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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