Sunday, February 25, 2007

East Bay's housing slump may soon affect jobs, study says

Housing slump may soon affect jobs, study says
By George Avalos/Contra Costa Times
Article Launched:02/24/2007 06:19:21 AM PST
The East Bay's employment market remains the Bay Area's star performer, but the relentless erosion of the housing market could tarnish the region's economic luster and darken the job outlook, a new report warns.

In an assessment that starkly declares "The East Bay forecast: The real estate juggernaut falters," a researcher with UCLA's Anderson Forecast said the region faces plenty of economic hazards in 2007. Economist Ryan Ratcliff of the Anderson Forecast suggested real estate will impede the East Bay economy this year.

"We've only seen the beginning of the East Bay real estate slowdown," Ratcliff wrote in his report.

The biggest concern is that home sales have nose-dived in Alameda and Contra Costa counties.

"We may not have seen a rebound yet in the housing market," said Bruce Kern, executive director of the East Bay Economic Development Alliance, which commissioned the quarterly study. "We may see continued softening. Hopefully, by the second half of this year, things will have bottomed out and we can adjust."

The decline in sales activity has also caused residential construction to plummet.

During 2006, the number of residential construction permits that builders pulled declined 4 percent in the East Bay. It was far worse in California: Statewide, residential permits sagged by 22 percent, according to the Construction Industry Research Board.

"Like many other regions in California, real estate has gone from pulling the economy forward to actually holding it back - it's just taken longer to happen in the East Bay than in most other parts of the state," Ratcliff wrote in his study.

The construction board's data, though, also show that the East Bay residential construction market in 2006 was a tale of two counties.

Permits in Alameda County rose 31 percent in 2006, bolstered by healthy gains in multifamily residential construction. But Contra Costa County, where single-family subdivisions have sprouted, suffered a 28 percent decline in residential building activity compared with 2005.

"Since Contra Costa County has been the center of gravity for the building boom, this suggests that we've only seen the beginning of the East Bay real estate slowdown," Ratcliff warned in his study.

Despite the gloomy warnings about the East Bay, analysts said a rescue mission could be mounted from an unexpected sector of the economy.

The long-battered technology industry surged during 2006 in the Bay Area. Researchers believe tech's comeback will benefit the East Bay as well, because so many East Bay residents work in Silicon Valley or at tech firms near their homes.

"We have seen a firming up in the last six to eight months in technology manufacturing and services," Kern said. "That is a strength we have been looking for as we anticipate a softening in our housing market."

Ratcliff said the pace of the tech industry's rebound, as well as the ripple effects, are certain to determine how well the East Bay fares during 2007.

"While the East Bay will likely bear most of the brunt of the real estate slowdown," Ratcliff wrote, "exactly how severe this slowdown becomes will hinge on how much steam is left in the tech renaissance."

Still, some economists such as Sean Snaith, a consultant with the Stockton-based Business Forecasting Center at University of the Pacific, say the fallout from the housing slump, as well as the slump's extent, has been overplayed by economists such as those with the Anderson Forecast.

"It was not a housing bubble, but a housing souffl\é," Snaith said. "If some of the key ingredients in the souffl\é were missing, it would go flat. But it was not a bubble."

Snaith argues that the housing market in California and the East Bay has actually been more resilient than some forecasters believe.

"Despite all the land mines that housing was going to hit, and the economy was going to hit along with it, we have been able to avoid them so far," Snaith said.

And the East Bay itself, along with the nation, has not careened into a recession because of the housing market's struggles. Snaith pointed to strong total economic growth in the fourth quarter for the nation, continued employment gains in California, and the East Bay's reaching a record number of payroll jobs in 2006.

"The East Bay and California are not one-trick ponies," Snaith said. "It is not just housing, housing and more housing for those regions. They both have very diversified economies."

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