The REal Jobs Situation

I think we can all agree whether you are a housing bull, bear or giraffe that jobs and wage growth are primary factors to a healthy housing market. This has become quite the hot topic amongst the bulls and bears with various facts and myths that have been slung around. One fact is that much of the job growth in the last several years has been in the RE industry. Lansner over at the OC Register has mentioned this several times and has noted that in the last four years RE accounted for 52% of the job growth. It is also a fact that other jobs have been created but at a very weak rate. Does this seem like a healthy job market when real estate sales are down 40% from the peak, mortgage companies are going BK or laying people off every quarter and homebuilders are slashing staff to bare bone levels just to function? Well let’s take a look at what I have found and you can make your own judgment.

The Data

I used the data from the EDD which gets their data from the BLS. The best info I can find on the actual jobs numbers are from this spreadsheet from the EDD. I have my own spreadsheet that uses the same data. I added the employment numbers and rates that are missing from the EDD spreadsheet and I have done several various calculations. I know it is not as organized or as pretty as some of Irvinerenter’s but the data is there. For RE related jobs I use construction, credit intermediation and related activities, real estate and architectural, engineering and related services. These categories compiled together are what I like to call the RE jobs and will known as such from here.

A Little History and Some Averages

Historically RE jobs have accounted for an average of 11.5% of the total non-farm jobs in OC since 1990 to 2006.

In 1990 the average was 11.5% and did not reach that high again until 2001. In between that time the average was 10.6%.

In 2006 the percentage of RE jobs accounted for 14.2% of the non-farm jobs for a new all time high.

The reason why this is an important way to look at RE jobs and why the percentage matters is the RE industry is a need based employment sector. So in other words when jobs other than RE are being created the RE jobs would increase in number but not as a percentage. RE jobs need other jobs to be created or they would not increase and they definitely should not increase as a percentage.

From 2000 to 2006 131,200 total non-farm jobs were created and 62,400 of those jobs were RE related accounting for 47.6% of the job growth.

It doesn’t make much sense when only 68,800 non-RE related jobs were created that OC would need to have that much RE jobs growth. Considering that from 2000 to 2006 non-RE related jobs grew by an amazing 5.3% and RE related jobs increased by 29%.

This clearly paints a picture that OC has been very dependent upon RE job growth in the last six years. That dependence on sector that is a need based industry when the need was self fed poses a serious risk to the overall employment in OC.

The Aerospace Myth

The typical bull mantra about the 90s was that the aerospace industry killed the housing market. This is a serious error when the numbers are not there. Manufacturing jobs which include aerospace did have a significant decline but it wouldn’t call for such a steep decline in the RE related jobs or a decline in the housing market.

Between 1990 and 1993 OC had lost a cumulative total of 57,000 non-farm jobs and in 1994 only had lost a cumulative total of 45,600 non-farm jobs.

Between 1990 and 1994 aerospace had lost a cumulative total of 7000 jobs accounting for only 15.4% of the non-farm job losses.

Between 1990 and 1994 manufacturing had lost a cumulative total of 37,300 jobs accounting for 82% of the non-farm job losses.

Between 1990 and 1994 RE had lost a cumulative total of 20,500 jobs accounting for 45% of the non-farm job losses.

As can be seen in those numbers RE and manufacturing accounted for more than the cumulative total non-farm job losses. That means that other sectors were creating jobs which would create a need for RE related jobs. This didn’t start to happen. The reason had more to do with housing prices and buyer psychology.

The Wage Growth Myth

The bulls all say that wages are up and people are making more money than ever. This couldn’t be further from the truth when you exclude RE related jobs. I actually believed that this mythical statement might have been true. I was disturbed that when you break it down the way that I have that it shows a loss. I had to use data from 2000 to 2005 because the annual data for 2006 is not available yet.

Between 2000 and 2005 payroll wages grew by slightly over $14 billion.

Between 2000 and 2005 payroll wages for RE grew by slightly over $6.6 billion accounting for 47% of the growth.

Between 2000 and 2005 payroll wages for non-RE related jobs grew by slightly over $7.4 billion accounting for 53% of the growth.

When you break down how many non-RE related jobs there were in 2000 compared to 2005 there were 48,600 more jobs. So what you have to do is take the annual payroll and divide it on a per job basis. After adjusting for California’s inflation rate of 15.9% between 2000 and 2005 non-RE related payroll wages shrank by -$662 million in that time.

Using the same break down RE related payroll wages soared by nearly $2.1 billion. This adds for more evidence that the industry was self feeding itself and how much OC was dependent upon the industry for growth. With sales down nearly 40% since 2005 it will be interesting to see this stat in the next few years.

