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Minyan Mailbag: Housing - Slowdown vs. Recession


The scenario set out is pretty much in line with what Leamer has said has always led to recession: transactions are falling off.


If you ask Ed Leamer at the UCLA Anderson Forecast what nine out of 10 recessions look like in their early stages, he'll tell you straight out: A decline in housing transactions.

So, this week's LA Business Journal headline "Offices Shutting Down as Home Sales Plunge," is at least a bit disquieting, though hardly unexpected.

The scenario set out is pretty much in line with what Leamer has said has always led to recession: transactions are falling off. Real estate agents are being put out of work along with their brethren in the mortgage brokering, construction and remodeling businesses. They will spend less. That's less for housing and less for other durables. The impacts will multiply through the economy as those two largest sectors slow down.

According to the journal, no less than six major brokerage branch offices in LA have shut down or announced plans to shut down in the past 60 days. More are expected. Hundreds of brokers have been "consolidated" elsewhere and some have begun to leave the business.

Other interesting factoids:

The number of real estate agents in California has doubled in the past five years to approximately 504,000. If we "give back" half of the gain, it'll be a loss of over 100,000 jobs. Consider what that will do to the national employment picture, especially if something similar happens in the other "hot" markets.

Agents are down, on average, to five closings per year. Experts suggest that at less than six sales per year, many newer agents are barely surviving and, as one person in the business says, "a drop in our membership roll soon follows."

One long-time agent says he expects as many as 25% of current brokerage offices to close in the next 18 months. That could lead to employment losses similar to those of the early 1980s (30%) or early 1990s (40%).

And that's not counting all the others who are in on the transactions: mortgage brokers, appraisers, title insurers, etc., some of whom will find themselves out of work as well.


To give Ed Leamer full credit, he's been saying that "this time it's different" because so much of our manufacturing base has been exported, he expects that the impact to a slowdown in the economy will be felt less at home and more overseas than ever in the past. Thus he expects a slowdown, but not a full recession. I'm skeptical.

-Minyan Michael

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