Though job growth is slowing in the Bay Area, giving rise to worries about a downturn in home values, experts are predicting a slowdown at worst for the real estate market — and no changes at best.
Bay Area job growth was around 4% in 2015 and 3% in 2016, while in 2017 “it’s moving closer to 1%,” said Jeffrey Michael, director of the Stockton-based Center for Business and Policy Research at University of the Pacific.
Year-over-year, comparing Aug. 1, 2016 to Aug. 1, 2017, job growth in San Jose was 1.3%, Oakland 1.9% and San Francisco 2%, according to Christopher Thornberg of Los Angeles-based Beacon Economics.
Beacon has released figures showing that annual job growth in the technology sector dropped to 3.5%, or 26,700 new jobs, in 2016. In contrast, there was a 6% annual gain of 42,000 jobs in 2015 and a 6.4% gain in 2014.
The tech industry is a major driver of the Bay Area economy. With tech job growth slowing, the hordes of incoming tech workers who have driven up rents and prices seem likely to diminish.
Despite the sobering numbers, observers of the real estate scene downplayed the effects on the market.
“Every few months, there’s always this scuttlebutt about how the market is slowing, and then it passes,” said Maggie Resnick, who partners with fellow real estate agent Alissa Custer at Marvin Gardens Real Estate in El Cerrito.
Resnick, a longtime El Cerrito agent, predicted the 2007 housing slowdown just before it happened.
Currently, “there will be a weekend dip, and then the market recovers because there really was no significant dip,” Resnick said.
“At the moment, properties that are well-priced and priced intelligently are getting multiple offers and going for well over the asking price, in Berkeley, Oakland, El Cerrito, El Sobrante and San Pablo,” Resnick said.
She did note, however, that “the market can change on a dime.”
Thornberg, one of the first economists to predict the 2007 subprime mortgage meltdown, isn’t quite as upbeat as Resnick — but still relatively sanguine.
“I think job growth is going to stabilize in the 2% range. That number is stable, and I don’t expect any downturn in the economy or real estate,” he said. Thornberg, who founded Beacon Economics in 2007, worked as a chief economic advisor to the state controller’s office from 2008 to 2012.
Thornberg maintained, “Profits for tech are still good. Exports are picking up, venture capital has just started to pick up in the Bay Area and there are no underlying issues to suggest that the tech industry is heading for some dramatic drop or pullback. Rather, it has reached a sustainable plane.”
Thornberg added that unemployment rates are below 4% in the Bay Area. Full employment is generally defined as somewhere between 4-6% unemployment.
Robert Edelstein, co-director of the Fisher Center for Real Estate at UC Berkeley’s Haas School of Business, isn’t quite as positive.
“A slowing of employment here can be enough to make the housing market not so robust,” Edelstein said.
“The job market has been in an upturn for a number of years and the question is, ‘How far can you go?’” he said.
Certain drivers of the tech industry may weaken as time passes, he said.
“The world has lifecycles for jobs and industries and firms that are much shorter than they used to be, and that could happen in the tech industry too,” Edelstein said. While Facebook is on top now, it could go the way of similar platforms such as Friendster and LiveJournal, he said.
Edelstein cited Nokia as another example. “Nokia was a telephone company, and computers were merging with telephones. They didn’t get on that fast enough, and Apple took over.
“If the U.S. economy and the world economy slow down, people aren’t going to be buying the $1,000 Apple X. If they don’t do so, Apple may need to slow their growth, and the Bay Area will suffer and so will the real estate market,” Edelstein said.
Higher interest rates is another factor
Another factor that could affect the housing market: higher interest rates. While the Federal Reserve Bank is expected to raise rates gradually, increases would still affect peoples’ ability to buy homes.
“The precursors of a slowdown are in place. The probability is higher now than it was a year or two ago, but nothing is certain,” Edelstein said.
Jeffrey Michael of the Center for Business and Policy Research had a completely different take. He suggested that instead of job losses slowing real estate prices, it’s the other way around: high prices and lack of available homes and rentals are slowing employment growth.
“There has been a significant slowdown in job growth partially connected to the real estate situation, which is probably more a cause than anything,” Michael said.
“The Bay Area has been very effective in how it has been able to push workers into existing housing stock, but there’s only so many people you can cram into housing stock,” he said.
Thornberg concurred, saying, “I think the lack of housing for the available labor force is creating a pressure cap on potential growth in the Bay Area.”
Like Thornberg, Michael wasn’t concerned about the growth rate. “That’s a substantial slowdown from where things were a few years ago, but it’s something that has been predicted for a long time. The pace of job growth stayed at 3-4% for at least a year longer than I thought was possible,” Michael said.
“There is a slowdown. Growth is slowing,” Michael said. “But it’s not a downturn.”
