Could California’s economy handle a real estate crash? – Orange County Register

“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: California’s economy has modest risks of seeing its business growth chilled by serious real estate weakness compared with other states.

Source: My trusty spreadsheet analyzed state-by-state gross domestic product data for 2021 from the U.S. Bureau of Economic Analysis. A crash-damage estimate was defined by looking at the growth of three property-related niches — construction, finance and real estate — within a state’s GDP and comparing it with the broad tabulation of business output.

The trend

California has long been known for its dynamic and volatile property-related industries. But the pandemic era’s real estate fever has been a national phenomenon.

For example, California had 21% of its 2021 GDP growth tied up in these three real estate categories. But that’s just a mid-range 25th largest share among the states and below the 23% nationwide level.

History tells us that the more any economy is dependent on real estate success, the more one should be worried about the future. And these are skittish times for the property business as financing costs are undergoing a stunning surge — interest rate hikes on par with what was seen during the infamous 1980s interest rates spikes.

Wyoming’s growth was most dependent on real estate last year with 82% of its 2021 business expansion tied to property niches. Next was Delaware at 52%, Oklahoma at 41%, New York at 39% and Louisiana at 38%.

The smallest share was found in Alaska at 3%, followed by Nebraska at 7%, North Dakota at 9%, Maryland at 10% and Indiana at 12%.

And California’s economic arch-rivals? Texas was 13th-highest at 26%; Florida was No. 11 at 28%.

The dissection

Let’s look at the risks.

By my math, California’s 2021 real estate growth was eighth highest at 1.6% vs. a nationwide expansion of 1.3%.

Remember, GDP is the tally of all spending on goods and services, so it’s a giant number. And it’s typically a slow-moving economic benchmark compared with, say, fluctuations in real estate sales counts or values.