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Economic Update: A California Perspective

Feb 22, 2021

This timely interview between host Michael Morris, Director of EisnerAmper, and guest Patrick Kallerman, Research Director of the Bay Area Council Economic Institute, provides an economic update from a California perspective. Listen for key takeaways regarding the national and local economy—specifically regarding the real estate industry and how the market outlook may impact your business.


Michael Morris: Hello, and welcome to Breaking Ground, real estate insights from EisnerAmper. I am your host today, Michael Morris, Director of EisnerAmper, and with us is Patrick Kallerman, Research Director of the Bay Area Council Economic Institute. Patrick is responsible for conducting primary analysis, developing research designs, and managing projects. His areas of interest include labor, economics, healthcare, and the environment. Today we're discussing an economic update from the perspective of California, specifically key takeaways regarding the real estate industry and how the market outlook may impact your business. Patrick, it's great to see you, buddy.
Patrick Kallerman: Thanks so much, Mike. Great to be here.

MM:Glad you're here. You gave a great presentation on EisnerAmper's Real Estate Principles Webcast in January.
PK: It was a fun time and I always really enjoy doing those, and I so appreciate you guys having me year after year.
MM:Well, the feedback from our clients was overwhelming. They really loved it and it was very insightful and actually helped them on some of their investment decisions. So I've got a few questions, if you don't mind me running them by you here.
PK: Fantastic. Let's do it.
MM:We're now a month into the new year. Is the state of our economy following your original forecast. How about giving us a 30,000 foot view of what you're seeing?
PK: Yeah. I would say it's largely following the talk I gave a month ago. We're still seeing a struggling employment market, but the stock markets continue to do well. And so, like I said a month ago, I still think there's a lot that we need to wait and see. I still think that there are significant winners and losers. I think that we need to keep an eye on, for a lot of white collar folks, they're making it by and some of them are doing better than they've ever done. And for some of the rest of the country, that's not the case and they're really suffering. I think we need to be vigilant with keeping an eye on this.
MM:You'd mentioned women have been hit particularly hard around this. What's behind that?
PK:Yeah, as I mentioned in my forecast in the beginning of January, all, 100%, Mike, of the losses and employment in December were women. Actually, if you go through and do the math, it's a little more than 100%, but I'll spare everyone, the wonky details. And what we're really seeing here is a classic historical picture where the roles and responsibilities of families, of caregiving, all of that has fallen on the shoulders of women, and we're seeing that in a hyper multiplied state here. The pandemic has caused schools to shut down, daycares to shut down, everyone to work from home. Many folks are working more hours than they work when they're in the office. And so these are compounding crises that has largely resulted in much of the family and caregiving responsibilities and of those who are sick are falling on women.

And so women have been a critical if not the critical component of much of the growth we've seen over the last few decades as they've entered the labor market in increasing amounts. And if we don't figure out some way to relieve these massive stressors and burdens causing women to drop out of the labor force at record rates, we're going to have a severe problem.
MM:Yeah, that's tough, that's tough. How has California and the Bay Area fared compared to the rest of the country through all that?
PK: That's a great question. It's interesting because it's such a nuanced picture. So California shut down, and especially here in the Bay Area but also the southern part of the state, shut down early and more strictly than many other places in the country, which caused some of the biggest employment drops here that we're seeing anywhere. California and the Bay Area have some of the largest small business closures, has some of the largest employment losses, all of those types of things that you would expect when you effectively shot more than 50% of the economy down. That has had a profound effect especially on middle to lower income earners and families and on small businesses. Now, on the other hand, many of California's public companies, despite a little bit of a bumpy ride there earlier in the year are seeing bigger gains than ever before, or at least continuing on the trajectory they expected to be on.

