT