National Housing Market Update

Here's an overview of recent stories about the nation's housing market.

Housing starts fell more than 10% in October, hitting a six-month low. Pundits are attributing the unexpected decline to uncertainty about the fate of the first-time homebuyer credit. The decline is troubling because housing starts historically have been a good leading indicator of overall economic activity.

The delinquency rate on residential mortgages hit a record high of almost 10% in the third quarter. That doesn't include the 4.5% of mortgages that are in foreclosure. The combined total of over 14% is also a record, going back to 1972 when the Mortgage Bankers Association initiated its delinquency survey.

The vacancy rate for apartments hit a 23-year high of 7.8% in the third quarter. The vacancy rate is expected to climb further during the fall and winter quarters, when rental demand is seasonally weak.

The unemployment rate rose to 10.2% in October, reaching double digits for the first time in 26 years. The highest rate recorded during the six decades since the government began compiling data was 10.8%, which occurred in 1982.

Despite all the bad news, existing home sales rose 9.4% in September, to a two-year high of 5.6 million units on an annualized basis. The recent strength of demand is at least partially attributable to the first-time homebuyer credit, which is scheduled to expire in the middle of 2010.

Don't Count on Silicon Valley to Revive Housing Market

Silicon Valley is the economic engine of the Bay Area, but it is not as dominant as many people seem to believe. Take a look at the chart, below, which shows technology sector employment in the Bay Area over the last twenty years.

The numbers in the chart were obtained from California's Employment Development Department. I've defined the technology sector to include computer design and manufacturing, research and development, internet, and software development.

The first thing to notice is that the tech sector is not all that large. There were 250,000 tech jobs in September of 2009. That represents only 15% of the 1.7 million jobs in the San Francisco and San Jose metro areas. And keep in mind that many tech jobs are in supporting roles such as secretarial, accounting, and sales.

The relative size of the tech sector surprised me. What surprised me even more, however, was that the number of tech jobs has never re-approached its dotcom peak. The number of tech jobs in September of 2009 was 33% lower than it was at the peak, and only 10% higher than it was 20 years ago.

The tech sector exerts a significant influence on the Bay Area housing market. Technology employees usually earn high salaries, so they can afford to pay top dollar for homes. But at only 15% of all jobs, the tech sector doesn't dominate the housing market. And judging from the record of the last twenty years, it isn't becoming significantly more important.

Note: Thanks to one of my readers, who pointed out that I had mistakenly compared the number of tech jobs in the San Francisco and San Jose metro areas to the total number of jobs in California. That was an embarrassing mistake. The correct comparison is not as striking as my original, erroneous comparison, but the original conclusion remains valid: The tech sector does not dominate the Bay Area housing market, and does not appear to be headed that way.