Rosewater

Ken Rosen, a professor at UC Berkeley's Haas School of Business, fears that the super-heated housing market in the Bay Area and, to a lesser extent, the rest of California could finally start to cool off this year and next. Rosen pointed out that statewide housing prices have soared about 37 percent in the past two years. "Whether it's a home-price bubble or excess appreciation, there is certainly some risk that prices can reverse," Rosen said. Suppose price increases do slow or flatten? Some economists warn that means homeowners might have less cash to extract from the equity in their houses, effectively slashing their spending power. And if interest rates rise, that could be a further threat to California's crucial housing market. "There would be a weaker economy as a result," Rosen said. "There would be less home building and fewer real estate commissions. People would have less wealth." But an industry executive counters that the California housing market still looks pretty strong. "Demand for housing continues to exist, even with the tough economy," said Guy Bjerke, an executive with the San Ramon-based Home Builders Association of Northern California. "In the Bay Area, we are tremendously under-supplied for housing. The only thing that could rain on the parade for housing is if interest rates dramatically spike."