Orange County job growth is expected to slow next year, with housing prices taking their first dip in years, according to Chapman University’s 2006 forecast released Thursday.
Chapman economists project the county will create 20,000 new jobs in 2006 for a 1.4% gain. Job growth is expected to be 1.7%, or 24,000 new workers, this year. Job growth was 2.2% in 2004.
OC job growth peaked at 6% in the first quarter of 1998. Since then only the manufacturing sector has declined in jobs.
“Manufacturing is the weakest link in the economic comeback,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange.
The construction sector has been a major engine of growth in OC during the real estate boom.
“It also points to the vulnerability of the county’s economy if this sector were to weaken,” wrote Adibi and Chapman President and economist James Doti, in their economic review.
Chapman expects the Federal Reserve Board to raise the benchmark fed funds rate another 75 basis points to 4.75% by mid-2006. The Fed has raised rates 25 basis points a dozen times since June 2004 to ward off inflation. The rate now stands at 4%.
Chapman hadn’t expected rates to rise so quickly. In June, the university’s forecasters had expected two more rounds of 25-basis point increases this year, pushing the Fed funds rate to 3.5%, where they expected it to remain through 2006.
Rising rates stand to have an impact on OC’s thriving housing market next year.
The median price of homes sold in OC is expected to fall 4.2% next year, according to Chapman. Housing prices will begin to show annual declines by mid-2006 after rising 10.3% this year.
The median price paid for an OC home in October was $606,000, up 14% from a year earlier and just off September’s $610,000 mark, according to La Jolla-based market tracker DataQuick Information Systems.
Slowing job growth and low affordability loom as key factors in a housing pullback. Still, Adibi scoffed at talk of a bubble bursting in the local housing market.
The decline “won’t kill the economy,” he said. A 10% to 15% decline would signal a recession, Adibi said.
Adibi said OC homeowners withdrew roughly $14 billion in cash out of their homes in 2004. Adibi declined to forecast how much was taken out this year, though he expects to see a “significant decline” in the future.
