A new study from the University of California Los Angeles indicates mortgage employment in Orange County -- ground zero of the mortgage meltdown -- will never fully recover.
Global losses from the surge in foreclosures have nearly reached $400 billion, according to the quarterly UCLA Anderson Forecast for the Nation and California published this week.
Declining values and foreclosures in California have been worst in markets with a combination of the lowest median prices and highest concentration of adjustable-rate mortgages.
The 17 percent decline in home prices that has occurred since the 2006 peak has wiped out around $3 trillion in home equity. If the decline reaches 30 percent, most equity on homes with mortgages would be eliminated.
But the relatively rapid downward adjustment in home prices suggests the real estate downturn won't last a long as in prior periods.
"Suffice it to say, the housing market has yet to hit the affordability bottom, an event we think will occur before year end," the report said. "When that happens, home prices and mortgage interest rates will once again stimulate the demand for housing, though not nearly to the extent we have seen in recent years."
The job sectors in California that have been hardest hit by the popped real estate bubble are residential construction, mortgage finance, real estate and the manufacturing of home furnishings. About 120,000 jobs were lost during the first quarter for the sector -- accounting for three-quarters of job losses in the state.
But no recovery is in sight for mortgage jobs.
"The home mortgage finance industry, centered in California, was structured, in part, to provide financial services for a market which has now disappeared," the authors wrote. "As a consequence it will suffer a permanent loss of jobs."
It will take quite a bit of time to replace lost finance jobs, especially in Orange County, with jobs from other sectors. This process will stretch well beyond a residential construction recovery.
Orange County was structured to handle the strong loan originations generated between 2004 and 2006 but is now faced with adjusting to the current level of activity.
The state went through a similar structural change in 1990, when the aerospace industry contracted when demand dropped for aerospace production in response to the end of the cold war and the collapse of communism. California could not begin to grow again until other sectors could pick up the slack.
The study analyzed a total of 12 instances of structural changes -- where a business sector was permanently reduced and jobs permanently disappeared -- and determined that Orange County will not regain the employment lost from the mortgage implosion until around 2012 or 2013.