The Residential Real Estate Market in Silicon Valley— Up, Down or Sideways?Will Silicon Valley’s Housing Market Survive this “Bubble?”Housing and the EconomySilicon Valley Employment Market Tightens Unemployment Q2 2005 and 2007Silicon Valley’s Growth Surges Ahead Q2 2006 and Q2 2007, Annual Rate of GrowthSilicon Valley Showing Diversified Growth Top 10 Growth Sectors (over 25,000 employees) Annual ROG, Q2 2007Silicon Valley’s Top 10 “Lagging” Sectors (over 25,000 employees) Annual ROG, Q2 2007San Jose MSA Employment Recovery Puts Pressure on Housing MarketEmployment and Labor Force Ratio California and Silicon ValleyHousing Market Responses to Current Economic and Financial ConditionsBuilding ActivityResidential and Nonresidential Building Permits (Permit Value, $2006 base)Santa Clara County and California Residential Building Permits, 1990-2007EMultifamily Share of Residential Permits Santa Clara County and CaliforniaHome Sales and PricesCalifornia Home Sales and Median Price 1999 to 2006, June 2007OFHEO Home Price Index—US and California 1990 Q1-2007 Q2OFHEO Home Price Index—Bay Area 1990 Q1-2007 Q2Santa Clara County Employment Levels and Home Price Index, Quarterly, 1990-2007q2Recent Trends in Sales and Prices, Selected California Markets Annual Percent Change, June 2007New and Existing Home Sales Santa Clara County 1995-2007EMedian Price, New and Existing Homes Santa Clara County 1995-2007(Q2)Share of Santa Clara County Submarkets* with Median Price Declines, Q2 2006 to Q2 20071-Year Percent Change in Median Price, Single Family Detached Sorted by 2007Q2 Median Price of SubmarketVulnerability: Loans at RiskShare of Loans in Subprime Category June 2007Share of Prime Loans in Default June 2007Share of Subprime Loans in Default June 2007Foreclosure Rates, Subprime Loans April 2006 and June 2007Rental Market Recovery Apartment Vacancy Rates, SF Bay Area and Southern California, 1996-2007 (by Quarter)Rent Levels, SF Bay Area, Silicon Valley and Southern California, Quarterly, 1996- 2007What Does This Mean Going Forward?THANK YOU© C. Kroll Fisher Center for Real Estate and Urban EconomicsThe Residential Real Estate Market in Silicon Valley—Up, Down or Sideways?Cynthia Kroll, Sr. Regional EconomistFisher Center for Real Estate and Urban Economics, UC Berkeley Haas School of BusinessPresentation to “Reach the Summit” Economic Forum, Mountain View, October 17, 2007http://staff.haas.berkeley.edu/kroll/pres.htm© C. Kroll Fisher Center for Real Estate and Urban EconomicsWill Silicon Valley’s Housing Market Survive this “Bubble?”• Housing slowdown versus economic slowdown—different consequences possible• Silicon Valley’s experience• Sales versus home price trends• Mortgage market issues• Looking forward© C. Kroll Fisher Center for Real Estate and Urban EconomicsHousing and the Economy• Nationwide slowdown in the real estate market– Sales down– Secondary mortgage market in disarray– Spillover to other financial markets– Housing price effects vary widely by geography and product type• Nationwide economic trends uncertain– Weak first quarter GDP growth and mid-year employment growth–2ndquarter GDP growth, recent employment figures show some improvement• Silicon Valley economy has been doing well• Silicon Valley housing market has slowed, but showing less distress than nationwide.© C. Kroll Fisher Center for Real Estate and Urban EconomicsSilicon Valley Employment Market TightensUnemployment Q2 2005 and 20070% 1% 2% 3% 4% 5% 6% 7% 8%Los AngelesSacramentoSan DiegoOakland/East BaySan FranciscoSan JoseQ2-05 Q2-07California Q2-07: 5.0%Source: FCREUE from California EDD data.US Q2-07: 4.4%© C. Kroll Fisher Center for Real Estate and Urban EconomicsSilicon Valley’s Growth Surges Ahead Q2 2006 and Q2 2007, Annual Rate of Growth0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%OaklandSFS. JoseS. RosaVallejoLAOCRiv/S. Bern.S. DiegoModestoSacr.StocktonQ2-06 Q2-07Source: FCREUE from California Employment Development Department data.BAY AREA SOUTHERN CACENTRAL VALLEY© C. Kroll Fisher Center for Real Estate and Urban EconomicsSilicon Valley Showing Diversified GrowthTop 10 Growth Sectors(over 25,000 employees)Annual ROG, Q2 20070% 2% 4% 6% 8%Electronics & Appliance StoresConstructionComputer Systems DesignAdministrative & Support SvcsMerchant Wholesales, Durable GoodsHealthcare & Social AssistanceInformation Industrial Machinery MfgComputer & Peripheral Equip MfgFood Svcs & Drinking PlacesSource: FCREUE from US BLS data.© C. Kroll Fisher Center for Real Estate and Urban EconomicsSilicon Valley’s Top 10 “Lagging” Sectors (over 25,000 employees)Annual ROG, Q2 2007-6% -4% -2% 0% 2%TelecommunicationsHealth & Personal Care StoresInsurance Carriers & RelatedManagement of Companies & EnterprisesSemiconductor & Other ElectronicComponentsGovernmentBuilding Material & Garden EquipAccommodationAerospace Product & Parts MfgRetail TradeSource: FCREUE from US BLS data.© C. Kroll Fisher Center for Real Estate and Urban EconomicsSan Jose MSA Employment Recovery Puts Pressure on Housing MarketSilicon Valley0200,000400,000600,000800,0001,000,0001,200,000199019921994199619982000200220042006Civilian Labor ForceEmployment by Place of WorkCalifornia05,000,00010,000,00015,000,00020,000,0001990 1994 1998 2002 2006Civilian Labor ForceEmployment by Place of Work© C. Kroll Fisher Center for Real Estate and Urban EconomicsEmployment and Labor Force RatioCalifornia and Silicon Valley00.20.40.60.811.2199019911992199319941995199619971998199920002001200220032004200520062007EMP/LF Ratio CA (right) EMP/LF Ratio SJ MSA (right)Source: FCREUE from California Employment Development Department data.© C. Kroll Fisher Center for Real Estate and Urban EconomicsHousing Market Responses to Current Economic and Financial Conditions• Building Activity• Home Sales• Price Trends• Defaults and Foreclosures• Rental Market© C. Kroll Fisher Center for Real Estate and Urban EconomicsBuilding Activity• Slowdown in residential construction • Offset by uptick in nonresidential.• Single family construction shows more impact than multifamily• Santa Clara continues to have a high share of multifamily© C. Kroll Fisher Center for Real Estate and Urban EconomicsResidential and Nonresidential Building Permits (Permit Value, $2006 base)Santa Clara