The Overwhelming Evidence

I may be a housing bear but these are the numbers and the numbers do not lie. It can be said that a liar can lie about the numbers but that is why I provided my own spreadsheet for anyone to check the numbers. The proof is OC has had very poor job growth when excluding RE related jobs. What is even worse is wage growth has actually been negative when excluding RE related jobs. So how or why have we had such a huge run up in the prices of homes? It makes absolutely no sense what so ever and anyone who tells you that wages have been growing is lying.

The other troubling statistic is with all the layoffs and overall slow down is where will these people find jobs? The response you will hear from the bulls is they will find a new job or return to the industry they came from before. Some of the more educated and talented in the RE industry will either stay in the business or find another industry. However the majority will have difficulty finding a career that pays as well. The RE industry is more than just sales agents and loan brokers but underwriters and escrow officers. Many of the other jobs have paid well and required very little training or education. The jobs currently being created are in professional and technical services, medical services and education. These categories require higher education and unless the person who is no longer in the RE industry had this education from before they will have to get it now. This will either take job seekers out of the market to get the education needed or they will have accept lower paying jobs or be unemployed.

Now do you see a problem or is it sunny today?

45 thoughts on “The REal Jobs Situation

  1. awgee

    I would guess that most of the construction jobs lost so far have been jobs done by illegal aliens, and these jobs and the loss of them do not show up in any statistics. I would further guess that the loss of these jobs affects the local economy negatively.

  2. oc-conservative

    Thanks for the great jobs summary.

    Tony Crescenzi (he is a sharp data guy and maintains a fairly objective viewpoint) on RealMoney has another interesting comment on jobs data:

    A key reason for the overcounting is because each month the government has been adding in jobs it thinks are being added through new and expanding business, failing to account for the fact that previously expanding industries — the construction sector in particular — are now contracting.

    A case in point is the April payroll report. The BLS added 317k jobs to the total, believing that net business formation for the month followed the pattern of previous Aprils. Of that 317k, the government assumed that the construction sector added 49k jobs. In other words, the government added 49k jobs to the total to adjust for job growth it believes it missed in its payroll survey because of increases in net business formation in the construction trade. This is based on the behavior of construction jobs in previous years. With the industry now contracting, this is a false assumption. The government is overstating the job count, and it is showing up in the spending figures.

  3. Truth Seeker

    Most of the people I know are much better off financially than they were 2-3 years ago. OC has the second lowest unemployment rate in California, behind Marin County, where the median home price is above $1 million. OC is continuing to add jobs, albeit at a slower pace than the last couple of years (1% job growth over the 12 months ending April 2007 as opposed to 2% job growth for calendar year 2006).

    You state that “the other troubling statistic is with all the layoffs and overall slowdown is where will these people find jobs?” But the only “statistics” you provide are on the aerospace industry in the early 1990s and wage growth between 2000 and 2005. You provide no “statistics” showing layoffs or a slowdown. I think you are guilty of misinterpreting the data to fit your gloomy outlook.

  4. EvaLSeraphim

    “Most of the people I know are much better off financially than they were 2-3 years ago.”

    Most of the people I know are making more money than they were 2-3 years ago, but for the most part it hasn’t kept up with real inflation, and it certainly wasn’t the double digit increase that was occurring in the housing market. While most are *making more money*, the people I know are not better off *financially,* as student loans, kids, and bills are chipping away at their savings, to the extent they had any. Poor budgeting? Yes, partially, but also the fact that wages have not kept up with the cost of living.

  5. Jwm in SD

    I agree with you Irvine Renter with one exception. Even if the RE person had education in a technical and had since left several years to chase the easy money, they will not find easy to get back into that field. Think about carefully. If you are a hiring manager of a technical position be it engineering, IT or even real Finance and Accounting (not Mortgages), would you hire someone who has been out of the field for 3 to five years??? NO, you wouldn’t. they will hire them that easily.

  6. NanoWest

    What will the impact be on the OC economy from slower housing sales?

    On average we are seeing about 1,200 fewer homes than the historical average transacted in orange county per month.

    If the average selling price of a home is $650,000 and the transaction cost is about 8%(RE, financial, escrow fees) that is $52,000 per home.

    The loss of revenue in the county from the slow down is about $750,000,000 per year…..maybe a billion dollars.

    Does a billion dollars a year of lost income have any impact on the local economy ?

  7. Chuck Ponzi

    Good point. The subprime layoffs have no impact on our local economy.

    Besides, all of those people in subprime bought several houses and had them all fixed up. They can just live off the appreciation by cash-out refis. Everyone in OC is house-rich, and the REIC were the most “entreprenuerial” and bought 4 or 5 houses.

    OTOH, the only published statistics about the subprime mess is that 3000 jobs so far have been lost at a minimum and up to 12,000 possibly due to sampling error (those pesky miniscule subprime brokers with only 1 or 2 employees are hard to sample when their phones are turned off).

