SAN DIEGO, CA -- Don't count out California's resilient real estate market just yet. Statewide, while the market will likely lose sales for a second year, prices should continue to rise next year.
Silicon Valley and much of the San Francisco Bay Area is, however, on the ropes and a come back isn't expected before the end of 2002.
The median price of a single-family home in California will hit a record $279,920 in 2002 while sales will decrease by 2.0 percent, compared to 2001, according to the California Association of Realtors' "California Real Estate Market Forecast: 2002" released last week during the association's annual convention in San Diego.
"The California real estate market stalled immediately following the Sept. 11 terrorist attacks but has begun to rebound," said Gary Thomas, CAR's president.
"While home sales will decline next year, 2002 looks like it will shape up as the fifth strongest year on record. Southern California will lead the state in sales of existing single-family homes, as the availability of entry level jobs and continued job growth fuels housing demand," he said.
Thomas also said the San Francisco Bay Area has returned to what is considered "normal" market conditions -- fewer multiple offers, over-bidding and skyrocketing prices.
"We are seeing some multiple offers, but they are all below list price, which is a complete reversal of the last years," said Carl San Miguel, broker/owner of Highland Properties in Campbell and a director with the Santa Clara County Association of Realtors.
"We will probably stay in this kind of market through the year 2001 and possibly 2002 and 2003," he added.
Silicon Valley's housing market is losing ground largely because of the economy's heavy reliance upon the job-churning technology industry and the now evaporated "wealth effect". A victim of its own success, Silicon Valley generated a boom built on an over-valued technology sector that has plummeted back down to earth, tossing out jobs as it fell.
The San Jose Metropolitan Area lost 24,700 jobs since September 2000 when the unemployment rate was 1.8 percent. The rate was 5.9 percent in September this year, according to the U.S. Bureau of Labor Statistics. In California, the September 2001 rate was 5.4 percent compared to 4.9 percent nationwide.
"The decline in demand for housing in Silicon Valley was not just a supply constraint, but it was brought on by the tanking of the high tech sector, prior to Sept. 11," said Michael Carney, executive director of the Real Estate Research Council at California State Polytechnic University in Pomona.
Terrorists attacks have exacerbated matters, effectively producing fewer than they typical number sales as recently as last week, according to Richard Calhoun, statistician, broker and author of Bay Area Real Estate Market Newsletter.
"All this uncertainty and all this fear is going to cause people to simply stay put. They aren't going to go out as much. They're going to stay home, at least for a while. But I have to say that I'm just more pessimistic about the future than most experts I see quoted lately," said Carney.
Without the wealth effect of stock options, discounted stock purchase plans, stock market returns and other income boosters, with fewer jobs and with increased job insecurity, consumers became less likely to venture into what could be the largest single purchase they'll ever complete.
In Silicon Valley, virtually all housing indicators are down -- weekly sales per new home community were off 68 percent in the third quarter, resale home values dropped at least 20 percent so far this year, and rents dipped by 7 percent during the third quarter as the rental industry faced the lowest occupancy rate in a decade, 93.3 percent, according to official reports.
However, Silicon Valley's housing remains expensive. The median price of a single-family home is $500,000, condos cost $330,000 and the average rent is still more than $1,600 a month.
"Losing the wealth effect has had a dramatic impact in Silicon Valley and we may be walking around in doom and gloom but a bad market here is better than most region's normal years," said Michael G. Mullinix, president of the Santa Clara County Association of Realtors .
California's expected 6 percent increase in home prices for 2002, follows a projected 8.5 percent increase in home prices this year, according to the CAR forecast. Next year's 2 percent sales decline comes on the heels of a projected 5.9 percent decline for this year.
"While housing affordability will continue to be a factor in the ability of many California families to purchase a home of their own, home buyers will benefit from continued low fixed and adjustable mortgage interest rates in 2002," said Leslie Appleton-Young, CAR's vice president and chief economist.
"Favorable mortgage rates coupled with the state's ongoing housing shortage also will keep the demand for housing strong and the rate of home price appreciation well above the rate of inflation," Appleton-Young said of the statewide market.
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