It's a little bit interesting, and last week the Governor announced that the state found $10.3 billion it wasn't expecting. So tax collection is going well, obviously, as you know, and I'm doing my taxes this evening so maybe I should consult with you after this. So I think it's a very nuanced picture and I think that we really need to carefully keep an eye on the details. A lot of folks are forecasting that while the state budget is okay for 2020, the real pain is going to come in 2021, and so there's a lot to keep an eye on.
MM:Yes, yes, there is. All right, I'm hearing more and more about companies leaving or thinking of leaving the Bay Area as well as high income earners. What are your thoughts and what's the impact going to be in the real estate industry?
PK: This is something the Bay Area Council is spending a significant time and resources hoping to stem this tide, hoping to keep an eye on this. I'm taking as measured an approach as possible on this, but what we are seeing is getting a bit scary. I mean, Hewlett Packard, Oracle, others, some of these very foundational companies have decided to move their headquarters and some employees elsewhere. And so that's obviously not good for business, not good for our economy, and not good for the jobs that employ our citizens. I think that since some of this bigger news in December and January, the state has started to step up and started to take this a bit more seriously and appointed a task force and some business incentive and other programs. And so we think that's good, but the Bay Area Council remains very worried about this and it's something to keep an eye on so that we don't get into a death spiral situation where companies want to be somewhere else, where prices here are high, which makes other companies want to move right, and around and around.

As far as real estate goes, because this is the real estate portion of some of your business we're talking about here, commercial real estate has been devastated by the pandemic. And so what it really doesn't need is another devastating blow from extremely large companies leaving. Housing prices and rents are a little bit trickier, because we're seeing a bunch of other structural shifts. Rents have declined quite a bit, but that might be because folks just move for the year. And then obviously housing prices in our region remain very high, and that's because largely folks who are able to, combined with low interest rates, are getting bigger homes as they foresee working from home for quite some time.
MM: Yeah. There's a lot there. Stock market sky, high real estate market sky high, I don't know, and the economy. Here's the million dollar question, or shall I say trillion, what's it going to take for us to get out of this?
PK: Yeah. I mean, that is the key question, Mike. I think that policy makers learned their lesson, and learned the right lesson coming out of the financial crisis. When the pandemic really started to get more serious and we started to see states impose lockdowns, policy makers acted and the Federal Reserve acted swiftly, and we've had several stimulus packages now. I won't even really call them stimulus packages, Mike. That's a little bit misleading. What these really were, were investments in pressing pause. You can't stimulate something that remains more than 50% shut down. But these were necessary, and what they did was allow the economy to remain afloat, as we've seen. It's still chugging along to the extent that it can. Now, obviously, because of the shutdowns, we're seeing very high employment losses, but we're not seeing what we would've seen in the absence of action.

What I think it's really going to take for some actual stimulation to occur and for folks to get back into the workforce and get reemployed is just clean, efficient vaccine distribution so that we can open things back up. We're always going to be limping along here when we have, more than 50% of the economy shutdown, with the bulk of our citizens sheltering in place at home, with folks afraid to fly, folks afraid to use public transportation, full ICUs in hospitals. I don't know about you, but I'm starting to hear stories from friends and families and others largely on the higher end of the age scale starting to get vaccinated. I'm hearing that the sites are being set up more efficiently. They're becoming larger. They're starting to figure out the logistics better. All encouraging news.

And so just fingers crossed that over the course of the next two to four to five months here we can get to a level of vaccination and immunity where we can start to safely and comfortably open things back up. Because, as we know from these presentations that I give every year, it's all about consumer sentiment. It's all about how people feel about getting out there about getting back to their jobs, about spending money. And so until we really see larger scale vaccination, I think that we're going to continue limping along.
MM:Hope is on the horizon.
PK: I agree.
MM:Patrick Kallerman, Bay Area Council, thank you so much for sharing this valuable info with us.
PK: Thank you, Michael and team.
MM:And thanks to our listeners for turning into Breaking Ground. Join us for our next podcast episode or visit for more real estate news.

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Michael Morris

Michael Morris is a Director of Business Development, specializing in accounting, tax, and consulting services across a broad range of industries including financial services, real estate, and family offices.

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