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Letter from Northern California

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 website, https://rent.drivebudget.com/Home.jsp, 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 2 or 3 bedrooms--- will cost $600 for a move from Dallas to San Francisco.

But it will cost $1,411 to move from San Francisco to Dallas.

Why does one move cost more than twice as much as the other?

Simple. Net-net, 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. While 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.

At a small conference of seasoned management consultants   there is a worried edge to 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 non-existent. Demand went over a cliff.

Visiting a friend 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, two and a half 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 located on the beach about 60 miles south of San Francisco. It can be reached by a magnificent drive on Highway 1. The only thing more moving than the beauty of the coastal cliffs is the intoxicating scent of eucalyptus and, later, the pungent scent of beached 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 sixties.

"Little boxes on the hillside, Little boxes made of ticky-tacky, Little boxes, little boxes, Little boxes, all the same."

People in a few major cities--- like New York, Boston, Los Angeles, and Washington--- will find these prices plausible. But the rest of the country--- the part 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 that 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.

Read these earlier columns from the boom years:

3rd and Brannan: The Busiest Intersection in the World

Start-Up City, part 1

Start-Up City, part 2

A New Force in Markets

Only published comments... Oct 20 2002, 12:23 PM by scottb


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About scottb

Scott Burns has covered the changing world of personal finance and investments for nearly 40 years. Today, he ranks as one of the five most widely read personal finance writers in the country. Scott began his career as a newspaper columnist at the Boston Herald in 1977 where he was also the financial editor. Nationally syndicated in 1981 and now distributed by Universal Press, the column appears in newspapers from Boston to Seattle. In 1985 he joined the staff of the Dallas Morning News where his column quickly became one of the most widely read features in the paper. He left the Dallas Morning News in 2006 to become one of the founders of AssetBuilder and its Chief Investment Strategist. Burns is a graduate of Massachusetts Institute of Technology (1962). He has written four books, including "The Coming Generational Storm" (MIT Press, 2004) coauthored with economist Laurence J. Kotlikoff. His fourth book, also coauthored with Kotlikoff, was published in 2008 by Simon & Schuster. The paperback edition will be available in January, 2010.  "Spend Til' the End" uses consumption smoothing to demonstrate the errors of conventional financial planning. His business experience includes working as a staffer for a major consulting company and service as a director and audit chairman of a NASDAQ listed manufacturing company. He and his wife now live in Dripping Springs, a "hill country" town about 25 miles outside of Austin.


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