Did High Tech Incomes Cause the San Diego Bubble

[sdrealtor]

Between 1999 and 2001 anyone with a pulse could get a 75K job with all the Internet nonsense. I had friends making 100K plus sitting in their cubicles playing solitaire all day.

BTW, you must be working the wrong place. My old neighbor was an HR exec for a major defense contractor. She was constantly hiring dozens of mid level guys in the 90’s with a couple years experience and that was a few years ago.

Lastly, a HH Income of $20K per month easily supports a $600K home. A 30 year fixed rate on 500K loan is only about $3100 per month, add $700 for taxes, $150 for HOA and $150 for insurance and you reach approximately $4000 per month. At 20% of monthly gross that is a no brainer.

[aztecnology]

The run up in housing prices was not the result of people with high incomes who could afford these outrageous prices. It was the people with low incomes who could not afford them, and were only able to get into these homes with mortgage fraud…

[sdrealtor]

Agreed! Someone with a $100K income cant really afford a $500K or higher home.

[powayseller]

With HH income of $200K, you can get a 30 year fixed at $600K – $ 700K using traditional lending standards (3-3.5x gross income).

The runup in prices was possible due to low lending, but maybe it got started because of the many higher paying jobs. Say we are selling 40K homes/year, and half those people are making enough money to buy at 3.5x income, and then the other half must stretch to 7 or 10 x income just to keep up. So the combination of $120K jobs and loose lending caused the higher prices.

I don’t know of any other way to explain why Cheyenne Wyoming is not in a housing bubble. Las Vegas and Phoenix are in a housing bubble, but Cheyenne Wyoming is not. What explains it, if not the difference in wages?

[an]

I know many people in defense contracting, between 0-5 yrs experience and I know they start @ 50k. I work for 3 different telecom companies in SD and their salary are quite similar. I know 10yr+ experience engineer getting around 110-130k. Just look at salary.com, their range is very true to real life. So again, to make 100k, you need at least 7-10 yrs experience. You can’t really compare the peak of the .com bubble with current wages, it just doesn’t work.

[Anonymous]

There just aren't that many big earner households in San Diego county:

6.3% (64K) of San Diego county households (1,009K) earn $150K or more.

http://www.census.gov/acs/www/Products/Profiles/Single/2002/ACS/Tabular/050/05000US060733.htm

55% (553K) of San Diego county households (1,009K) own their own home or condo.

http://www.census.gov/acs/www/Products/Profiles/Single/2002/ACS/Tabular/050/05000US060731.htm

On average, over '88-'06, there were an average of 26K resale homes sold each year.  Separately, there were sales of new homes and of new and resale condos. 

The $150K+ households, all 64K of them, could not have driven up home prices for all 553K homes and condos.  I agree it was loose lending for hoi polloi that fueled the fire/gassed the bubble.

[barnaby33]

Gotta chime in on this one. SD realtor your post somehow suggested that there are all these young engineers walking around making buckets of money, that just isn’t so. Asianautica is right it takes almost 10 years to hit 100k. Engineers today earn about what they did twenty years ago, adjusted for inflation.

During the height of the boom that was true. You can’t however compare the height of the boom and make it seem average its not. I was one of those overpaid engineers, just out of school, at that time. For the priveledge of being overpaid for one to one and a half years I paid the price of being unemployed for 7+ months over the next 2 years.

There is alot of IT in San Diego, but alot of those jobs aren’t necessarily the highest rungs of the ladder. There are lots of sys admins and server admins etc who make 40-70 a year.

Its ludicrous to posit that any one profession is powerfull enough to move the market. If so housing prices would have exploded in 1998, when the tech bubble was forming. Not over the last 6 while the job market has been mostly lackluster to say the least.

Josh

[Roman]

Ok Gang,

I feel compelled to reply to this message, since this is a little up my alley.

First, I did not even have a Bachelor in 2000, and with 3-4 years experience, and I’ve made $80k. Things changed after the DOT.COM bubble…..

However, to put my 2 cents in this trail, here are some facts.

NOTE: I don’t have SD specific data, as my portfolio of Engineers (contractors/contingent labor) is for US high tech positions (software, hardware, IT architects, PMs etc…..all IT related)

My portfolio of contractors (504 right now), combined with off-shore (India = 294) and local (US = 210) shows something like this:

Local (USA) – IT contractors (high tech engineers/techs) AVE RATE / Hour $63.06 (you have to subtract 20% from the agencies/headhunters mark up) – REAL RATE $ 50.45

Combined (USA + India) – IT Contractors AVE RATE / Hour $ $43.15 (again, subtract 20% markup).

