Long-Term Realty Values Unshaken by Earthquake

Just hours before the Oct. 17 earthquake struck the San Francisco region, Bay Area real estate investor Warren Wincon was working out the final details for the purchase of a subdivision in Vallejo.

After the powerful shaker hit, Wincon says, it “crossed my mind to back out of the deal.”

With the death toll climbing, the transportation system in shambles, the airport closed and commerce at a stand still, Wincon had second thoughts about making a major property investment in a region that was in chaos.

As a semblance of order has begun to return to the Bay Area, Wincon has decided to proceed with his plans: “In the long term, I figure that the Bay Area will still be a good place to own real estate.”

Wincon’s intuition about the health of the real estate market is consistent with the views of several Bay Area analysts and economic forecasters.

“It won’t be a wholesale collapse in real estate values,” said Lloyd LeBlanc, real estate manager for Kenneth Leventhal & Co., San Francisco. “There are many unanswered questions, but a crash is unlikely.”

Real estate consultant Claude Gruen agrees. “Of course, you will see a little bit of nervousness on the part of investors . . . but the underlying economic factors that prop up the real estate market will remain strong.”

Gruen says that in the long run, “nobody lost money by holding property after the 1906 San Francisco earthquake.”

After the 1906 quake, in fact, there was massive migration to East Bay cities and other parts of the region and the state. But as San Francisco State Prof. Dick Legates points out, “thousands of people were left homeless then and were forced to leave.”

While there are no reliable numbers, estimates of homelessness following Tuesday’s quake pale in comparison to the 1906 quake.

Long-term residential real estate values depend on the psychology of current homeowners after the quake. Economists say that hundreds of thousands of Bay Area residents would have to leave before there would come a substantial dip in home prices.

“There are going to be those who think twice about moving here and those who select to leave, but widespread migration is unlikely,” said California Assn. of Realtors economist Joel Singer.

According to a Gallup Poll conducted the day after the earthquake, 92% of Bay Area residents surveyed were not thinking of moving as a result of the earthquake.

For Los Gatos homeowners Rob and Kenis Dunne, the quake has not prompted second thoughts about remaining in the Bay Area. “Of course, we’re staying. What are we going to do, quit our jobs and flee? No way,” Kenis Dunne said.

“Some people will say ‘the hell with this’ and wonder why they ever left Connecticut,” Gruen said. “But I predict that hysteria will end quickly.”

Soon after the 1971 Sylmar earthquake in the San Fernando Valley, “a few thousand people fled the Los Angeles area,” said LeBlanc, who was a real estate consultant in Los Angeles at the time. “But (hundreds of thousands of) people moved there in the years that followed.”

According to Singer, “there is no good history to base predictions on . . . You don’t have anything close to the magnitude of this quake to measure what might happen in the real estate market.”

Following the Whittier earthquake in 1987 and the Sylmar quake in 1971, “you had some short-term dislocations, but, face it, real estate values there have increased substantially ever since,” Singer said.

In Whittier, the realtors’ figures showed, the median house price was $126,000 in the month the quake struck (October) and had dropped to about $121,000 by December. But in January, prices surpassed previous highs and have continued to rise.

One buys and sells real estate on expectations and Gruen said: “This is not going to cripple people’s expectations or their plans to remain in the region.”

Oakland homeowner Joanie Stagnaro isn’t so sure. “You’re darn right it makes me want to move. There is a question of safety, and I don’t know when and where the big one will happen.”

Stagnaro and her husband Michael purchased property in the Northern California city of Placerville in 1985 with plans of building their “dream home.” And “the threat of an earthquake was part of the reason we bought land there.”

However, for now, the Stagnaros are making no immediate plans. “All of our family is here, and there is the question of employment,” Joanie Stagnaro said.

All of the experts agree that future real estate values depend on the performance of the Bay Area economy, for without job creation, demand for real estate diminishes.

And Angelo Siracusa of the business-sponsored Bay Area Council, San Francisco, sees no trouble ahead for the Bay Area economy.

“There is nothing that will change mobility patterns, corporate decision-making or the fundamentals of the economy,” Siracusa said.

In the short term, the quake’s effect on real estate may be more profound but confined to certain areas.

“Home buyers will think more seriously about whether they are near one of the major faults or whether the specific house they are looking at is prepared for an earthquake,” Legates said.

This could prompt people to seek housing out in areas like Sonoma--in places that are further from the seismic activity felt during the Oct. 17 quake, he said.

LeBlanc predicted that areas located on Bay mud should also expect a new layer of stricter seismic standards that could make it more difficult to build. The cost of development is likely to escalate in areas like Mission Bay, Redwood Shores and the East Bay shoreline--all built on fill, according to LeBlanc.

Affordable housing may suffer the worst blow. Early evidence from the quake indicates that older, unreinforced masonry buildings in San Francisco and Oakland were hardest hit.

“Most of our affordable housing in the Bay Area is located in these structures,” said housing developer Don Terner. “If we lost a lot of these units, our affordable housing problem just gets worse,” said Terner, who is president of BRIDGE Housing, a nonprofit Bay Area builder.

BRIDGE has six housing projects under construction and another 1,000 units under management.

In the final analysis, experts agree that in the ensuing days buyers and sellers of Bay Area real estate will exercise extreme caution.

“Right now, I wouldn’t try to sell . . . a home in the Marina,” Siracusa said. “But we have short memories, and in five years the effect on Bay Area real estate will be zippo.”

Builder Sets Up Fund

Homestead Group Associates, a Southern California residential and commercial builder, has established a Red Cross Building Industry Fund to aid victims of the Bay Area earthquake.

Noam Schwartz, the company’s chief executive officer, said his company has donated $5,000, and asks that other builders and developers match or better the contribution.

The fund was set up through the Los Angeles chapter of the American Red Cross. The money will be earmarked for earthquake disaster relief.

Donations to the fund may be sent in care of American Red Cross, Los Angeles Chapter, P.O. Box 57930, Los Angeles, Calif. 90057.

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