Southern California's resilient residential real estate market is the silver lining amid the recent gloomy economic news, as consumer spending from rising home equity and refinancings as well as employment generated from real estate transactions continue to buoy the local economy.
Increasing home values, coupled with low interest rates, have prompted consumers in near-record numbers to use home-equity funds and extra cash from refinancing transactions for purchases that pump money into local businesses, shielding the region from the economic shakiness the rest of the nation is feeling more acutely, analysts say.
Skyrocketing home sales have generated employment for lenders and real estate agents, and also have given a boost to related businesses, such as home inspectors, insurance agents, and to cities and counties through increased tax revenues.
Since the 1970s, real estate has directly accounted for at least 40% of the upswings and downswings of the economic cycle, and it services a large component of the nation's gross domestic product, said Edward Leamer, director of the UCLA Anderson Forecast.
In the last five years, the value of Southern California's housing has increased 59% to $1.5 trillion, and is up 76% compared with 1988, when the region experienced its previous real estate boom, according to DataQuick Information Systems Inc., a La Jolla firm that tracks real estate trends.
On an individual basis, the average residential property in California today is worth about $42,000 more than a year ago, earning homeowners about $3,500 a month, tax-free, said John Karevoll, a DataQuick analyst.
"If that money is plugged into the economy," Karevoll said, "it's spectacular."
No data are available to quantify how much consumers are spending from the cash they're pulling out of refinancings, but the surge in that activity has, at the least, lifted homeowners' confidence and spurred them to spend more freely on dinners out and entertainment, economists say.
"When we cut people's monthly mortgage payments by 20%, and they're saving $500 a month, they feel like they can shop more, maybe even invest in a new car," said David Soleymani, managing director of First Capital Corp. in Santa Monica. "It has a ripple effect in the economy."
Seasonably adjusted U.S. auto sales, at 18.1 million nationwide in July, were the highest since an all-time record of 21.3 million last October. For Southern California, July auto sales were up 20.4% from last July, according to JD Power & Associates, an auto industry market researcher.
