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Tuesday, April 3, 2007

Subprime Mortgage Woes Harm Calif., Nat'l Economy

Subprime Mortgage Woes Harm Calif., Nat'l Economy
(AP) LOS ANGELES The subprime mortgage implosion will take even more steam out of the already slowing real estate market this year and beyond, according to a new economic report.

More than two dozen subprime lenders have shut down in recent months and others are scrambling to stay in business as a spike in defaults caused by borrowers unable to make payments has rocked the mortgage industry.

Now, as lenders tighten credit standards, the housing market will likely see further declines in price and output, senior economist David Shulman wrote in the quarterly Anderson Report released Monday by the University of California, Los Angeles.

밯e suspect the problem in the subprime area is just the tip of the iceberg for the mortgage market as a whole,?Shulman wrote. 밊or all practical purposes, the subprime market is in the process of shutting down.?br />
A tougher credit environment will limit the number of first-time home buyers entering the market and make it tougher for others to refinance their subprime loans before they face a default or foreclosure.

Shulman expects housing starts to hit 1.33 million units this year, down from a previous forecast of 1.48 million units.

밊or a housing market that has already witnessed housing starts decline by 36 percent, this is not good news,?he wrote.

Still, he does not forecast a recession but only a softening of the economy.

He expects growth in the nation뭩 gross domestic product to range from 1.7 percent to 2.5 percent through the first nine months of the year, and to average 3.25 percent next year.

The nation뭩 unemployment rate will tick up from February뭩 4.5 percent to 5 percent by the third quarter before beginning a gradual decline, Shulman wrote.

Home sales in California will also take a hit from the subprime mortgage woes, economist Ryan Ratcliff forecast in his outlook for the state.

"Since the subprime market was almost the only thing keeping sales volumes buoyant in the last years of the boom, the drying up of subprime credit suggests that home sales in California will be stagnant for some time to come," Ratcliff wrote.

Meanwhile, recent employment data from the state suggests California has so far weathered the real estate slowdown better than expected.

Last year, California added 52,000 jobs, up 1.8 percent over the prior-year period.

Still, Ratcliff forecasts the state's economy to slow significantly this year, as the woes in the construction and mortgage finance sectors drag on the economy.

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