Friday, May 4, 2012

Good News for the Bay Area Economy

A colleague of mine had the privilege of attending the Fisher Center Real Estate Conference. Ken Rosen is one of the foremost real estate economists in the nation, and he was the keynote speaker. He gave a valuable macro view of the economy and how it affects real estate, both nationwide and in the Bay Area. A few points to share with you:

  • The Bay Area is the strongest region in the nation. It is experiencing a boom similar to the late 90s. 
  • However, the national market has bottomed but remains weak.
  • Projection for 2012: 65% chance of moderate recovery; 20% chance of strong recovery; 15% chance of double dip.
  • However, there is high uncertainty in the future, particularly in 2013. This is because tax laws may change in September/October, Iran and the Euro remain unsettled, and the government is projected to "inflation away the debt." 
  • We are in a recession only in politicians' minds. There is a projected increase in 2012 GDP of 2.5%.
  • Only a small percentage of the US is unemployed. The U.S. is projected to add 2M jobs in 2012.
  • Consumer confidence is very high and increasing for the wealthy and the mid-aged (35-54).
  • 3.5-4% inflation projected over next decade; when inflation increases, the real estate market booms (real estate is a great hedge against inflation).
  • In the Bay Area, unemployment is only 4.2% (those with less than high school education, it is 12.6%). However, it is trending down for all.
  • Looking at job growth by market, two of the highest markets are in the Bay Area: San Jose is #3 (3.5% growth, or 35K jobs) and San Francisco is #5 (2.8%/28K). Oakland, "a spill-over economy," is #14 (1.6%/15K).
  • Housing starts have bottomed, resales are improving and affordability is at a 30-year high.
  • US housing inventory recently plunged, "always" a sign of improvements to come.
  • San Francisco rentals are the highest in the nation: a 13.3% increase year over year, 3% vacancy rate.
  • Case Shiller has said values are not yet increasing - they are "wrong." Based upon numbers provided to Mr. Rosen by Red Oak Realty, values in the top markets in the Bay Area have all increased 2-6% in Q1 2012.

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