    We’ll just have to wait several years until the whole fallout sorts out the mess and the BLS resets their algorithms and fudge numbers. By the same token, the BLS data has a “business as usual” bias, so we might have seen the same problem in the 90’s.

    Anyway you slice it, volume precedes price. And volume sucks. And inventory is piling up behind the dam. San Diego county is being flooded as we speak, most areas I have looked at in North County has mid-range homes down 20-25% already since 2005, it’s only a matter of time before we feel it too. We just had a strong real-estate based economy to lean on in the past.

  8. oc-conservative

    I would side with Truth Seeker, in that he is being more objective at least in regards to this specific thread.

    Also, I will add this…

    graphix said: “What is even worse is wage growth has actually been negative when excluding RE related jobs. So how or why have we had such a huge run up in the prices of homes? It makes absolutely no sense what so ever …”

    You cannot make exclusions to data or you fall into the same trap for example as the government saying if you exclude energy (and even food) that inflation is benign.

    And your question of how we have had a huge runup in prices – is that rhetoric? Because you ask it as if you are emotionally bewildered yet both I know and you know the answer. Lower interest rates, loose lending, fraud, speculation, etc.

    In the end, I agree with you both. I’m wondering how all the lost construction/real estate jobs will affect everything, but I’m also congnizant that the orange county economy is or has been strong.

    Great blog & bloggers, btw!

  9. mino2126

    TruthSeeker….good points however my rebuttals.

    1) OC is continuing to add jobs, albeit at a slower pace than the last couple of years (1% job growth over the 12 months ending April 2007 as opposed to 2% job growth for calendar year 2006).

    I think the point is that job growth is in industries where you have to have a technical skill to be in that industry. Many brokers and agents don’t have those skills and for the most part the job creations from previous yrs have been concentrated in the RE industry….thus where do all these people go if the market tanks?

    2) Most of the people I know are much better off financially than they were 2-3 years ago.

    I would tend to agree with you if they were here at the beginning of the bubble, cashed out, and upgraded to a better place with a more traditional loan. However, their are many first time buyers that are just scrapping buy….I am only 27 and many of my friends I see them struggling. I would like to see the savings rate for california alone…I think this would be very beneficial information.

    Truth Seeker if the market does tank and you have such a high level of concentration of jobs in the OC in real estate what happens?

  10. oc-conservative

    It is difficult to ascertain how relevant anecdotal data is. For every example or person you know, an opposite story could be found.

  11. Joe

    If you are going to use ‘real’ wages as opposed to nominal wages to show that there has been no wage growth, then you need to look at ‘real’ housing prices instead of nominal housing prices. Everybody here and everywhere else quotes nominal prices when looking at housing.

    I don’t know what inflation has been the last few years, but say it has been 4% or 5% if you include food and energy. So if real wage growth has been flat for the last 5 years, then nominal wage growth would be 20% to 25%.

    That would support nominal house price increase of the same amount, assuming interest rates were steady.

    Obviously the housing increases have far surpassed wage growth, but there has been wage growth. I just think it is misleading to say that there has been no real wage growth as a way of analyzing movement in nominal house prices.

  12. JoeR

    I’d like to add in my perspective of the jobs situation, given my experience in mortgage (and sales specifically). During the three years I was in mortgage (02-05), I met only a SMALL handful of people who had the skillset to survive outside of mortgage.

    The majority of loan officers, loan processors, funders, managers, etc. did not even have a 4 year degree. Think about that for a second: no degree combined with job skills only relevant to mortgage. Does that sound like a formula for long term success? In most cases, probably not.

    All of these folks were making decent money. Mortgage is (was) one of the rare industries where you can make 15-30k a month or more with no degree. At the peak, as long as you were there to answer the phone, you were making 6 figures annually. Many of these folks spent lavishly, buying luxury cars, designer clothes, etc. I even knew a manager who outright said “I don’t look at the price tag when I buy things, I just buy it if I like it”. “WTF kind of attitude is that??” you’re probably thinking–well that’s what happens when you put a lot of money in the hands of people who really wouldn’t be making that much if they hadn’t stumbled upon mortgage.

    I know for a fact that many of my ex-colleagues bought houses costing $750k+ within the past 2 years. I seriously doubt they can now afford their homes, given the current state of the mortgage industry and given what they are likely making these days (if they aren’t already laid off). These people thought they were untouchable, and now they’re struggling to afford the lifestyle they _thought_ they could maintain.

    Graphrix–great post, and your thoughts parallel exactly what I’ve observed with my own eyes.

