Such a flattening of prices would repeat what happened in the valley after earlier home price explosions. Home prices remained relatively level here during the recession of 1990-1995, while Los Angeles suffered big declines. That's because Southern California's real estate market was flooded with homes in the wake of the aerospace collapse, while the Bay Area's supply remained tight, according to Delores Conway, director of the Casden Real Estate Economics Forecast at the University of Southern California.
In the dot-com bust of 2000, Southern California's job losses were small compared with those of a decade earlier and home prices were less affected, she noted. Silicon Valley's job losses were big, but a shortage of housing supply and falling interest rates again prevented prices from falling sharply.
Any cooling off could be moderated by job growth and revived commercial and public construction. The Bay Area added 14,000 jobs over the past year. The Sunnyvale/Santa Clara metro market has 1,900 fewer jobs compared with the year before, though the tech job picture is now improving. ``The Bay Area is picking up,'' said Lawrence Yun, the National Association of Realtors' senior economist. ``That's very positive news on the outlook for the housing market bubble.'' The only uncertainty is the interest rate, he said. ``If it rises to 9 percent or 10 percent, alarm bells would go off.''
That's the short run. In the long run, valley business leaders worry that high home prices could throttle growth. ``I am more worried about high prices hurting the economy than a pause hurting the economy,'' said Stephen Levy of the Center for the Continuing Study of the California Economy in Palo Alto.
Space Systems/Loral in Palo Alto, which will hire 200 people this year and 400 in 2006 -- mostly engineers and computer software specialists -- is trying to recruit from the Bay Area and Southern California. ``The housing market is a major impediment to hiring people into the Bay Area,'' said SS/L CEO Pat DeWitt. ``What's happened in the last year has made it even more difficult.''