The economic future for northern Santa Barbara County is not bright, and the situation is not expected to begin improving until 2009 or 2010, according to predictions being released today by the UCSB Economic Forecast Project.

With the real estate market “close to freefall, both in sales and price,” retail sales in a slump, population falling and agriculture weak, the North County economy is deep in a three-year recession, according to the forecast being delivered today at Allan Hancock College.

“The South Coast economy is idling along at its normal pace,” said Bill Watkins, executive director of the UCSB Economic Forecast Project, in his assessment of economic activity. “The North County economy has switched from its normal high speed to reverse.

“The region is in its third year of recession,” he said. “It's gross product shrunk in 2006 and 2007, and it will shrink again in 2008.”

While agriculture is expected to return to its previous levels of growth in 2008, the forecast calls for construction, finance, real estate, retail trade and services all to decline through the coming year.

Forecasters say the economy will begin to rebound in 2009, but won't return to more typical levels until 2010, although a “normal” real estate market is not expected to re-emerge until 2011.

There are some bright spots, according to Economic Forecast Project analysts.

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Those include Vandenberg Air Force Base, which “remains a pillar of strength for the region's economy,” Watkins said.

Another is the industrial sector, which Watkins said is “doing relatively well.”

But looming over it all, Watkins said, is the specter of rising crime, which threatens the vitality not only of the tourism industry but also the area's draw as a retirement community. That combination could have repercussions on the economy as a whole, he said.

Real estate

Northern Santa Barbara has felt the real estate crisis more strongly than the rest of the county as a whole, according to the Economic Forecast Project.

“The region has been very hard hit by the collapse in home sales,” Watkins said in his executive summary of the report. “The housing, construction and financing/real estate issue will continue to be a drag on North County's economy for some time.”

In just two years - 2006 and 2007 - home sales plummeted 60 percent. While the median price for all homes - single and multifamily, new and used - slumped 1.9 percent in 2006, the price fell another 15.9 percent in 2007.

Of the three North County cities, Guadalupe suffered the least, with the median price falling $13,900 from 2005 to 2007. In Lompoc, the price fell $57,100; in Santa Maria, the price plunged $70,400, or

18.8 percent over two years.

At the same time, the North County has taken the brunt of the county's foreclosures, the report says. Santa Maria, Lompoc and Guadalupe accounted for 87.3 percent of all foreclosures in the county in 2007.

Santa Maria suffered the most of the three cities, accounting for 64.6 percent of the 676 foreclosures in the county in 2007.

Surprisingly, residential construction climbed a bit, based on the number of residential building permits issued, forecasters said.

Although issued permits fell to zero in Guadalupe in 2007, the numbers climbed slightly in Santa Maria and even more in Lompoc to a level not seen in recent years, analysts said.

But Dan Hamilton, director of economics for the project, predicts the decline in sales and particularly prices to continue in 2008 in the North County.

“The residential real estate market will begin to recover in 2009, but it will not seem like a ‘normal' market ... until 2011,” he said in his forecast highlights.

Other factors

Skyrocketing food prices and the weak dollar are expected to give agriculture a boost in the North County, forecasters said, particularly the wine industry.

The weak dollar will not only bring in foreign tourists, but will also make California wines more competitive on the world market.

Industrial growth in the North County has remained strong, according to analysts, and that trend is expected to continue.

Although Vandenberg Air Force Base recently experienced some job losses, an ongoing expansion of space missions and infrastructure is expected to bring a gradual increase in the workforce there, according to the forecast.

The economic decline in the North County also is tied to a slump in population growth. In 2007, Santa Maria's growth rate was 0.6 percent, the lowest since 1974, according to the report.

The rate is not expected to exceed the county average again until 2010.

Mike Hodgson can be reached at 739-2221 or mhodgson@santa mariatimes.com.

May 9, 2008