Have Californians Gone Crazy?

                                                                     April 10, 2005


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             I definitely think so, when it comes to Housing. Californians have gone crazy
          wanting to live in California. They have been paying a premium for a while to be
          in California. But recently that premium has been skyrocketing in the form of 
          home prices.

             But there can be only so much premium people can pay. When a breaking point
          is reached, a lot of these Californians will be forced to leave (not by choice).
          There will be a population exodus from California to much more affordable cities
          like Dallas, Las Vegas, Houston and Atlanta. This will help these housing markets
          to recover a bit. This exodus will only add to the following  recession and put
          further downward pressure on home prices in California, and bring home prices in 
          California closer to other large metropolitan areas.

             Salt Lake City gained population in 91-92 recession, from people fleeing 
          Southern California.

             The dollar price of being in California, for all the wonderful reasons given
          for people wanting to live in California, can only go so high. Californians are 
          outbidding each other for the right to live in California. In a bidding war, 
          there is only one winner, all other bidders lose.

             The smarter ones are the ones who have extracted the premium for a California
          home in the form of hundreds of thousands of dollars, and have already moved to 
          an affordable place.

             So the next question is, Have some Californians become wealthy, by just being
          at the right place at the right time?

             The answer is probably Yes.

             I dont think this tech boom-bust cycle is completely over yet. The Silicon 
          Valley home prices are being driven up largely by software couples who together
          take home 175-200K a year.

             They are the ones who have the largest mortgages. They have exercised their
          stock options ( the remaining lucky for the time being) and started investing in 
          housing. But when this market busts, they will just see their wealth disappear 
          as quickly and be stuck with their high mortgages, while the price of their 
          homes fall.

             And this could result in reduced salaries, as high home prices is the 
          justification often given for high salaries.

             Software professionals are less mobile because you cant find software jobs in
          every city (Stockton or Reno). But others like lawyers and doctors, there is a
          certain minimum demand for them in every community.

          Silicon Valley vs. Manhattan 

             Silicon Valley sure looks like the centre for IT companies, like NYC is for 
         financial services. But NYC did not acheive this status in just a decade. It has 
         taken more than a century for NYC to become what it is today. It has gone thru 
         several booms and busts, to become what it is today. Silicon Valley is still in 
         its infancy in trying to become the Manhattan of IT.

            The high cost of operating in the Silicon Valley could also work against a 
         continuing boom. Case in point. Yahoo Web Hosting would charge $11.95/month to
         host this web site. But another company based in Salt Lake City is charging me
         $7.95/month for the same service.

             Which one would you have chosen? 

             To end, a picture is worth a thousand words. Check out the following links.

             From Lou Minatti's Blog : Californian Are Insane - Part 1  2  3  4  5  6


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