Bottom line, per my local (US portfolio of IT contractors):

US Contractors (Engineering IT jobs) aprox. $50.45 / hour (2,080 x hourly rate = $104,936 average contractor salary / year)

Note: keep in mind, the ratio of US hires vs. off-shore hires is consistently moving toward (off-shoring…..India). However, as some research might have you believe, off-shore outsourcing does create jobs locally (high end…….complexity/management/PM jobs).
Also, keep in mind, that contractors don’t get benefits (401K, medical….etc)

[Bugs]

Besides all that, we have had the FOB (fresh off the boat) engineers being brought in to depress engineering wages in this region. I guess the employers thought there was a shortage of engineers who would work for the wages they wanted to pay.

I think there were a LOT more $120k+ jobs created in the RE industry and its affiliates than in the tech sector.

Anyone catch the article in the Union-Trib today where an economist is forecasting a job reduction (statewide) of as many as 100,000 workers in the construction industry? Think about the ripples that kind of reduction would create. I don’t know what’s going to happen with all that but I do know the tech sector ain’t going to offset those losses.

———–

Ooops, I was still writing while the above was being posted. Sorry for repeating

[Roman]

I should have been a little more analytical in my approach. So,here is a little stats table for US IT contractor from my portfolio (210 contractors).

Correction: I think I’ve mentioned AVERAGE vs. MEAN in my previous post.

US IT Labor Rate – Descriptive statistics

Base Rate
count 210
mean 63.0606
sample variance 1,112.0150
sample standard deviation 33.3469
minimum 18
maximum 221
range 203

1st quartile 34.0000
median 59.0000
3rd quaritle 80.0000
interquartile range 46.0000
mode 80.0000

[powayseller]

Only 2% of households buy/sell their homes every year and they set the price for the other 98% of homes. How many people earning $120K would you need to drive up the prices for the other homes? Could 10,000 people drive up the prices of homes for the other 30,000?

If it isn’t the income, what explains why some cities had a housing bubble and others did not? Loose lending is nationwide. Even Omaha, NE, has a “mortgage lender on every corner” according to a friend who lives there.

I’m not saying the wet sweaty guy is right, but perhaps the jobs/income contributed?

[waiting hawk]

200% increase in homes in La Jolla or other places could have some bearing but what about the 200% in Hemet or Inland Empire? They all have high tec jobs also?

My website tracking Temecula and South Riverside County

[sdcellar]

sdrealtor was on to something when he said that high paying tech jobs were easier to come by from ’99-’01. The early stages of the boom might be supported by that somewhat.

That said, following the dot-com bust, the trend reversed, but the bubble continued to grow at an even faster pace.

I’m still sticking mostly with buyer psychology. The American consumer is easily manipulated.

Must… go… buy… new iPod nano

[ltokuda]

From my experience, asianautica’s estimates are about right. What you have to realize is that there are many different ways to hire engineers. Because of that the pay scale can vary a lot.

For example, after a few years of experience, I managed to find a contracting job that payed double my hourly rate as a salary worker. As a self employed contractor, however, you don’t get any benefits, pension, etc. Plus, your job is not as stable so it would be pretty risky to stretch yourself on mortgage payments.

Some contractors work for contracting companies, where the company finds work for the contractors and take a cut of the contractors pay. The percent cut can vary, based on the amount of service they provide. sdrealtor’s HR exec friend was probably hiring one of these. Space and Defense doesn’t generally pay that much unless you’re a contractor.

Some high tech companies (sellers) sell software products to other companies (customers). Sometime, the customers need help using the software product so the sellers contract out engineers to help the customer. The engineers are salaried employees of the seller, but they are hired as contractors by the customer. In this scenario, you might see cases where the customer is being charged $100/hour, while the contractor is being payed $30/hour. The customer might be thinking, “Wow, this kid is making $100/hour!”, but the truth is that he’s not.

The point is that there are all kinds of pay scales. This can lead to a lot of misperceptions on how much an engineer is taking home. On top of that, there can be a lot of anecdotal cases which are outside the norm. But when you’re talking about averages, then I agree with asianautica’s: Go look at salary.com.

[justme]

Movers and shakers?

>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

This brings up an obvious question:

Who deserves to be movers and shakers,
Realtors or engineers?

What is harder (or of more societal value),
making 100k as an engineer or 100k as a realtor?

[Author]

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