Housing Bubble?

California bracing for more busts
10/20/2002
By SCOTT BURNS -- The Dallas Morning News
SAN FRANCISCO – Some people talk about the "walking around" evidence. Me, I
like the "moving around" kind.
One of the fastest ways to learn how an area is doing is to check how much
it would cost to rent a truck and move there. The Budget car and truck
rental Web site, www.drivebudget.com , tells me
I can move from Dallas to San Francisco for a lot less money than it would
cost to do the reverse.
A one-week rental of a 15-foot truck – the size you need to move two or
three bedrooms – would cost $600 for a move from Dallas to San Francisco.
But it would cost $1,411 to move from San Francisco to Dallas.
Moving evidence
Why does one move cost more than twice as much as the other?
Simple. People are moving out of the Bay area. The Northern California boom
is over. Gone. History.
A recent Bureau of Labor Statistics listing of employment changes over the
last year has San Francisco and San Jose at the bottom of the list, with
major year-over-year job losses. Although the unemployment rate has
increased almost everywhere, it hit 7.6 percent in San Jose in August, the
highest on the list and the biggest year-over-year change among 65 major
urban areas. Silicon Valley is hurting.
The change has people in shock. Over dinner on Russian Hill, a friend in
public relations – a 20-year survivor who can tell war stories of the 1983
technology crash and name the forgotten companies of the first PC boom –
tells me his retirement has been wrecked. All the shares he took in lieu of
cash, hoping for the big hit, are virtually worthless.
Anxieties afoot
At a small conference of seasoned management consultants, there is a worried
edge to the discussion. For some, the backlog of work – the contracts for
services that are the lifeblood of consulting – is down and perilous. For a
few, the backlog is nonexistent. Demand went over a cliff.
Visiting a friend in Santa Rosa, I learn that jobs are hard to find. But
real estate appreciation is great. In four years, my friend says, her house
has "earned" more in appreciation than she received in income during the
entire period. She has the appraisal and the refinanced cash-out mortgage to
prove it.
I find this hard to believe until I read the inevitable real estate magazine
in my motel room. In Santa Rosa, which is about 60 miles north of San
Francisco, an aging two-bedroom, one-bath bungalow with 1,000 square feet
will set you back about $250,000. A townhouse with three bedrooms, 2 ½ baths
and 1,500 square feet is priced over $300,000.
Later, I drive to Santa Cruz. One of the first resort towns in California,
it is on the beach about 60 miles south of San Francisco. It can be reached
by a magnificent drive on U.S. Highway 1. The only thing more moving than
the beauty of the coastal cliffs is the intoxicating scent of eucalyptus
and, later, pungent seaweed.
Santa Cruz, a university town, makes Santa Rosa look cheap. There, a few
houses are priced under $300,000, but many are priced at $500,000 and up.
These are not new "McMansions" with the inevitable granite counters, marble
floors and $5,000 refrigerators. They are the "ticky-tacky" dwellings in the
Malvina Reynolds song, the one Pete Seeger made famous in the '60s.
Little boxes on the hillside,
Little boxes made of ticky-tacky,
Little boxes on the hillside,
Little boxes all the same.
People in a few major cities – New York, Boston, Los Angeles and
Washington – will find these prices plausible. But the rest of the country –
where the median home price is $160,000 – won't.
Is this a real estate bubble?
No. It's real estate froth, a collection of bubbles. Some will pass
peacefully. Some won't.
Northern California is a major froth center. It won't pass peacefully.
Ironically, this doesn't mean it's over for California. It just means the
usual upheaval, the continuing, incredible churn of winners and losers.
While some mourn their stock market losses and hold their breath over home
prices, others find opportunity. Jerry Cort, a serial entrepreneur who likes
life without venture capitalists and thinks new ventures should be
self-financing, told me new businesses should be started in down times, not
booms.
"For one thing, people are available," he said.
That's why he's started a new software company, LookAhead Software, to be
ready for the next boom. Somehow, I bet he's not alone.
Questions of general interest will be answered in future columns. Write
Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, Texas 75265,
or send an e-mail.