Key economic data for the local housing market.
How can you tell whether local real estate is heading for sunny days or off a cliff? An article on realtor.org, "Looking at Key Economic Data: Numbers, Forecasts and the Housing Outlook", offers the armchair economist five leading indicators with which analyze the housing market. Since the article's slant is national, and all real estate is local, we'll have to modify realtor.org's indicators occasionally to reflect conditions here in Silicon Valley.
Employment: As realtor.org observes, "If people don't have jobs, they are unlikely to buy homes". (I think that's an example of economist irony. At least I hope it is.) You'll find the latest monthly labor force data for California counties and Statistical Metropolitan Areas here on the State of California Employment Development Department website.
For example, you'll see that in March 2010 the unemployment rate for the San Jose Sunnyvale Santa Clara MSA is 12.3%, slightly below the statewide average of 13%. Since a rate of 10% or more is headline news, 12.3% might seem to portend dire consequences for the Silicon Valley housing market. But this assumption may have two flaws. First, San Jose, Santa Clara and north Sunnyvale are generally some of Silicon Valley's most affordable housing markets, which suggests that they're generally home to some of Silicon Valley's least affluent residents, which suggests that, even at a miniscule 4% unemployment, they wouldn't be the engine of Silicon Valley real estate. Second, the SMA's 12.3% unemployment rate isn't broken down by race, education, industry or any other helpful category; it's just data, not information. Are Computer Engineering Ph.D.s pounding the pavement looking for work, or are high school dropouts pounding the pavement? Is the tech industry hard hit, or is the local construction industry? Is the rate actually far higher than 12.3% among ethnic groups traditionally last hired, first fired, and far lower in others? My uneducated guess is that among those likely to be qualified to buy the median-priced home in this area, the unemployment rate is comparable to, or less than, Marin County's 8.8%.
Here's another employment-related leading indicator, the Bay Area Council quarterly Business Confidence Survey. The latest, released March 4, 2010, announces that "for the first time in twenty months, more Bay Area companies are planning to increase the size of their workforce than are planning layoffs, signaling a potential job market rebound". That's good information for anyone, buyer, seller or not.
Interest rates: "Interest rates...can have a major impact on housing affordability," says realtor.org. Where's the best place to check interest rates on home loans? A recent Coldwell Banker handout says bankrate.com, so I'll go with that. On the day I checked, the rate for a conforming 30-year fixed was up slightly from the week before, by .03%. You'll also find a mortgage calculator and a loan-to-value calculator among the useful tools.
Consumer mood: As realtor.org says, "changes in consumer confidence tend to reflect future changes in the economy". I might add that people don't buy homes unless they feel reasonably confident, although people vary greatly as to when and why they feel reasonably confident. The Consumer Board's highly-publicized monthly Consumer Confidence Index "is based on a representative sample of 5,000 U.S. households". Consumers are feeling more confident this month, but remember, this is a national statistic and, as 2001 proved, morale (and real estate with it) can tank in Silicon Valley as the rest of the state and nation goes from strength to strength (and vice versa). Silicon Valley really does march to its own drummer. And, yes, there is a Silicon Valley consumer confidence index, produced quarterly by the Survey + Policy Institute, affiliated with San Jose State University. The Institute doesn't seem to post the survey results on its site, but you can find them on the San Jose Mercury's site. This quarter Silicon Valley residents feel a lot more optimistic than both residents of other parts of the state and the nation as a whole, which not only proves we have a different drummer, it must account for our "can do" attitude.
Gross Domestic Product: Sure, I guess the latest GDP numbers are important to Silicon Valley real estate, but remember, all real estate is local. So how strong is Silicon Valley's economy? Someone, somewhere, might be sharing the latest numbers, online and for free, but I can't find him, her or it. So instead, let's use a surrogate, the NASDAQ Composite because, as Coldwell Banker's research keeps telling us, local home prices rise and fall with the NASDAQ (although, important note, they don't fall as much as the NASDAQ). As you may have heard, the market is on a tear, although dot-com's 5000 peak is just a misty memory. Now let's drill down deeper, to the Bloomberg.com Silicon Valley index, "a price-weighted index of high tech companies located or doing significant business in the Silicon Valley Area". Things are looking up here as well.
Existing home sales: Realtor.com plugs the National Association of REALTORS® data on existing home sales, but as I'm sure you know by now, all real estate is local, so let's use the California Association of REALTORS® latest press release, which has year-over-year statistics for a multitude of California regions, counties and cities. They show that both median sales price and the number of sales is up sharply in this area.
So there you have it, all the indicators you need to forecast the local real estate market like a pro. Mix them in a pot, throw it against the wall and make like Robert Shiller.