Bay Area is now a homebuyer’s market
Economic recovery unlikely before 2003, campus real estate experts say

30 January 2002 |

Severe job loss and a decline in household wealth have turned the Bay Area housing market into a buyer’s market, a situation that is unlikely to change until 2003, say Haas School of Business researchers Kenneth Rosen and Amanda Bishop.

Rosen, a real estate professor, and Bishop, a research associate, consider some economists’ predictions of a speedy economic turnaround and a strong Bay Area housing market in 2002 “overly optimistic.”

The Bay Area economy is in a deep recession due to the downturn in the technology industry, with 117,000 more unemployed today than at the end of 2000. According to the report, “The Bay Area Housing Market: A Buyer’s Market,” job loss will continue as technology companies retrench, along with others that fed off technology growth.

The current economic climate has turned the Bay Area housing market into a buyer’s market for the first time since the early 1990s. When the cycle has been completed, Rosen and Bishop expect home prices to have fallen 15 percent from their peak and luxury home prices to have fallen 30 percent from their peak.

“Even with the worst part of the current recession behind us, the effects on the housing market will lag about a year,” said Rosen, the California State Professor of Real Estate & Urban Economics and chair of the Haas School’s Fisher Center for Real Estate & Urban Economics. “The Bay Area housing market will not bounce back until 2003.”

The Bay Area has seen extraordinary economic and job growth in the late 1990s, the report states, with employment in the area’s six counties expanding by 13.2 percent, or 361,900 jobs, between December 1993 and 2000. During this time, the Bay Area became the epicenter for the Internet revolution, adding thousands of technology workers.

“It was clear to us, however, that the boom was unsustainable,” write Rosen and Bishop.

The researchers expect employment numbers to further decline and unemployment to rise during the first part of 2002, when companies that delayed firings until after the holidays further trim their staffs. “We expect the Bay Area labor force to contract a further 1 to 1.5 percent in 2002,” they said.

The housing market is also influenced by contraction of household wealth. During the stock market euphoria that ended in March 2000, many young entrepreneurs became millionaires, seemingly overnight, as ordinary Americans in record numbers invested in the stock market. This contributed to inflated housing prices.

“The silver lining is that the Bay Area has become a homebuyer’s market,” said Rosen and Bishop. With mortgage rates at a 30-year low, Bay Area homebuilders and real estate agents report brisker activity in November and December, after a brief lull following the Sept. 11 terrorist attacks.