Economists Forecast More Woes for OC

The annual economic forecast for Orange County projects that the US and state economies will move in tandem over the next few years, with income and employment deteriorating further before the housing market hits bottom. Jerry Nickelsburg, senior economist at UCLA Anderson Forecast and author of the California Report, says that the previous forecast for slow growth in the fourth quarter has now been modified to show no growth.

"Our forecast for slow growth in the fourth quarter was dependent upon consumer demand holding up. The consumer is now uncertain about the effect of current economic policy and is pulling back," Nickelsburg says. "Consequently, economic growth projected for the current quarter in California is not going to occur."

Orange County was one of the first markets in the US where the subprime mortgage collapse first reverberated. Among other blows, the market absorbed the failure of New Century Financial Corp., one of the nation's largest subprime lenders at the time. Since then, the mortgage industry troubles have dealt heavy blows to the Orange County office market, which continues to suffer from negative net absorption.

Says Nickelsburg: "The shrinkage in the mortgage finance market in Orange County creates a deep hole in Orange County employment, and history tells us it will be a five- to six-year process to fill it in with new jobs." Nickelsburg's forecast calls for the residential real estate sector to "begin its recovery next year as home sales pick up beginning in the second quarter of 2009 and home prices stabilize in the summer." In non-residential real estate, office markets will remain weak and higher vacancy rates will persist, according to the forecast, which predicts no change predicted in industrial space market conditions; those conditions have weakened in Orange County, but not to the extent of the office market.

Since labor markets are continuing to weaken, the adjustment process will continue over the next six months, but employment will begin to make a modest comeback in late 2009. The employment sectors that will have suffered the most will be finance, retail and housing, the forecast says.