Homeowners Still Sitting On Gains

February 17, 2007

Land prices in the San Diego region won’t be going down anytime soon, nor is housing expected to become more affordable.

source: Pat Broderick - San Diego Business Journal

But the region does have some assets to balance the deficits, according to Lynn Reaser, chief economist for Bank of America.

The Boston-based Reaser was keynote speaker at a luncheon January 23rd by the San Diego Regional Economic Development Corp., which helps business expand and relocate here.

With less than 4 percent unemployment and a diverse economy, and with the services sector leading the way, San Diego isn’t likely to descent into the dark days of the early ’90s when home prices went bust, she said.

While housing sales have dipped in the past year, Reaser said, "There may be a sign of a marginal pickup in the spring.  I don’t think there will be any second leg of the downturn."

And, she said, "People who bought into the market more than a couple of years ago still are sitting on pretty good capital gains."

While she acknowledged the pitfalls of "creative financing" that brought many first-time buyers into the housing market, Reaser noted the positive side of diversified mortgage loans.

Where in the past lenders were hobbled by bad loans, and consequently shut off the money spigot, now, "We have a different environment.  It’s made for a healthier climate, “she said.

THE IMPORTANCE OF EDUCATION

Reaser stressed the importance of San Diego’s educational institutions, and their ability to turn out workers who can assume the higher-skilled, higher-paying jobs demanded in the local economy.

Acknowledging that, "Our students are facing international competition," she observed that the trend is shifting more toward insourcing of work, rather than outsourcing jobs these days.

While the region is struggling with high energy costs and immigration issues, Reaser gave high points to San Diego’s aerospace, shipbuilding, biotech, health care, tourism and commercial real estate industries, and was especially impressed with the region’s relatively stable manufacturing sector, which she called "fairly unique" in the country.

And, despite the complaints of some merchants that sales wee less than stellar during the holidays, Reaser said, "Retail is on a good footing, and consumer spending remains on a pretty good track."

Globally, Reaser expects to see continued growth in the economy, but at a more moderate pace, with China remaining the major economic driver in Asia.

NATIONAL PERSPECTIVE

Nationwide, she predicts higher corporate gains, while inflation may subside if, she said, "The Fed can keep the inflation genie in the bottle."

While interest rates might be cut "slightly" in the shorter term, Reaser added, she expects higher long-term rates and stock prices.

Overall, U.S. workers are earning more money these days, she observed, but, as a nation, "Our problem is, we don’t save enough, and we spend more than we earn."

As for the future of Social Security, Reaser said that fixes include either tax hikes or spending reductions, with people working longer, and possibly benefits being tied to increase in the cost of living, rather than wages.

The other red-hot issue, Medicare, said Reaser, "will be a harder nut to crack."

Posted in All Things San Diego, Lending, Real Estate, Things of Interest