Did High Tech Incomes Cause the San Diego Bubble

[powayseller]

A guy at the gym this morning had an interesting thesis: home prices rose so far in San Diego and not in Pittsburgh, because of the large number of high tech workers in San Diego who earn $ 110K – $130K/year.

Blue collar workers had to stretch further to afford a home, because they are competing with guys who make more money.

He told me there are 1500 high tech companies in San Diego, some large, many small. There may not be a large percentage of San Diegans in high tech jobs, but the salaries of those jobs made the housing prices rise.

It makes sense. What do you think?

This is the San Diego Labor Market 9/15/06 release, showing data through August 2006.

Those of you in high-tech, can you help me out and say which of the categories on the last page of the PDF file best fit your industry? The categories are for the business type, not the job type. So if you are a lawyer for a SeaWorld, your job would be in “Amusement, Gambling, and Recreation”, not in “Legal Services”. Did the high tech sector add a lot of jobs recently?

The fella also told me that high tech is on a hiring spree, and he had 4 calls from recruiters just yesterday. His own company is hiring even though their finances are not looking so good, which makes me wonder whether hiring is any indicator of a company’s health. He says Qualcomm is hiring like crazy.

We did have 600 jobs added to Professional and Business Services last month, but in a city with over 1 million workers, it’s a drop in the bucket.

However, back to his point, those few thousand working in high tech fields brought up the housing prices for everyone else.

[powayseller]

I meant to say that incomes contributed to the housing bubble, not caused it. I know I’ve got a group of semantics watchers here..

[Bugs]

So we’re talking about the “increase” (not the total number) in high wage jobs being sufficient to push pricing to triple?

Not a chance. Those addition of those jobs had NOTHING to do with it. I doubt there are enough of those guys around to have accounted for an average increase of $5,000 on a county wide basis, let alone $300,000+.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Dont’ know about SD in particular, But Hi Tech, especially software engineers , have until just this last year or so have been on the losing end of the employment game. with wages and Jobs disappearing sense 2000 at a very fast clip. So I would say unless your looking at the last 15 or so months then no way.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Besides even at that income level using a 20% down 30 fixed, about 500K is the most I would want to commit to. And I would expect alot more than an “L” shaped match box.

[powayseller]

He said that a former mayor made San Diego a tech town in the 80’s, and the lagging effect was was a large number of people earning $120K in the mid to late 90’s. The per capita income is skewed up by these workers. So we’ve got a bunch of low wage jobs and the $110K jobs, and the latter were able to pay more for housing, pushing up the prices of homes for everyone. That’s why housing prices did not rise in Pittsburgh.

For his theory to hold, we would have needed a significant number of new employment in +$110K jobs since 2000. Did we?

Of course, loose lending was the main enabler.

[sdcellar]

Nor_LA-Temcu-SD-Guy

I was going to say exactly the same thing (right down to the 500K). I, too, would go fixed rate.

Sure, you could go higher with some of the creative (?) loan products out there, but then the driver is the loan products, not the income levels.

That said, my feeling is it was mostly speculators and the boom itself that fed the boom. Booms in high tech have happened before (even though they don’t seem to be happening now). Adjustable and negative amortization loans have been around a long time. Stated income seems new, but other than that, speculators and psychology (and manipulation of same, witness the spin with the August new home sales numbers) seem to be the drivers to me.

[Bugs]

People didn’t stretch to pay 50% plus of their income on ARM payments because they were expecting their wages to increase enough to eventually make the full payment; they did it because they thought there was a big payoff in the near future.

Besides, if the tech sector was that big a factor why did our market do an about-face and enter into a decline? This region has close to 3,000,000 residents. Did the tech sector suddenly lose 15,000 jobs that were paying $100k+?

[powayseller]

You’re right, Bugs, now I can see his argument doesn’t hold up to scrutiny.

[sdrealtor]

My family lived in Pittsburgh before I was born for a few years. One of the great wisdoms my father passed down to me as NEVER MOVE TO PITTSBURGH.

Back on topic though….lots of relatively young techies/engineers suddenly making relatively good money likely fueled the fire in SD. All of a sudden they felt rich and successful without actually having earned the incomes they got. I think that continues to this day. When I grew up, engineers were distinctly middle to lower middle class unless they owned the business or were in technical sales. When I graduated college in the mid-80’s engineers earned starting salaries of 30 to 40K and hoped they might someday reach 75K. Now we have a lot of engineers starting salaries in 70K range and many making low six figures after a couple years that think they are movers and shakers. I’d agree with the sweaty guy at the gym.

[powayseller]

sdrealtor, what do you mean they think they are movers and shakers? Do you think their salaries contributed to the boom? After all, Wyoming has 10% or more of its loans as Option ARMs, but they didn’t see the price appreciation. Despite loose lending all over the country, only a few cities saw bubblicious prices, and maybe they were the cities with the higher paying jobs? By the way, the guy was beyond sweaty, and looked like he just got out of the pool (he started talking to me because he said I’m the only person at the gym who knows how to do proper push-ups); I have great respect for someone who gets as wet as I do in the gym.

[Anonymous]

Cheap money and low lending standards are what drive home appreciation. Houses didn’t cost more than people could save before financing started the march up.

Where do we go from zero down, interest only, adjustable rate and no doc loans though?

Maybe the lending industry will let us start selling off body parts next? I’m sure some rich investment specialist could use those eyes that poor person is wasting.

The sad thing is the poor person would probably sell them to keep up with their neighbor who just sold his leg for a nicer kitchen counter.

[JES]

Deleted

[sdrealtor]

PS, Yes I think they contributed to the boom. I think that alot of techies/engineers fit the stereotypes having grown up modestly, working hard and being pretty introverted. Many suddenly found themselves with low six figures incomes, thought that was a lot of money, got seduced by it and thought that they would always make that much money and more. Its all emotions at play.

I dont think that is alot of money to live well and save. They bought homes stretching themselves while not allowing for downturns or periods of unemployment. Unless your household income is AT LEAST $200K and you ARE the boss, I don’t consider you as being a mover and shaker.

[an]

I’m a software engineer and I highly doubt you can get into the low six figures with less than 7-10 years of experience. New grad right now are looking at around 50-55k. So I don’t think there are a lot of low six figure engineer around. Like previous poster, even w/ 2 engineers making 200-250k/year total, They still can barely afford a 600k house. If new grad in 1985 made around $30k/year, at 3% salary increase every year due to inflation, then it would be about $56k/year right now. So engineer salary hasn’t change very much if at all, after adjusting for inflation.

[Author]

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