Monday, September 3, 2007

Why California housing matters?

One of my news alerts had an interesting article from Steven Levy, senior economist based in Palo Alto. Levy's reasoning is deceptively simple, "there's a limit to what people can afford". But why should the rest of the nation be concerned with housing in California:

Even multiple cuts in the Federal Reserve's target federal-funds rate, he argues, won't necessarily help until prices become more rational. With 10.7 months of unsold inventory, not counting homes that would be on the market if sellers thought there would be buyers, he believes Californians can expect another few years of difficulty, depending on the speed of this housing correction.

Why should non-Californians care about the California housing market, especially when the S&P/Case-Shiller Home Price Index shows year-over-year increases in such cities as Charlotte, N.C., Portland, Ore., and Seattle? Because the Golden State accounts for 13% of the country's gross domestic product or the total value of all goods and services produced nearly double the No. 2 contributor, New York. That means that what happens in California, home to such growth industries as high-tech, biotech, venture capital and film, doesn't necessarily stay in California. The impact of slow economic growth, or even recession, in the state will ripple through the rest of the country.

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