California’s housing industry is making a comeback after a six-year slump, judging by the sounds outside Carla Goodbody’s new townhouse in Castro Valley.
Other townhouses are going up around the two-bedroom home she and husband Gerald just bought 30 miles east of San Francisco in Alameda County.
“My husband got an unexpected bonus at work,” said Goodbody, a 27-year-old graduate student at the University of California at Berkeley. She and Gerald, a financial systems analyst for Veneer Business Forms Inc., used some of the money for a down payment on the $176,000 townhouse.
It’s about time the state’s housing industry woke up. The rest of California’s economy — the seventh largest in the world, with $855 billion in goods and services last year, a twelfth of the U.S. total — has been on the mend for more than a year. Unemployment is down to near 7 percent after peaking at 9.7 percent in late 1992. Nonfarm job growth is about 50 percent ahead of the national rate, and the average wage rose 3.9 percent to $32,719 last year.
Unlike past recoveries, the housing rebound is trailing the pickup in the rest of the state’s economy. If housing is finally on track, that means California’s economy would be running at full speed for the first time since the recession of 1990-91.
Housing was “the missing piece in our recovery,” said Ted Gibson, the Finance Department’s senior economist. “Although the recovery is doing very well, it would do a lot better if we had a home-building recovery in place as well.”
The California Building Industry Association forecasts a 25 percent jump in home construction to 106,000 units this year, and another 25 percent leap to 132,500 units in 1997. Last year, 85,000 units were built, a 20-year low. That compares with an all-time high of 256,000 in 1988.
The market for existing homes also is hot. San Francisco Bay- area sales jumped 44 percent from a year ago, according to DataQuick Information Systems, a real estate research firm. And more homes were sold in Southern California in May than any month since August 1990, DataQuick said.
Some of the rising demand is simply a function of population growth — up 6.4 percent since 1990, to 31.7 million. But it’s also the result of a rising economic tide. After losing 730,000 jobs in the early 1990s, California’s major industries have restored those positions and are adding hundreds of thousands each year.
Retail employment rose 1.9 percent in the past year to 2.21 million, as department and discount stores report strong sales. Dayton-Hudson Corp. said June same-store sales at its Mervyn’s stores in California rose 5 percent more than elsewhere in the chain. Federated Department Stores Inc. and Dillard Department Stores Inc. plan to add stores in the state.
The largest number of new jobs is in services, such as motion pictures, business consulting, health and tourism, with employment up 4.5 percent in the past year to 3.89 million.
Particularly strong are industries such as computer consulting. Software provider Oracle Corp., for instance, had a 49 percent increase in revenue from services in its recent fiscal year, to $1.93 billion.
Even the state’s struggling manufacturing sector, which lost 9 percent of its 2.12 million jobs in the recession, showed a gain in the past year, although the 1.5 percent increase brought employment back to only 1.81 million.
The biggest percentage gain is in construction, largely fed by demand for new housing. Employment is up 4.8 percent to 503,700. That gives a big lift to other industries.
“We’re a primary industry,” said Allen Jaffe, president of the state’s building association. “What helps us is twice as good for the rest of the economy.” He said each dollar spent on housing adds two dollars in other parts of the economy.
“You obviously get the direct construction jobs,” said Gibson of the state finance department. “But you also get a lot of building materials manufacturing — stone, clay, glass, lumber, the logging industry. You’ll also see retail sales of a variety of items such as home furnishing and appliance, carpeting and landscaping materials. People spend a lot of money when they move into a new home.”
A hot area for job growth is high technology, as new companies such as Netscape Communications Corp. and Yahoo! Inc. used capital from initial public stock sales to finance expansion.
Not surprisingly, Silicon Valley also has the state’s fastest rising home prices, with the median price for single-family homes up 8 percent to $270,000 in the past year. That leaves the area second only to San Francisco, the nation’s most expensive home market with a median price of $275,000.
Gibson said housing is expected to rebound because of employment growth, tight supply — especially in the San Francisco Bay area — and relatively low mortgage rates.
Of course, California’s housing recovery could come up short if interest rates rise, he said. The rate on the average 30-year mortgage was 8.42 percent last week, up 8/10 of a point in the last year. Some analysts say housing could stall if rates rose a full point.
Even without a rate increase, some economists say there’s little proof that the housing recovery is here to stay.
“There’s still no really strong evidence” that housing has recovered, said Cynthia A. Kroll at the University of California at Berkeley. The building boom of the 1980s left a housing glut of and there’s lingering insecurity among Californians who lost jobs in the recession.
Housing is also a poor investment compared with the stock market in the last five years.
“People realize that in the 1990s, at least, investments are probably financial in nature as opposed to buying property and expecting it to appreciate,” said San Francisco Federal Reserve Bank President Robert Parry. “That clearly seems to be the lesson of the ’90s for Californians.”
