Event Coverage
More Shoes Will Drop As Economy Crawls Through Recovery, Leslie Appleton-Young Tells SILVAR Members
SILVAR Executive Officer Paul Cardus and President Julia Truesdale Keady posed for a picture with C.A.R. Vice President and Chief Economist Leslie Appleton-Young, as she was about to head for the airport after speaking at the Los Gatos/Saratoga District tour meeting.
As the economy crawls its way through recovery, California Association of Realtors vice president and chief economist Leslie Appleton-Young maintains a cautious outlook for next year. We're not well out of the woods yet; there are a number of shoes that will be dropping and stressing the market next year, she told SILVAR members at today's Los Gatos/Saratoga District tour meeting.
One shoe that is dropping and will drop even harder next year is the commercial real estate sector, which is now stressed in every category. The distress in this sector will continue to grow as commercial loans mature and more defaults occur, she said.
Consumer confidence will continue to lag due to concerns about unemployment and future job prospects. Though better and strongest in the third quarter, the index fell from 53 in September to 47 in October.
A huge shoe that will continue to drop and Appleton-Young admitted it's her biggest concern, is unemployment. The state's unemployment rate was 12 percent in August, higher than the country's nearly 10 percent jobless rate. During August the state lost 741,000 jobs; the Bay Area alone lost 155,000. Appleton-Young believes the jobs sector "will get worse before it starts to get better." And she doesn't see it getting any better unless new jobs are created.
Another big shoe and the reason why Appleton-Young expects California's recovery will be slower than the rest of the country, is the state budget. Appleton-Young said the most recent estimate is the state will still be $20 billion short next year. She lamented that the state's actions are opposite of the federal government. While the federal government continues to inject stimulus money into the economy, the state is cutting services and furloughing employees.
Construction, manufacturing, retail and wholesale have been hit big time this year and she sees a similar trend next year, especially on the retail side. Appleton-Young stressed the construction industry is important to California's economy.
"We're not building enough to sustain demand and meet the needs of a growing population," she said.
Yet another shoe that will drop is more foreclosures and as loans re-set, next year more foreclosures will hit the high-end market. She expects the high-end market will see a price compression in 2010 and most likely experience double digit declines over the next 18 months. It will not be as stark as in the low-end markets, but it will hurt nevertheless.
There are green chutes, she said. Sales are now rebounding and it's a "bonanza" for first-time home buyers. She noted 39 percent of California's first-time home buyers would not have bought their home if it weren't for the tax credit.
Overall, C.A.R.'s chief economist is concerned about financing issues, especially how the market will do "without training wheels on the bike" provided now by federal government programs such as the tax credit. She is also concerned about financial literacy, as 21 percent of buyers surveyed admitted they did not know or were not sure about the terms of their loan.
"This is just unacceptable. It's sad," she exclaimed.
"Try to focus on the local data," Appleton-Young told REALTORS®. "Your clients are just reading the national housing figures. It's the local data that matters."
She reminded everyone it's been "a rolling downturn" for California because the situation is different depending on location.
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.
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