The end of an inflated housing market will likely lead to a recession after April 2006 that hits hard in Southern California, where so many jobs and so much economic activity are dependent on the real estate market, according to the quarterly UCLA Anderson Forecast.

Economists at UCLA’s Anderson School of Management said in the report released Tuesday that the housing market is artificially propping up the economy, particularly in Southern California. They predicted that falling consumer spending on housing would precipitate a recession as it has in nine of the last 10 recessions.

Ed Leamer, director of the Anderson Forecast, said that despite many signs that California’s economy is recovering, a recession can’t be headed off unless the predicted decline in spending on housing is offset by much higher exports or military spending.

“Southern California has been producing jobs, but they all have to do with the real estate market, which is due for a turnaround,” Leamer said. “We’re going to lose $100 billion to $150 billion in reduced spending on homes by consumers, and you have to make that up, so it either has to be in exports or in defense spending.”

The quarterly study predicts how the economy will perform for the next two years. UCLA economists found that since World War II, spending on housing declined sharply 10 times, and recessions followed eight of those times. The two exceptions were at the beginning of the Korean and Vietnam wars, when higher military spending offset the housing declines.

The Anderson Forecast first declared a bubble in California’s real estate market two years ago. Housing prices have so far defied the UCLA economists, but the market is now showing signs of weakening, with lower sales volumes, slower appreciation and growing difficulty in selling expensive homes, Leamer said.

“When that trouble really starts, you’ll see declines in building permits, and finally spending on construction,” he said. “Southern California home sales data is already flattening out.”

The report concludes that the real estate market, driven by low interest rates, has made current housing construction levels unsustainably high, outpacing by far the growth of the adult population. Current housing start permits are set to exceed 2 million in 2005.

Anderson economists predict that housing starts will begin to fall by the end of 2005 and will hit 1.6 million by mid-2006, a level consistent with population growth.