Coming into 2019: A case of Miserabilism
Talk of an imminent U.S. recession was a bit overdone
Why: Economic expansion has reached 118 months, record is 120 months; Yield curve inversion
The underlying fundamentals of the U.S. economy are generally solid at present GDP up 3.2% in Q1 2019 – stronger than expected
2019: back to a steady pace of 2 to 2.5% growth
Inflation still constrained - thus, interest rates still low
Still a low chance of recession in next 12 months
“Talking” ourselves into a recession seems to be the most realistic way that the U.S. economy could experience one in the foreseeable future.
But, what’s different this time?
Housing market in 2007
The big 3 imbalances
Housing Market in 2019
single-family housing starts are roughly 50% below last peak
Severely underbuilt, and getting worse
households have de-levered over the past ten years
student debt an issue for future consumption but not enough for a recession
disposable personal income is up 50% over the past ten years
What’s different in California housing?
Skilled labor shortage more widespread now
IPO floodgate opens – 2019 on pace for record exit value, 77% of tech companies are based in California
1Q is the second-highest recorded capital investment in the last decade
Is the “Uber Effect” going to be as large as the “Facebook Effect”?Median prices in the Bay Area outperform following Facebook IPO
And, sales of homes >$2M jump 84% in San Francisco
But, housing a critical issue:
California needs 3.5 million housing units to close the housing gap
Why is housing availability so important? Spatial misallocation of labor.
Although labor productivity and labor demand grew most rapidly in New York, San
Francisco, and San Jose, thanks to a concentration of human capital intensive
industries like high tech and finance, growth in these three cities had limited benefits
for the U.S. as a whole
Silicon Valley has some of the most productive labor in the globe. But by global urban
standards, the area is remarkably low density
More housing in Silicon Valley is to raise income and welfare of all US workers
For the federal or state government to constrain U.S. municipalities’ ability to set land
use regulations (SB35)
High speed train –bring labor from Central Valley rapidly (London and Tokyo have
such transportation networks)
Market Update March 2019
>$2M down 28% in Marin but still above 2017
<$@2M declines slowing (down 9%)
Marin March YOY decline slowest second to Alameda
Marin inventory increases but relatively slower – Bay Area trend similar to
red line San Francisco inventory lowest in 5 years – sellers pull listings offthe market - waiting for IPO rush?
Median prices at pre-March 2018 levels
Buyer are competing again but with caution – Share of homes selling
over asking price @ 40% vs 57% last year
John Burns Bay Area Forecast
- Optimism is fueling the stock market rebound.
- VC investment continue to fuel our economy and local housing markets.
- There is a cascade of local IPOs in the pipeline Interest rates still low.
- Inventory improving but still well below historical averages.
- Buyers are tepid but aware that the competition is on the rise.
- Higher end is bouncing back.
- It will be a good year.