Exclusive: Pacific Union’s Interview With Bay Area Economist Stephen Levy

Photo of economist Stephen Levy
Stephen Levy

In a few days, Pacific Union International will release second-quarter results for our Bay Area real estate markets. The data shows a rapidly accelerating housing recovery, with detailed charts tracking home sales in cities and neighborhoods across the region.

But first, we want to give you a sneak peek at one of the special features in our report — an exclusive interview with Stephen Levy, director and senior economist of the Center for Continuing Study of the California Economy (CCSCE) in Palo Alto. We spoke with Levy in late June about the state of the economy and the real estate markets in the Bay Area.

Here are the highlights of our interview:

Pacific Union: Housing markets are on fire, but this seems to be consumer-led rather than job-led. What’s your view of the Bay Area versus the state as a whole?

Stephen Levy: For the San Jose and San Francisco metro areas, jobs are on fire. The San Jose metro area is the fastest-growing large metro area in the U.S., measured by jobs, and the San Francisco metro area (San Francisco, San Mateo, and Marin counties) is close behind. We’ve seen 2.8 percent (San Francisco) to 3.5 percent (San Jose) growth from May 2011 to May 2012, which is way ahead of the nation.

It’s also IPO-led. It’s job-related, but also tied to the ability to cash out from the successes of LinkedIn, Google, and Facebook.

Is the Bay Area still in economic recovery, or are we transitioning to growth?

Both. The Santa Clara valley and San Francisco are transitioning to catch this new wave of growth. Most of the state and most of the rest of the Bay Area is still struggling with the lack of construction and lack of government jobs; there hasn’t been really any big pickup in home building. They’re definitely in recovery. The only places you could say are in a new growth mode are San Francisco and San Jose.

How bullish are you on an appreciable drop in the unemployment rate?

Santa Clara is at 8.2 percent, and both San Francisco and San Mateo are below 8 percent already. Those counties will have their own special bonanza. The state is at 10.9 percent unemployment and won’t see 8 percent for three years at an absolute minimum. But the Bay Area will be below 8 percent as a region.

I wouldn’t worry about the unemployment rate quite as much as the rate of job growth. If it stays up, it’s because people are pouring into the workforce.

Are you saying that the job-growth rate is a more meaningful economic indicator than unemployment?

Yes, absolutely. My mother, who made clothes, always said, “You’re only as good as your next season.” Our current “next season” is looking pretty good. It’s not just Facebook and LinkedIn, it’s the big run-up in value of Apple, Google … it’s pretty broad.

[pullquote]”Tech, trade, and tourism — the three Ts — bring other economic improvement along with them.”[/pullquote]

What do you see happening in Contra Costa County? Many corporations have moved out there and it seems attractive for business.

I think it’s an incredibly attractive area for the same reason it has been for past 15-20 years: It captures both the labor market within the region as well as the labor market close to it in the Central Valley — Stockton and Tracy, and further out. It’s very well placed for the labor force. They’re not doing what San Jose and San Francisco are doing, but for the long-term future they have a great location.

Housing has been on a tear in Marin lately. Is that due to a jobs uptick?

They have low unemployment, but a lot of those folks work in the city. I don’t know about job growth — unemployment tends to affect you where you live, while job growth is where you work.

Is there any bright news ahead for the East Bay?

I think they’re caught up in the national slowdown. I think they’ll do fine once we get into a strong recovery nationally. They were a home-building center, and have been hurt by that. They’re a very strong region, and historically have had location and price advantages.

In the Wine Country — Sonoma and Napa counties — we’ve noticed increased demand lately, especially for vacation homes. Do you see job growth as an engine there?

That area is not my specialty, but I don’t think the home buying you are seeing is related to local job growth. Foreign investors from affluent areas find California prices cheap — in Napa as well as Palo Alto and Newport Beach. I think Napa and Sonoma are connected to both the overall Bay Area high-end economic growth and to the worldwide tourism/retirement demand.

The Pew Research Center just released a report, “The Rise of Asian Americans,” talking about how Asians are now our largest immigrant group. What I see is that the Asian buyer market is on fire, both with new immigrants and because Chinese and other Asian folks are heading into tech companies as employees.

Finally, is there anything you see driving jobs besides tech?

There has been a resurgence in convention and tourist activity. Hotel and tourist numbers are up. Foreign trade has also been doing pretty well. Tech, trade, and tourism — the three Ts — bring other economic improvement along with them. Retail sales are picking up as the income flow from the tech sector begins to spread into restaurants, car dealerships, and other areas.

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