Did High Tech Incomes Cause the San Diego Bubble

[Anonymous]

You guys don’t know nothing. Tech guys like me are responsible for this housing bubble thingie. We are movers and shakers and can manipulate the entire market. My muscles move more than just this loaded bench press.

Now I’ve gotta get back to doing pushups with powayseller.

[sdcellar]

PS, I’m supporting the point even though I don’t agree? I guess you’re connecting the dots for me? Well, I don’t agree with the dots. Could you at least respond to the inventory side of my post?

I think somebody else tried to make the point that there weren’t enough $110K earners in general, let alone tech related, to be singled out as the driver of this bubble.

Why are we singling out tech workers? Always tough to generalize, but engineers tend to be pretty conservative with their money. We established that even at those income levels, it gets tough to afford properties much over $500,000. Do we think that tech folks want to spend more than they need to and/or overextend themselves?

[powayseller]

sdcellar, I’m sorry, I didn’t get your comment about the inventory. I’m not agreeing with gym guy, but just raising his point as a question for discussion, since there could be some element of truth to it. I agree that if $110K incomes fueled the price increase, then the max should be 3.5 x 110K = $ 385K. But we know the median went much higher. So the housing prices went high based on funny money loans, not on fundamentals of wages.

[SDbear]

Interesting! I had thought about it too. If you correlate QCOM stock price and housing between 2000 and 2006 you’ll get some answer. I don’t think that high tech jobs were the sole reason, but sure think it was a contributor. I know some people who sold a bunch of QCOM options to put down around 30% for ~600k homes. I think these people bid up the prices and others started relying on exotic mortgages to compete with them, which sort of fed the frency.

[sdcellar]

PS, yes sorry, I should have said vacancy rate. I was suggesting that if low vacancy rates were a significant factor, then rental prices should have experienced similar gains to housing prices. Of course, if that had happened, we would be less likely to consider this a bubble in the first place.

[an]

Which bring us all back to rent vs buy and income vs buy. If income goes up and rent goes up, we wouldn’t be calling this market a bubble since 500k house would be fundamentally supported. Wages double in 20 years. Rent probably doubled too, but housing price went up 4X.

[sdcellar]

sdrebear, The stretch here might be the notion that people with a lot of money “bid up” prices. Typically, folks with more money expect more for it.

To counter my own point though (and support yours), it does seem that if the money comes through non-traditional sources (stock options, big investment returns), there might be a tendency to be a bit looser with it. e.g. hey, I just made an extra $100K because I worked at the right place at the right time, so what if I’m spending a little more than I’d like.

I believe bubbles feed other bubbles, and I think that’s what’s got a lot of people worried. We’re running out of bubbles…

[Anonymous]

Late to the party as usual, but here goes:

The real estate market is a little like cooking or baking but in this case there are hundreds of ingredients that are in the recipe. The main ingredient to a successful dish, in terms of housing, is JOBS. So yes, the makeup of the job market affects the end product.

Then you have other factors such as the Velocity – my guess here is that homeowners in San Diego turn their properties more frequently than other markets, in some cases aggressively turning the property in just a few years – moving up the proverbial “property ladder” until their ultimate prize is in sight – Rancho Santa Fe, The Bridges, Fairbanks, The blah,blah,blah,blah.

Another key ingredient, terms – the ease, availability and low cost of money, the leverage that it creates and the willingness of the various parties to employ it (risk tolerance).

Speculative environment – some places lend themselves to a more dynamic situation with regard to investment and speculation than others.

Foreign investment and ownership and emerging markets. I do think, in Southern California’s case, the emerging markets contribute to the underpinnings of the local real estate market to a greater extent than we give credit to

[powayseller]

Low vacancy rate did not make rentals go up, because the rental market was led by the lower income people. Median income is $60K or similar in SD, so the people earning under $60K drove the rental market, keeping rents low, and the people earning over $100K and getting stock options drove the home buying market. Then everyone else had to get crazy loans to compete with the stock=options +$110K buyers. So far this makes sense, but we’d need to know if enough “stock option and +$110K buyers” existed to move the market.

[Author]

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