Homes equity causes slump

COSTA MESA — Chapman University officials predicted a recession in 2008 at their annual economic forecast conference, with drops in construction and consumer spending and a glut of unsold homes on the market.

Chapman President James Doti, in a slide presentation before about 2,000 people, said the United States economy was clearly headed for a slump next year and that the figures for the current year were more discouraging than the university predicted last December.

Exporting, he said, continued to bring in healthy revenues for the U.S., but most other categories were in free fall.

The forum at the Orange County Performing Artscenter’s Segerstrom Hall marked the second event of its kind in Newport-Mesa in the last two days. UCI’s Paul Merage School of Business had a conference on real estate Tuesday at the Island Hotel in Newport Beach, and a number of the panelists also predicted a recession or said the U.S. was there already.

Doti, like the UCI panelists, devoted much of his talk to the housing market. Reckless borrowing by homeowners, he said, had contributed partly to a massive drop in home equity over the last year.

“People are kind of borrowed to the hilt,” Doti said.

He said Chapman experts had predicted a weak economy in 2007, but had thought that exports would mostly counter the drop in private construction and consumer spending. Construction revenues, according to Doti, dropped $91 billion in 2007 and would likely fall another $125 billion in 2008. Still, exports had gone up 8.3% in 2007 and were projected to rise another 10.2% in 2008.

Other factors, though, contributed to make the economy slower than even Chapman had expected. Doti cited the 56% per-barrel increase in the cost of crude oil between January and October this year, as well as a drop in the value of mortgage-backed bonds.

Chapman’s forecast for home sales in the next year was grim, with the number of home sales expected to plummet from 550,000 in January 2007 to 220,000 in October 2008. During that time, Doti said, the inventory of unsold homes would likely skyrocket from 330,000 to 6 million.

MICHAEL MILLER may be reached at (714) 966-4617 or at michael.miller@latimes.com.