On Housing Prices, What Does Good News Look Like?

There’s plenty of hand-wringing over housing costs in California.  We did our share of it last year with the release of the 2019 Silicon Valley Competitiveness & Innovation Project, after noting that median home prices in Silicon Valley increased dramatically between 2017 and 2018, to $1.25M. 

If rising prices are a cause for concern, one might think we would all stop and applaud the numbers in the this year’s Joint Venture Silicon Valley State of the Valley Index, showing that home prices in Santa Clara and San Mateo Counties dropped 6 percent between 2018 and 2019, after having risen 21% the year before. 

And yet…we don’t.  It’s remarkable how little attention there’s been to the stunning year-over-year shift in the direction of housing prices that have them going in what would seem to be exactly the right direction.  So what gives? 

Prices remain incredibly high. There are times when celebration is just bad form.  As we’ve seen year after year in the Competitiveness & Innovation Project, home prices in the Bay Area remain double and triple the prices in Seattle, Austin and other competitor regions. Completing a 50-yard pass might warrant a little muscle-flex in some situations, but it’s unseemly when you are down by 40. 

Homeowners are quietly cringing.  Many of those fortunate enough to own their own homes don’t have much wealth beyond that one plot of land.  They might not talk about it at parties, but they are looking to pay cash for a new place in Phoenix to be near the grandkids in the next few years.  They need housing prices to stay right where they are.

Nothing has really changed.  Many factors affect housing prices, but there is no reason to think that recent price drop is the fruit of sound public policy.   Housing production remains stubbornly slow, and forward-looking efforts to change that – most notably, Senator Wiener’s Senate Bill 50 – have been stymied in the state legislature.  Instead, we’re temporarily replacing one problem – skyrocketing home prices – with another one looming on the horizon.

The specter of recession focuses the mind.  It’s remarkable that we in this region take our economy for granted, given the pain of the recessions in 2000 and 2008.  Yet we do, at least until the prospect of another economic downturn takes shape. Falling home prices have a way of dredging up memories of municipal budgets being savaged and services eviscerated when the economy slows.  We remember neighbors who lost their jobs.  We remember the divisive battles over pension obligations that will surely be back when budgets are squeezed again. It doesn’t lend itself to cork-popping.

It speaks to the complexity of the housing issue that it doesn’t matter what home prices do in the Bay Area – they always bode ill.  My take: The price drop is good as far as it goes.  Whether prices go up or down from one year to the next, though, there will be little reason to celebrate if we have not put public policies in place to build the housing we need, year in and year out, over the long term.