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California economist shares performance targets indicating some growth

California's economy is showing signs of improvement, with nuggets of good news. Barring confounding events like those we've seen this year, the state should see some growth at the end of 2011 and through 2012, according a California Association of REALTORS®' economist.

Robert Kleinhenz, deputy chief economist for the state REALTOR® group, told REALTORS® at the Silicon Valley Association of REALTORS® annual general meeting this month he is optimistic that the market is slowly on the mend. He acknowledged it has taken longer to grow out of this recession, but even marginal growth is good news.

Kleinhenz noted California's recovery, though slow, has been quicker than other parts of the country. "In California, we have our economic fundamentals that are carrying us through in the years to come," he said, adding that Silicon Valley's labor market has been "the star of the California economy."

Kleinhenz presented the REALTORS® with the following key performance targets that can help gauge how good or bad the economy is doing. With these indicators in mind, he said REALTORS® can lay out a blueprint for clients, so they can "have the appropriate expectations from the beginning and end up being satisfied in the end."

• GDP – For the economy to get better, the country needs GDP (Gross Domestic Product) at 3 percent or higher. The economy expanded at a 2 percent annual rate in the third quarter, but the California Association of REALTORS® conservatively estimates GDP will only reach 1.7 percent by year-end and 2 percent in 2012. The engine of growth must come from consumers; businesses won't spend if consumers don't, said Kleinhenz.

• Unemployment Rate - The unemployment rate has to come down to 6 percent at best, so consumer confidence can rise. The Labor Department indicates nationally, the unemployment rate edged down to 9 percent in October, from 9.1 percent in September. California's unemployment rate was 11.7 percent, compared to 11.9 percent in September and 12.1 percent in August. The state REALTOR® group projects the national unemployment rate will remain at 9 percent by year-end. Kleinhenz added that Bay Area counties are below the state average. Santa Clara County's unemployment rate was 9.5 percent in October, down from 9.6 percent in September, and below 10.6 percent a year ago.

• Job Growth - The country lost 8.4 million jobs during the recession, and though it has gained back 1.1 million jobs, job growth needs to be at 3 percent. In other words, the country has to gain 350,000 - 400,000 jobs per month to be back on track. Employers added just a modest 80,000 net jobs last month.

For its part, California has had a decent level of sales this year and is seeing stability in its median price, said Kleinhenz. To be sustainable, statewide sales should be at 500-550,000 units per year. October statewide sales were at 493,240 units, up from 487,940 units in September. The state REALTOR® group expects 491,000 unit sales by year-end and a 1 percent increase to 496,000 unit sales in 2012.

The October statewide median home price for an existing single-family detached home sold in California was $278,060, down 8.9 percent from the October 2010 median, but still above the bottom of $245,230 reached in February 2009. Kleinhenz expects the statewide median home price to hit $291,000 by the end of 2011 and to increase 1.7 percent to $296,000 in 2012.

"Fundamentally, affordability hasn't been as good as this in Santa Clara County and the state. Homes are at the right price with the right mortgage rates," Kleinhenz told the REALTORS®. "The problem is consumers are so concerned about prices bottoming out they are losing sight of the opportunities."

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.

Variations of this article have appeared in local area newspapers.

For further information, please email or call the SILVAR office at (408) 200-0100.

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