Event Coverage

2008 Economic Forecast: Things Will Get Worse Before They Get Better, but Long-term Prospects are Good

“I may not bring good news, but I bring hopeful news,” California Association of REALTORS® Deputy Chief Economist Robert Kleinhenz announced to over 150 SILVAR members before sharing his economic forecast for 2008. The presentation, which was held at Cupertino’s Quinlan Center on April 1, was an educational program offered by SILVAR to members.

Just like the rest of the country, California’s housing market has a bumpy road ahead of it this year, said Kleinhenz. He sees sales stabilizing by the end of the year, but no significant recovery for the next six to 12 months. Long-term prospects for the market, however, are good, and SILVAR members can rest assured, compared to other parts of the state, “Silicon Valley is in an enviable position,” said Kleinhenz.

The economy is still experiencing fall-out from the subprime problem, according to Kleinhenz. Much uncertainty over the housing market centers around tighter underwriting standards and the credit/liquidity crunch. Lenders have become more conservative, even towards well-qualified borrowers, and capital has dried up, leading to  a rapid decline in sales activity, which has affected the median price.

As the debate ensues on whether or not the country will experience a recession, Kleinhenz said, “The bottom line is if we have a recession, it will be short-lived and will start and finish within the 2008 calendar year. It is absolutely not a repeat of the 1990s.”
He bases his forecast on the following sound economic indicators:
1.  The GDP growth is below par, and likely to be in the 1 to 2 percent range, but still signifying growth.
2. The unemployment rate is up, but not troubling.
3. There is still job growth. Jobs connected to real estate, such as construction, finance, insurance, are suffering, but jobs are being added and even expanding in other sectors like trade, tourism, etc.
4. Inflation is a concern, but still in check.
5. Sales appear to edging upward slightly.

“Most people do have jobs, unlike the 1990s when California lost hundreds of thousands of jobs and the unemployment rate was 10 percent. The problem is financial in nature. It’s not good, but the economic fundamentals are going to support it,” he concluded.

As for Silicon Valley, Kleinhenz announced, “In this market you are in a pretty good position. Although there are increases in mortgage foreclosures and delinquency rates, this is one of the better areas in the state.”

His advice for homebuyers and sellers is this:
• If you bought your home before 2005, you should still be in a positive equity position and should not panic;
• Sell your home only if you must; hold on to it if you can.
• If you must sell your home, then be realistic and price your home to sell, not to sit.
• Buyers should not expect bargains in all markets. They must do their homework and consult a professional REALTOR®
• Find a home that meets your needs and fits your budget
• There are opportunities out there for investors, but they need to do their homework.

For serious buyers, it is certainly a good time to buy. “Nobody rings the bell when the market hits bottom,” he noted.

But Kleinhenz recommends that investors study the market well. “This is not a good time to test the waters,” he cautioned.

The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

For further information, please contact Rose Meily at SILVAR Public Affairs, e-mail , or phone (408) 200-0109.

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