Could the California economy handle a real estate crash? – Silicon Valley

bubble watch” explores trends that may indicate upcoming economic and/or housing market problems.

Buzz: The California economy is at modest risk of seeing its business growth held back by severe real estate weakness relative to other states.

Source: My trusty spreadsheet analyzed state-by-state gross domestic product data for 2021 from the United States Bureau of Economic Analysis. An accident damage estimate was defined by looking at the growth of three real estate-related niches – construction, finance and real estate – within a state’s GDP and comparing it to the broad tabulation of business production.

The trend

California has long been known for its vibrant and volatile real estate-related industries. But pandemic-era real estate fever is a national phenomenon.

For example, California had 21% of its GDP growth in 2021 tied to these three real estate categories. But that’s only a 25th average share among states and below the national level of 23%.

History tells us that the more an economy depends on real estate success, the more you have to worry about the future. And these are tough times for the real estate industry, as funding costs see skyrocketing rates — interest rate hikes comparable to those seen during the infamous interest rate spikes of the 1980s.

Wyoming’s growth was most dependent on real estate last year, with 82% of its business expansion in 2021 tied to niche real estate. Next come Delaware at 52%, Oklahoma at 41%, New York at 39% and Louisiana at 38%.

The smallest share was found in Alaska at 3%, followed by Nebraska at 7%, North Dakota at 9%, Maryland at 10% and Indiana at 12%.

And the great economic rivals of California? Texas was 13th with 26%; Florida was No. 11 at 28%.


Let’s look at the risks.

By my calculations, California real estate growth in 2021 was eighth at 1.6% versus a national expansion of 1.3%.

Remember that GDP is the tally of all expenditure on goods and services, so it’s a giant number. And it’s usually a slow economic benchmark relative to, for example, fluctuations in the number or value of real estate sales.

The biggest jump in real estate GDP in 2021 was seen in New York at 2%, which was rebounding from a pandemic population outflow. Delaware, Florida, Maine and Utah follow at 1.9%. Incidentally, Texas was No. 13 at 1.5%.

The smallest ? Alaska rose slightly, followed by North Dakota at 0.2%, Maryland at 0.3%, followed by Nebraska and New Mexico at 0.4%.

But the economic revival of real estate is by no means guaranteed.

So we compared the expansion of real estate to the overall economic growth of a state. Let’s look at the extremes of state GDP.

California’s business growth ranked No. 3 at 7.8% versus 5.7% nationally.

Tops? Tennessee (8.6%) and New Hampshire (8.5%) lead the Golden State. Next come Nevada at 7.1%, and Florida and Indiana at 6.9%. Texas? No. 19 at 5.6%.

Worse? Alaska at 0.3%, then Ohio at 2.1%, Oregon at 2.2%, Maine at 2.4% and New York at 2.5%.

How sparkling?

On a scale of zero bubble (no bubble here) to five bubble (five alarm warning)… TWO BUBBLES!

Remember that we are evaluating how badly a bubble bursting can hurt, not the possibility that a bubble exists.

The low-risk formula for a state economy would be strong overall growth with a modest share of that expansion tied to bubbling real estate. So if the real estate game cools, other business drivers could keep the local economy going.

So look at my calculations this way: California’s combined rankings for 2021 growth and its reliance on real estate added up to the eighth-lowest risk score among states. Indiana was the safest, followed by New Hampshire, Tennessee, Iowa, Nebraska and Nevada.

The hardest ? Wyoming then Oklahoma, Louisiana, Delaware and Vermont.

And California’s main economic rivals? Texas had the 16th highest risk and Florida the 21st.

Post Scriptum

Since GDP can miss the human impact of corporate change, consider state employment by concentrations in construction, finance, and real estate jobs.

California ranked 30th with 10% of its jobs related to the real estate and banking sectors.

Tops? Delaware at 15.8%, then Arizona at 14%, Utah at 13.4%, Florida at 13.3%, Colorado at 12.7% and Texas at 12.3%.

The lowest? DC at 5.5%, then Mississippi at 7.9%, Alaska at 8.3%, Vermont at 8.4% and West Virginia at 8.6%.

Jonathan Lansner is a business columnist for the Southern California News Group. He can be contacted at

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