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California Association of REALTORS® Vice President and Chief Economist Leslie Appleton-Young agrees with National Association of REALTORS® Chief Economist and Senior Vice President of Research Dr. Lawrence Yun.

“Absolutely the worst is over, but we will have a slow recovery,” Appleton-Young told SILVAR members at this morning’s Los Gatos/Saratoga District tour meeting.

Here are some positive signs:

• GDP (Gross Domestic Product), which showed a drop of 2.6 percent in 2009 – the largest drop since 1938 – is rising slowly. GDP was up 1.7 percent in 2010 Q2, and up 2 percent in 2010 Q3. There has been positive growth in the economy for the last five quarters. It shows the federal government’s economic stimulus has worked, Appleton-Young said.
• The Consumer Confidence Index in October was at 50.2, up from 48.6 in September.
• Consumer spending was at 1.9 percent in 2010 Q2.

Unfortunately, it’s still not enough to convince businesses that they should expand, she said.

Consumers are downsizing and maintaining the attitude that “less is more.” They are shopping at discount stores like Walmart, so luxury goods are struggling.

“We can’t look to consumers to drive this recovery,” Appleton-Young surmised. “There’s nothing positive on the horizon for consumers right now, and there won’t be until we start to see positive job numbers and this whole labor market starts to turn around.”

Appleton-Young said California is seeing more challenges than the rest of the nation because Sacramento and regional and local governments “are working to make things worse” with their cutbacks and layoffs. Big losers in California are construction, manufacturing, trade and transportation and financial activities. The winners continue to be education, health services, leisure and hospitality.

Appleton-Young said inflation is 18 months to two years away, but she believes a dose of inflation and increase in interest rates would actually be a positive sign that the economy is moving forward.

2011 will be “a lackluster year,” with no significant job growth till late in the year, said Appleton-Young. She doesn’t anticipate that there will be any meaningful reforms next year, as “the government has done all it can to make funds available.”

“As John Maynard Keynes put it, ‘You can’t push on a string,’ you make money available, but if the banks don’t want to spend …,” she commented.

For 2011, the C.A.R. chief economist anticipates a GDP growth of 2.4 percent. For California, a job growth of 1.6 percent; unemployment at 11.4 percent, home sales up by about 2 percent and a slight rise in the median price by about 2 percent.

“We’re still seeing limited inventory of good distressed properties and still very nostalgic upper-end sellers who are not appreciating the market we have today. They are going through a very painful situation,” she said.

According to Appleton-Young, the wild cards for 2011 are:

• Another recession? Some people think there could be a double dip.
• Federal economic policies – there is much uncertainty regarding future tax rates
• Negative equity home owners – there are still many home owners who borrowed excessively against their home equity
• Shadow inventory – distressed sales will continue to factor in the marketplace for four to five more years because there is still a large pool of home owners underwater.

Pictured left to right: SILVAR Executive Officer Paul Cardus, Board Director John Tripp, 2010 President-elect Gene Lentz, C.A.R. Vice President and Chief Economist Leslie Appleton-Young, Los Gatos/Saratoga District Chair Bill Rehbock and 2011 President-elect Suzanne Yost.