Assessing the North Bay Economy: Comparisons and Forecasts January 23, 2008San Rafael, CA

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Assessing the North Bay Economy Comparisons and
ForecastsJanuary 23, 2008 San Rafael, CA

• Robert Eyler, Ph.D.
• Department of Economics
• Center for Regional Economic Analysis
• Sonoma State University
• www.sonoma.edu/org/crea

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Introduction

• Why regional economics is important to assessors
• Real estate markets both drive and react to
  economic cycles
• Retail sales a coincident indicator of economic
  activity
• Import labor, export sales taxes
• Counties are in some competition
• The North Bay Economy
• A broad mix of businesses and demography
• Latest cycle a function of both real estate
  speculation and macroeconomic forces
• Likely in recession currently, slowdown of
  business activity
• Comparisons to other areas in CA
• North Bay has external demand for real estate and
  wealthy residents generally
• Long term outlook still strong in this area

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The North Bay Economy

• The North Bay is a regional economy
• Sonoma, Marin, Napa the leaders
• Western Solano, Lake and Mendocino growing
• Driven by a wide mix of industry and services
• Industrial and Agriculture
• Construction and Wine mainly
• Manufacturing
• Some high tech, medical will it remain?
• Services Mainly services industries
• Tourism, retail, legal, insurance, restaurants
  the dominant employers
• Counties have integrated real estate and labor
  markets
• Battle over labor flows, businesses and sales
  taxes

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North Bay Real Estate

• Economic activity from many different angles
• Governments reap property taxes and sales taxes
• Construction a major employer in North Bay
• Local retail leads to more sales taxes
• Use of home as a bank a driving force in that
• Real estate agency incomes lead to more local
  spending
• Latest downturn likely to reduce overall economic
  activity and labor supply for financial/services
  positions.
• Many employed in services directly and indirectly
  affected by real estate, from landscapers to
  lenders.
• Construction and Real Estate as of total
  employment an indicator of primary exposure to
  real estate markets

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NB Construction/Real Estate Employment(
Non-Farm)
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NB Construction Employment ( Non-Farm)
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NB Real Estate Services Employment( Non-Farm)
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The Immediate Economic Future

• A lot of predictions have been made, some
  conflict
• Demand stable long-term
• If prices fall will internal or external demand
  begin?
• Desirable area, likely to be demanded
• What are the supply conditions?
• How many new homes are going to be built?
• Also a test of whether local employment cycle is
  causal in real estate markets
• If lack of mobility or retirees dominate market,
  prices unlikely to change as much as other areas.
• Still looking at 2008 as a slow year in real
  estate

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The Long Term

• Homes as long-term assets.
• Aging demography lower retail and property taxes
• Lake and Mendocino Counties likely the growth
  areas
• Where else can we go?
• International issues Emerging market emerged
• China and India microcosm of raw materials demand
  and price surge to come
• Economics 101 Supply and Demand
• Demand should remain
• Supply naturally to fall
• For assessors, turnover changes tax base and
  provides income

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North Bay Leading Economic Indicators

• Leading Indicators tell us where we are headed
• Default Notices (Inverse)
• Building Permits (Positive)
• New UI Claims (Inverse)
• US Leading Index (Positive)
• Help-Wanted Ads (Positive)
• Ag Price Index (Positive)
• As indicator above increases, economy forecasted
  to move in bolded direction

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North Bay Coincident Indicators

• Coincident Indicators tell us where we are
• Non-agricultural employment
• Retail Sales
• Personal Income
• All drive indicator up when rising (positive
  relationship)
• Basically an index of local consumers and the
  ability to consume

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Questions for 2008

• Will housing prices falling become major economic
  impact?
• Fed rate cuts large now does it matter?
• Will businesses locate or relocate concerning
  Marin?
• How important is the housing market?
• Will commercial real estate be available?
• Will workers be available in Marin or will they
  commute?
• Sustainable Growth How will all counties move
  forward?
• Each county either competes or cooperates which
  long term?
• Is there a general definition for
  sustainability across the North Bay?
• Answers affect tax revenue and fee-based services
  to assessors

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Conclusions

• Trends in the North Bay
• Local area likely to follow national and state
  economy into recession if that is where we are
  headed
• State budget woes a microcosm of slower growth
• Counties must lose myopia on business development
• Demography of North Bay changing rapidly
• If more Latinos and older residents coming to the
  North Bay, change in all markets to follow
• Business demography shaped by available labor
• Will the North Bay draw businesses toward it?

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www.sonoma.edu/org/crea/marinassess08.ppt