Did High Tech Incomes Cause the San Diego Bubble

[sdrealtor]

Justme,
To answer your questions, I dont think either Realtors or Engineers deserve to be Movers or Shakers unless as Realtors they are at the top of the profession or as engineers they invent something very valuable or own the business. Also making 100K as a realtor is harder. There are alot less Realtors making that kind of money than engineers around here.

FYI, for the latecomers to this board before Real Estate I worked in Corporate America as well as some succesful as well as unsuccessful start-up companies and my earnings were about double of what they are now. RE has allowed me to spend lots of time with my family and watch my young children grow. I’m not in it for the big bucks but rather the big personal payoff.

[sdrealtor]

JG,
There are a helluva lot more people making 150K+ than what you see in the statistics. When you own the business you control your income, have the ability to hide lots of things and run lots of expenses through your business. I hope it wouldn’t surprise you to learn that high income earners often dramatically have under reported incomes.

[sdrealtor]

AN,
To your point that “You can’t really compare the peak of the .com bubble with current wages, it just doesn’t work.”

That is the point. Alot of homes were sold based upon these salaries at the time which sent this market into overdrive beginning in the early 2000’s. The falling interest rates feed the beast and Voila! Here we are!

I Never said they caused the bubble but certainly they helped feed it.

[an]

I wasn’t debating on whether .com causes the RE bubble. I was just saying engineers do not get paid as much as you think they do. In regards to the .com causing the RE bubble, I think it does. Not because of the “high” engineering wages, but because a lot $ were made in the market w/ .com stocks. That’s much more substantial than engineering wages. That money got put into RE when .com start crashing. That’s what I think cause the start of this bubble and easy $ carry the rest of the way, just like you said.

[Anonymous]

My hometown, Austin, TX, is a high tech town. Let's compare it to San Diego:

Households earning $150K+

• San Diego — 6.3% (med. household income of $50K)
• Austin — 9.3% (med. household income of $49K)

Comparable median incomes, with more 'rich folks' in Austin. 

Increase in price of resale homes over 2000-'05, per OFHEO index:

• San Diego — up 148%
• Austin — up 33%

Austin may have a higher proportion of 'rich folks,' but they're not silly with their money as we are here in San Diego, wildly bidding up real estate.

Not an airtight case, but it's not high income that drove prices up here in San Diego.

[Anonymous]

Both the San Diego and Austin numbers are for the county as a whole (San Diego and Travis counties, respectively).

Moving down the income ladder, $100-150K households comprise 11% of households in San Diego, 10% in Austin.

[powayseller]

jg, I don’t know what we would do without you! So you’ve disproved the sweaty guy’s theory, for once and for all.

On a related note, why did SD housing prices rise higher than Austin’s?

[Anonymous]

Oh, that's easy, PS!

High church attendance correlates with pricing sanity; low church attendance correlates with pricing insanity.

Church attendance, California:  32%

Increase in OFHEO index, '80-'05:  +543%

Church attendance, New York:  33%

Increase in OFHEO index, '80-'05: +555%

Church attendance, Texas:  49%

Increase in OFHEO index, '80-'05:  112%

http://www.signonsandiego.com/uniontrib/20060502/news_lz1n2thelist.html

Bad news for PC et al.:  I'm reading a book on life in the '30s ('Since Yesterday'; awesome!), and on FDR's train ride to his inauguration, he spends his entire time speaking with a close advisor on how trying times bring men closer to religion.

[ybc]

“High church attendance correlates with pricing sanity; low church attendance correlates with pricing insanity.” — is it controlled for coastal impact? Someone who really knows how to intepretate statistics will be very careful and not reach this conclusion so quickly. But if you do want to make these correlations as causal factors (well, I’m disappointed that a U. Chicago graduate is doing this, but maybe that was too long ago for you, as you said:) you can also say that low church attendence states contribute a lot more to the national economy and tax revenue, and low church attendence states help to pay welfare consumed at high church attendence states; and people at low church attendence states are better educated than people at high church attendence states…the list goes on. Better mention them all, and make church attendence be responsible for all.

Better take the church out of this.

[Daniel]

Powayseller asked…

“On a related note, why did SD housing prices rise higher than Austin’s?”

My answer has been and will be all along: zoning and building restrictions. This is the only thing that all bubble areas have in common, and differ markedly from non-bubble areas. Income gap? No, look at San Diego and Austin. Fresno isn’t full of high rollers, either. Sunshine tax? No, Seattle and Boston are bubblicious despite the weather. Quality of life? There are very nice cities in Colorado and Utah that have sane prices. And there are overpriced hellholes all over inland California.

But: all bubble areas have city or state governments that place a lot of restrictions on buiding (environmental studies, long and expensive approvals, etc). Non-bubble areas do not. Here’s your answer.

Incidentally, this may have something to do with the political affiliation of the population (democrats tend to favor slow-growth policies, while republicans tend to let the free market build whatever it wants). That makes blue states more prone to RE bubbles. Since political affiliation also correlates with religion, voila, you have your explanation for the post above!

[sdrealtor]

Thanx YBC. You said it better and more concisely than most of us could have.

[kicksavedave]

BTW, getting back to the original thesis here, it’s not the engineers of the tech boom that did the driving, it’s the tech sales of the boom that pushed prices up.

I’m an engineer, I make around $85K, and unless I wanted to do one of those insane IO loans or crazy arms, I’ve been locked out of everything around here. There are plenty of engineers who I work with in the same boat, none of them are stupid enough to over extend themselves so badly, so we’ve all been sitting and watching what appeared to be the boat sailing away. (hoping it is making a U-turn and comes back for us)

But there are plenty of sales reps who make twice what we do, who’ve been flipping, upgrading, moving and shaking, over the past 5 years. The ratio of reps to engineers is about 5-1 in my office of about 30 total people.

My experience may be unique or different than most tech companies…. but I’ve watched first hand that any engineer who isn’t already in a home, is locked out unless they want to do a stupid loan. Meanwhile the reps have been making a killing on their real estate investments, with some of them doing multiple transactions over the last 4 years.

[powayseller]

I ran these ideas by the gym guy, and he said we “neglected to mention San Diego county’s low vacancy rate of 2-3% compared to Austins 10-15%. Higher competition for less resources drive up prices especially when the demand has money.”

[sdcellar]

If the increase in rents correlated to the increase in home prices, there might be something to that. Plenty of people without money bought overpriced homes. Tell gym guy to keep trying…

[powayseller]

But that IS his point. People without money bought homes because they had to stretch further to pay the higher prices created by the “demand that has money”, i.e. the tech workers. There are enough tech workers earning over $110K that could pay more for housing, running up the prices for everybody else. There are over 1100 tech companies in San Diego; I have the Excel file. Maybe sduuude will come over here and help me open it, LOL! So these people could pay the higher prices. Low vancies, demand created by people who could pay more prices, and voila, prices go up. That means the other people had to stretch so much more to compete for a home. His theory does have some credibility.

[Author]

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