Southern California's buoyant residential real estate market and rising home values are a key factor shielding the region from recession. That marks a sharp contrast with the early and mid-1990s, when falling prices and slow sales contributed to the area's worst economic collapse since the Depression.
The strength of residential real estate also is benefiting other U.S. metropolitan areas. But few, if any, have enjoyed rebounds as dramatic as Southern California's.
It is a major reason Southern California is suffering only a slowdown while the San Francisco Bay Area, hurt by a deep downturn in high technology that has deflated home prices lower, is in recession.
Real estate has remained a stable source of jobs for the local economy, including employment for construction workers, lenders and real estate agents. Even more important, analysts say, is how rising home values have supported consumer spending.
Strong home values and low interest rates have combined to spur a wave of refinancing. That has enabled consumers to cut monthly mortgage payments, and sometimes take out cash as well, providing a local economic stimulus.
"If you cut your mortgage payment, it's just like a monthly tax rebate check. It's a big deal for maintaining purchasing power," said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy.
Economists say high home equity, particularly in areas such as Southern California, also has kept consumer confidence from falling further amid the U.S. recession. As a result, they say, consumers continue buying cars, homes and other items.
All the same, the local real estate business hasn't been enough of a force to prevent a slowdown in the region's growth. And it could become less of a prop for the local economy, with home building in the region expected to decline moderately this year and most of the mortgage-refinancing surge apparently over.
For now, though, Southern California's residential real estate business is providing economic staying power and helping the region resist the national recession.
"It has translated into spending we didn't see in the last downturn," said Fred Furlong, an economist with the Federal Reserve Bank of San Francisco.
