The Bay Area economy is likely to grow at a slow-to-moderate pace this year and next, the Association of Bay Area Governments said in its annual forecast, released Thursday.

Despite the softening housing market, such factors as productivity gains, a better job market, rising household income and moderate expansion of the national economy should make the local outlook positive, ABAG said.

“We expect 47,000 (new) wage and salary jobs in each of the next two years, more than we predicted last year,” said Paul Fassinger, ABAG economist and director of research at an Oakland conference presenting the forecast.

The region added 54,100 jobs in 2006, topping the 40,000 ABAG had anticipated.

Last year “was stronger than expected, in part because Santa Clara County (created) more jobs,” Fassinger said.

He’s forecasting that Bay Area inflation will be 2.4 percent this year and 2.8 percent next year, with household incomes growing at 1 percent above the rate of inflation in both years.

The big question mark hanging over any economic forecast is the housing market. In recent months, home sales have slowed, new residential construction has fallen and prices have softened.

The housing slowdown will decelerate economic growth, but only in the short term, said Howard Roth, chief economist for the California Department of Finance.

“The downturn in housing will continue in the first half, and maybe second half, of the year, taking some steam out of the economy,” he said. “2008 will be a better year because we won’t have that drag.”

John Karevoll, an analyst with real estate information service DataQuick Information Systems, said he couldn’t make market predictions. But he did rebut some of the gloomier predictions, such as the forecast that California home prices could plunge 20 percent.

“That’s not in the cards,” Karevoll said in a presentation to journalists. “It will be single-digit stuff at worst.” He didn’t address the Bay Area market specifically.

Despite a lot of hand-wringing over “exotic” home loans, such as zero-interest mortgages, adjustable-rate loans and negative-amortization loans, Karevoll said he thinks they will not tip most home buyers into foreclosure.

“Twenty five years ago, when (lenders started to) let people qualify based on spousal income, it was controversial too,” he said. “People said all the women would get pregnant and quit their jobs and lose their houses. That didn’t happen.”

Another potential fallout from the housing slowdown is people spending less because of the so-called “wealth effect” from having less equity in their homes.

But counteracting that are increases in consumer confidence, increased job creation and rising household income.

That led ABAG to predict fairly robust consumer spending increases of 7.9 percent this year and 7.3 percent next year.

ABAG is the official planning agency for Bay Area county and municipal governments, which rely on its annual forecast to project revenue and spending for the coming year.

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Bay Area forecast– The region will add 47,000 payroll jobs in 2007 and the same number in 2008.

– Household income will rise about 1 percent above inflation each year.

– Retail sales are expected to grow 7.9 percent in 2007 and 7.3 percent in 2008.

– The housing market may continue to experience single-digit price declines, but it won’t drastically impact the economy.

Source: Association of Bay Area Governments, DataQuick

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/01/26/BUGGRNPAA61.DTL&hw=real+estate&sn=001&sc=1000