I read this article yesterday and thought it has a good perspective on the current market. The Real Estate Market has definitely taken a beating lately, but one great silver lining is home ownership that was out of reach for so many living in the Bay Area is now a possibility and this in my opinion is a good thing.
Report: Housing woes contained
Article Created: 06/17/2008 04:57:36 PM PDT
What toppled in housing has stayed in housing — at least for now, according to a report released today about the outlook for California’s increasingly wobbly economy.
The rubble from the housing market has yet to spread well beyond the sector’s ruins, the latest study from the UCLA Anderson Forecast suggests. And more signs have emerged that the plunge in housing has reached its nadir and could soon stabilize at the current low levels.
“The housing problems have stayed in housing,” Jerry Nickelsburg, an economist with UCLA Anderson, said in an interview with this newspaper.
Still, statewide and regional economies — including the East Bay — remain weak.
Even worse, the economic slump could intensify in the state, especially in markets such as the East Bay that have been particularly hard hit by the implosion of the housing bubble, researchers for the closely watched economic report said.
“The East Bayis the part of the Bay Area that is most exposed to the housing downturn,” Nickelsburg said.
Employers in the East Bay created numerous jobs during the boom in residential construction, finance and mortgage services, and real estate. This year, the East Bay has lost 9,200 jobs, adjusted for seasonal changes.
“More entry-level housing was built in the East Bay, and the area had more exposure to subprime lending,” Nickelsburg said. “You do get a harder hit in the East Bay from the housing downturn than you do in other parts of the Bay Area.”
Yet the malaise in housing does not mean California, or even the East Bay, has lurched into a full-scale economic quagmire. Strength in professional and business services, coupled with exports of high-tech and digital goods produced in California have helped blunt the housing woes.
“Californiashould avoid a recession,” Nickelsburg said. “But the economy will be weak. Parts of the economy can pick up the slack. But until we have reached a bottom in housing, California will not be growing at more normal rates.”
Up to now, California’s economy has managed to withstand the assault from the plunge in home prices, soaring foreclosures, and ongoing job losses in the mortgage sector.
“Does that mean that economic activity is declining in California? The answer to this question turns out to be no,” Nickelsburg wrote in his report for the quarterly Anderson Forecast.
Before year’s end, home values should reach a bottom that would restore affordable prices to the residential market, the economist wrote.
“When that happens, home prices and mortgage interest rates will once again stimulate the demand for housing,” Nickelsburg stated in his report.
But that does not mean home sales and property values will soon skyrocket. Nor does it mean housing-linked jobs will boom once more.
“The home mortgage finance industry, centered in California, was structured, in part, to provide financial services for a market which has now disappeared,” Nickelsburg wrote. “As a consequence, it will suffer a permanent job loss.”
One of the Andersoneconomists, Ryan Ratcliff, predicted the crash in housing is nearing its end. What’s more, Ratcliff stated, the stunning collapse in home values, sales, and construction could help housing avoid the slow bleeding that surfaced during the residential slump of the 1990s.
“We have compressed the necessary adjustment into two years of intense housing pain,” Ratcliff wrote. “Mom always said it’s better to just rip the Band Aid off.”
Plus, the collapse in home prices might not be a complete cataclysm, said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy.
“The transition in housing, while very painful, will leave us with a more competitive and affordable economy,” Levy said. “More families will have a shot to buy homes.”
George Avalos covers jobs, economic development, commercial real estate, finance and oil companies. Reach him at 925-977-8477 or gavalos@bayareanewsgroup.com
