January 27, 2006

Question for readers - 6 months from now, which US real estate market will be the bloodiest?


Phoenix was my vote all along, but San Diego could vault ahead. In Phoenix, the Arizona Republic once reported that over 40% of all jobs in town were tied to Real Estate. When people ask me what Phoenicians do to earn a living I tell 'em that they buy and sell houses from each other.

So what happens when that stops?

We'll soon find out.


Here's an essay on this phenomena in San Diego. Ahh, what a house of cards we have built ourselves..

But San Diego's economy is still overly dependent on a single, vulnerable industry. It's just no longer aerospace or defense.

It is the real estate industry itself.

Forty percent of all new jobs in the past 3 years were in either real estate or construction. This calculation doesn't even include the explosive mortgage industry, which unfortunately can't be isolated in the available BLS data, but which might push the real estate-related share of recent jobs up to as much as 50 percent

Given the decline in real incomes, how are people paying for their new BMWs and Fashion Valley spending jags?

The answer is that the money came from people's homes

There are 115,000 San Diegans employed in the real estate and construction industries, almost 26,000 of whom entered the industry since 2000, in addition to untold thousands in the mortgage business.

How many jobs are at risk should home sales volume continue to decline?

16 comments:

Anonymous said...

Keith,
I am here in North Coastal San Diego and I can tell you that this is right on the money. When the housing ATM runs out of money, we are in for a world of hurt that no one seems to care about or even see coming. Why they dont see a horrible ending to this situation? I dont know!! I own my own company, and make great money, but I cant afford (if I live responsibly)to live as high on the hog as people that I know that are making half what I am making. My wife and I always ask ourselves if we are just not understanding something. Is the secret to a successful happy life loading yourself up with debt that will hang over you for the rest of your life? The San Diegans are going to blame everyone but themselves. They dont have time to pay attention to all of the signs, they are too busy shopping and going on the 4th cruise in 12 months. Hey, when you are making money hand over fist and the market is just going to keep going up, spend, spend, spend!!!!
Remember, it is only wealth on paper!!!!
Come 2007-2008, I will be buying real estate here in San Diego. It is going to be much much cheaper than it is now.

Anonymous said...

Back in 91, I remember all the U haul trucks ending up in the big city as everyone moved out of podunkville. Podunk gets damn ugly when it aint goin up no more.

Wes D said...

A vibrant economy is not built on buying and selling houses to each other. Keith, look at the GDP for last quarter. If it wasn't for the 1.5% boost that housing is giving the economy (according to Economy.com), we would be looking at our first quarter of the next recession.

This report alone should show just how vulnerable the economy is to a slowdown in consumer spending.

Anonymous said...

I concur with Keith's sentiments. We have been homeowners in North Inland San Diego for almost six years. As the sole breadwinner with two young kids, I keep my family on a tight budget because our monthly bills are so high.
350k in home equity is nice, but it doesn't look like it will last.
Meanwhile our neighbors drive by in their brand new Beemers and RV's and talk about all of their home upgrades. This is going to end SO badly for lots of folks that don't understand Finance 101.

Lander said...

Sacramento or other towns in California's Central Valley may give the "big boys" (San Diego, Phoenix, Las Vegas, etc.) a run for the money. Look at some of the recent news:

4.6% Decline in Median Sale Price since August Peak

Home Prices Decline For 4th Straight Month; Existing Home Sales Down 30%

Rural Central Valley: Highest Default Risk in California

Sacramento Market 61% Overvalued?

Sacramento County has seen median price declines for four months now. Can any other county in the country beat that?

Anonymous said...

In Southern California, it appears that San Diego will be the first domino to fall.

Anonymous said...

I scan the google headlines routinely for bubble news, and it's just my perception that San Diego stands out in terms of "there's no bubble here" headlines. I always thought San Diego seemed the most delusionary, but I've never been to Phnx. Sounds bad there. I've been to Sacto. Pretty junky, out in the middle of nowhere. I don't really like any of those places with new shopping plazas with Bed Bath and Beyond baking in the hot sun as SUVs roll past on their way to Applebee's... Yuck!

Anonymous said...

The "there is no bubble here, I assure you" capital is Las Vegas IMO, although biased.. LOL. But if don't believe me then check out some articles on the LVRJ's housing articles site: http://www.reviewjournal.com/news/housing/

What is so bad about Phoenix? It's a desert, much like Vegas, but probably without all the sex and gambling in your face and on billboards. I miss the desert. Maybe I'll move there once prices come down. Is Chandler nice?

Anonymous said...

Builders must decide prior to completing unsold homes, to upgrade to granite , better cabinets, travertine ,etc. Homes had been selling before completion and the builders were make more money on upgrades. Now there upgrading at no cost to the buyer. Also new homes sales for dec were probably better than they should have been reported. Builders pushed to close homes due january to help dec #'s.

Anonymous said...

Miami, LV, Phoenix, and California central Valley will be the hardest hit. The Central Valley has bad air, bad schools, no charm, and major pollution from large scale agriculture. There is no reason for a huge run up in this low wage area. Cities with a reasonable jobs base may not be hit as badly and Dallas and some midwestern cities may actually rise.

Raj said...

Hi, I have been looking to buy a house in the Phoenix area for sometime now. Its true that there are more houses on the market than before, but the prices dont seem to be coming down....

BigDaddy63 said...

I gotta echo the votes for South Florida. Crack houses are going for $400,000 and up.

Speculators have purchased more than 50% of condos. It is all "hot" money and I/O's.


http://southfloridarealestatebubble.blogspot.com/

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