The outlook for the Bay Area and California real estate market remains cloudy, according to Ken Rosen, Ph.D., director of the U.C. Fisher Center for Real Estate & Urban Economics. Rosen gave his highly anticipated annual forecast at a symposium at the San Francisco's Marriott Marquis Hotel. More than 300 people attended the day-long program, which will delve into both the residential and commercial sectors.
One of the main concerns Rosen has is policy gridlock in Washington over what can or should be done to stimulate job creation to replace the 8.4 million jobs lost over the past two years, what to do about the trade imbalance, and historically low interest rates.
On the point of interest rates, Rosen says it's not a question of whether interest rates need to be raised, but when. Near-zero interest rates, he says, are starving retirees of income and forcing them to postpone retirement. They are also not helping home buyers to qualify for mortgages since credit remains tight. Rosen suggests that interest rates should be around 2 percent without damaging the economy.
Job losses continue to put a drag on the regional and national economy. Rosen is forecasting it will take until 2014 or 2015 to recover the 8.4 million jobs lost. He did point out that there has been a small gain in a narrow range of sectors, such as education and health care, professional services, and the trade/transportation/utilities industries. He foresees in 2011 that San Jose will lead the Bay Area in job growth, up 1.1 percent, versus dips in San Francisco (down 0.8 percent) and Oakland (down 1.4 percent).
Rosen is projecting the job picture won't recover for another five years, but there's one thing he says homeowners should do now -- refinance.
"I think interest rates are going to stay low for just a short period of time, maybe another year, so take advantage of the refinancing while you can," says Rosen.
Rosen does a widely followed outlook each fall and he cites the negative factors hurting real estate, such as the on-going foreclosures -- which will take another 18 months to two years to clear up.
"We see 2012 through 2014 where we start to see some stabilization, given an abundance of supply today and you still have properties that need to go through the foreclosure process," says Realtytrac CEO James Saccacio.
While we see houses are selling, Rosen believes we have a 60 percent chance of a slow recovery, a 15 percent chance of a double-dip recession, and a 25 percent chance of a moderate recovery.
Bay Area real estate isn't as bad off as markets such as Phoenix and Las Vegas, but when home prices are appreciating, the so-called wealth factor gives people confidence to spend. That's not the case when they see home prices fall.
So a housing recovery is an important factor in an economic turn-around as much as consumer confidence and putting Americans back to work. But with job recovery and a housing rebound still four years off, that will continue to impact how many families own or rent their homes.
Five years ago, home ownership nationally was just over 69 percent. Today's it has slipped to 66.9 percent and it is still falling.
With job growth so important to the housing market, Rosen sees the employment picture brightening in Silicon Valley next year, while San Francisco and Oakland will continue to struggle to create jobs.