Bay Area Job Growth, Healthy Housing Markets May Outshine Washington’s Fiscal Cliff
Like the Grinch at Christmas, dire warnings of an approaching “fiscal cliff” threaten to steal any goodwill remaining from the November elections and turn the holiday season into a political nail-biter.
And while the possibility of steep tax increases and spending cuts looms large, many political observers expect that Republicans and Democrats will ultimately hammer out an accord before such results take effect — if only to avoid the bipartisan rage that would follow.
Lost in all this talk is concrete evidence that California’s economy is firing on all cylinders, putting the state in the enviable position of forecasting budget surpluses in the next few years.
Job growth in the state, and especially in the Bay Area, continues to expand much faster than the national average. With a clear link between strong employment and healthy housing markets, in the Bay Area we’re seeing solid growth forecasts for regional real estate in 2013.
California’s unemployment rate continues to decline, falling to 10.1 percent in October, down from 11.5 percent a year earlier, according to the state Employment Development Department (EDD). New jobs totaled 45,800 in October, on top of a revised 32,000 new jobs in September.
The Bay Area, meanwhile, had the lowest unemployment rates in the state in October — 5.8 percent in Marin County, 6.3 percent in San Mateo County, 6.8 percent in San Francisco, and 6.9 percent in Napa County. Other counties weren’t far behind: 7.6 percent in Sonoma County, 8.5 percent in Contra Costa County, and 8.6 percent in Alameda County.
JOB GROWTH TAKES OFF, AS PREDICTED, IN EAST BAY
More significantly, the Bay Area led the state in new-job creation, with 7,800 new jobs last month in San Francisco, Marin, and San Mateo counties, and 3,200 new jobs in Alameda and Contra Costa counties. Over the past year, those five counties alone accounted for 52,000 new jobs.
“The best news in the October (jobs) report is that job growth strengthened outside the Bay Area and broadened beyond the tech sector,” according to Stephen Levy, director of the Center for Continuing Study of the California Economy (CCSCE), in Palo Alto.
“October was a true recovery month for … the East Bay in the Bay Area and areas outside the large coastal regions including Sacramento and some San Joaquin Valley counties,” Levy wrote in a report analyzing the EDD’s employment numbers. “Moreover, there were increases in retail jobs, finance jobs and jobs in construction and tourism to go along with job growth associated with technology and foreign trade.” (Levy had predicted solid growth in the East Bay in a June interview with Pacific Union International.)
Levy noted that the “Bay Area’s high tech centers are likely to be among the nation’s job growth leaders when the October data is compiled nationally, with very strong gains of 3.5% in the San Jose metro area and 3.4% in the San Francisco area, more than double the national growth rate.”
BIG JUMP IN HOME SALES, PRICES
The region’s real estate markets mirror those strong results. In October the Bay Area saw median sold prices for single-family homes jump 28 percent over the previous year, and sales increased 24 percent in the same period.
Record-low interest rates provide an extra incentive for homebuyers. Last week the average rate on a 30-year home loan fell to 3.31 percent, according to Freddie Mac, the lowest level in records dating back to 1971.
Nonetheless, talk of the impending fiscal cliff dominates headlines, even as economists say that cliff is really more of a slope — since the $500 billion in spending cuts and tax increases doesn’t hit all at once on Jan. 1.
As President Obama and Congress discuss a way around the fiscal showdown, the chance that the current mortgage interest deduction could be scaled back or even repealed remains one of the biggest concerns for real estate professionals.
Everything we see points to continued growth in our Bay Area housing markets.
— Mark McLaughlin, Pacific Union CEO
The deduction is capped at $1 million today, but analysts say the cap might be rolled back to $500,000, or perhaps eliminated for second homes. Few, though, believe Obama and Congress would make such an aggressive move and once again upset a housing recovery.
Still, the CCSCE’s Levy said it’s too soon to fret about what-ifs.
“I would not worry if a deal is not done by year-end,” Levy told Pacific Union recently. “I expect (the Treasury Department) to advise employers not to change withholding immediately and expect everyone to see if a deal can be worked out early next year, with any changes retroactive to Jan. 1.”
Mark McLaughlin, CEO of Pacific Union, noted that the Bay Area’s economic fundamentals are the envy of the rest of the country. With the almost-certain likelihood of a compromise in Washington, “we see a continued recovery ahead — one getting stronger month by month,” he said.
“Our 2013 outlook is based on the Bay Area’s ability to generate high-salary jobs and continued growth in high-tech industries, trade, and tourism,” McLaughlin said. “Everything we see points to continued growth in our Bay Area housing markets.”
(Image courtesy 401(k) 2012, via Flickr.)