A brief look at recent economic trends affecting real estate.

The real estate recession is here

Like the rest of the nation, California is feeling the burn of the real estate recession. As lenders pull back from the more risky mortgage loans in response to investor alarm, the number of construction starts is estimated to fall approximately 20%. In conjunction with months of existing unsold new construction, foreclosures continue to contribute to the rising housing inventory in the state. This will cause housing prices to drop as sellers will be forced to make greater price concessions in order to “compete” with the high supply of housing.The markets least affected by the decline in sales and housing prices are in the Los Angeles, Santa Cruz, Santa Barbara, and San Francisco counties. The relatively high prices of housing in those counties insulate them from some of the effects of the recession as slow markets tend to have a greater effect on lower-priced, lower-income communities with little or no ability to buffer economic shocks.

Data from Wells Fargo Economics suggests that housing-related industries, including construction and mortgage banking, will be shedding more workers as the year goes on in order to adjust to the declining demand for housing, thereby slowing down payroll growth in California by more than half a percentage point.