Area home prices falling, falling
Two studies predict a continued buyer's market in region

Sam Zuckerman, Chronicle Economics Writer Saturday, February 9, 2002


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Bay Area home prices, which have already fallen from their high registered last year, could tumble significantly further over the next few years, two recent studies suggest.

The median home price in the region peaked at $394,000 in March and has since dropped to $377,000, down 4.3 percent, according to the real estate information service DataQuick.

Rising joblessness and falling stock prices could push the median price in the area down 15 percent from the peak to somewhere in the neighborhood of $335,000, forecast Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley, in a recent paper. The region's housing market is not likely to bounce back until sometime next year, Rosen predicts.

"For years a seller's market, the Bay Area is now a buyer's market," the Rosen study said.

Meanwhile, a separate study by Ian Morris, a New York economist for the British investment bank HSBC Securities, identifies the San Francisco area as one of the most vulnerable regions to a potential nationwide housing downturn.

Morris says the U.S. remains in a housing price bubble that has persisted despite the 11-month-old recession. Home prices didn't fall during the slump because interest rates dropped steeply enough to encourage demand.

As a result, Morris says, home prices stand at near record levels relative to incomes. And nowhere are prices higher relative to incomes than in the Bay Area. Median home prices are about 3.2 times median income in the region, about double the 1.6 ratio nationwide.

Regional home prices haven't been so high compared with incomes since the late 1980s, the last time a local housing bubble inflated. The subsequent pop brought Bay Area home prices down by double-digit percentage rates.

Morris sees two developments that could burst the housing bubble nationwide.

If the economy stages a robust recovery, mortgage rates could rise sharply, undercutting demand for housing. Conversely, if the economy weakens further, unemployment could edge up, also harming demand.

In the Bay Area,"I wouldn't be surprised if, at least in (inflation- adjusted) terms, house prices decline for two or three years," Morris said.

Both Rosen and Morris stress that Bay Area home prices are extremely unlikely to suffer a catastrophic collapse, certainly nothing like what has happened to stock prices. There is a floor for prices, provided by pent-up demand for homes by people priced out of the market during the most extreme bubble period.

"We believe the Bay Area home market is fundamentally sound," Rosen stressed in his paper.

In addition, falling prices are mainly affecting the most expensive homes. Rosen estimates that multimillion dollar houses may already have dropped 25 percent or more in price, while prices for homes under $400,000 have continued to rise.

Tut mir leid, dass diese Berichte alle auf englisch sind, aber leider scheint die Deutsche Presse (Ausnahme FTD) sich dieser unangenehmen Themen nicht annehmen zu wollen.



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