Bay Area housing prices
bayarea.com
SAN FRANCISCO - A full-blown regional recession under way in the Bay Area could cause a decline in
home values, especially if interest rates rise above current low levels, an economist told a gathering of
real estate professionals Monday.
"We are susceptible to a house price decline in 2003 (through 2005), especially at the high end," said
Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley.
Rosen delivered his bleak assessment to 600 investors and industry professionals gathered in a plush
hotel ballroom for the center's annual symposium on real estate and the economy.
A regional slowdown cut 200,000 jobs from the Bay Area's economy over the past two years, he said.
A decline in property values that would normally have accompanied that recession didn't occur because
of low interest rates that reduced the costs of mortgages and boosted demand from home buyers.
A pair of influential commercial real estate investors expanded on that theme. "Interest rates are
clearly propping up the residential market," said Ned Spieker, an office property investor. "It's 'Katy
bar the door' if interest rates, for whatever reason, go up."
"Interest rates are propping up not just real estate but the entire economy," said Doug Shorenstein,
chief executive of Shorenstein & Co., a company that owns and manages office buildings.
But that prop may go away, Rosen warned. He said that interest rates are unlikely to remain at current
levels, which are the lowest in 40 years. "Borrow every penny you can," Rosen urged the audience.
"These interest rates won't stay here forever."
Adding to uncertainty is concern about whether the national economy will continue its slow recovery
after the brief, mild recession that occurred in 2001, Rosen said. Economists define a recession as
consecutive quarters in which overall economic output falls.
Rosen estimated that there is a 40 percent chance that the national economy could fall off its recovery
track and back into recession in the coming months. The key, he said, is whether the United States
goes to war with Iraq or suffers another terrorist attack. Either could dramatically reduce consumer
spending, and trigger another round of corporate layoffs and another round of recession, he said.
Rosen described a worst-case scenario in which inflation and unemployment both reach 8 percent. That
would be particularly bad news for owners of homes priced at $1 million or more, which could decline
as much as 20 percent in value, Rosen said. Less-expensive homes could also fall but less severely,
from 5 percent to 7 percent, he said.
East Bay communities are unlikely to be hit as hard because they experienced technology industry
growth and related residential property value increases that were more subdued than in counties
around San Francisco and San Jose. Having risen less sharply, they haven't as far to fall, according to
Rosen.
Some other property owners haven't enjoyed the immunity from the slump that has protected
homeowners, according to data presented by Rosen. Average monthly rents for apartments have fallen
throughout the Bay Area: to $1,600 from a peak of $2,169 in San Francisco, to $1,232 from $1,388 in
the East Bay, and to $1,348 from $1,935 in Silicon Valley. Vacancy rates in each of those areas have
now reached or exceeded 6 percent.
Owners of some commercial real estate properties have also felt the sting of the slowdown. San
Francisco office buildings have seen "a huge rise in vacancy rates," from 1 percent to nearly 20
percent, Rosen said. Office rents have also fallen sharply, so that space is now priced at just more than
$30 per square foot, down from more than $80 in 2000, he said. |