  13. lendingmaestro

    It is very hard to look at OC residents, or any residents for that matter, and say they are financially better off than they were several years ago. A lot of people made bookoo bucks in the last 5 years, and many saved wisely. Many did not save however; case in point: look at our friend Dan Sadek, founder of quick loan funding. You can not truly know someone’s finances unless you tear through their balance sheet, income statement, and monthly budget. Even someone that has zero debt and owns 3 homes free and clear is not necessarily “in the clear.” Homes are as il-liquid an asset that there is, if you even consider it an asset. It’s impossible to look at the collective financial well being of a population.

    If we admit that homes were used as ATM’s during the past few years, which they were, then this financial well-being we see on the surface is fraudulent. If job/wage growth slows at all, coupled with a housing slowdown, it will have a dramatic effect. I keep in contact with many colleagues and friends at other banks, correspondent lenders, brokers, and RE agents. All of us are aware of compensation cuts and lower commission splits. I am making significantly less this year than last year. Banks like WAMU and WF are cutting the existing equity lines for their customers by lowering their line amounts, sometimes down the balance owed with no future draws available. That HELOC you’re sitting on may not be available to you when that rainy day comes.

    With huge commissions and equity growth, many Real Estate professionals could afford to take time off and spend more money. Times are changing. I also know two general contractors who are in dire shape right now. I have friends that were laid-off from Home Loan Center, New Century, and Accredited. They have mortgage payments too. I know realtors that haven’t received a check in 3 months, and one of them has 3 kids and 2 house payments.

    It takes time for the dust to settle. Most economic indicators are lagging. It will take more time than originally anticipated for the late payments, defaults, and layoffs to affect the broad economy, but it will. My uncle is a dentist in Newport Beach and he knows that his income, while not directly related to the real estate sector or financial sector as a whole, is still affected by people’s propensity and ability to spend.

    The slow down will spill over into the travel industry, entertainment industry, and what I like to call “the foo-foo- industry we have here in Orange County. We have some great financial minds with deep pockets, but we also have an abundance of pretenders. These pretenders are only beginning to be revealed

  14. graphrix

    You may want to click on the links in the post. Especially the spreadsheets and you can see the numbers for yourself.

    Job growth excluding RE had been less than 1% for the last six years. With the contraction of the RE jobs we are having now I will be surprised if we have a 1% growth this year.

    As for layoffs and you can see the lender layoffs.

    If your friends are doing better that is great but how did the rest of OC lose $660 million when adjusted for inflation?

  15. doug

    Regarding “The Aerospace Myth” I totally agree. Home sales were dying by 1989 and the layoffs did not occur until 1992. FALSE? Aerospace layoffs caused housing collapse in 90s? Of course, I’m sure it made a bad thing worse.

  16. IrvineRenter

    It is amazing how false assertions and revisionist history like the aerospace myth become part of our collective belief systems. If more people had realized the truth of the 1990’s was a bubble fallout, perhaps this latest bubble wouldn’t have gotten so out of control.

  17. IrvineRenter

    “Most of the people I know are much better off financially than they were 2-3 years ago. ”

    How much of this is the illusory wealth of home appreciation? Median income data shows 3% growth — a rate which only matches inflation.

    “OC has the second lowest unemployment rate in California, behind Marin County, where the median home price is above $1 million.”

    You are implying a cause-and-effect relationship which does not exist. The unemployment rate is not causing high home prices. If a low unemployment rate were causing an increase in wages which in turn is driving up the fundamental valuation of housing, then the relationship would hold. This does not appear to be the case. Median incomes are not rising at rates greater than inflation, and job growth is weak, plus, house prices are greatly detached from their fundamentals.

    “You provide no “statistics” showing layoffs or a slowdown.”

    I think Chuck Ponzi’s somewhat facetious comments speaks to this point. We all know many people just got laid off from subprime lenders which have gone out of business. The builders are also laying off more people. It will take some time for these recent layoffs to be reflected in the employment numbers.

    The real question here is whether or not other areas of the economy are going to pick up the slack from a slowing REIC. Are new jobs, comparable in pay to those eliminated, being added to the local economy? If 1% growth is all that is occurring, the answer is probably no.

  18. SoCalwatcher

    To all:

    Government job numbers are not real time. Nor are they entirely accurate. There is only a speculative range. Add that with a lag time and you have some rather inferior data.

  19. oc-conservative

    …not to mention we just emerged from one of the greatest stock market bubbles in history a few years prior as well.

    It’s human nature – denial, greed, hope, even fear (of being left out), etc.

  20. Bkshopr

    Talented individuals with multidisciplinary skills often benefited financially from most economic downturn. This is especially true in the RE industry. Here are some examples: In the builder’s industry companies downsizing are keeping just the crème of the crop. These remaining individual often are required to wear different hats to fulfill some of the vacated positions in addition to his own task. People with good craftsmanship are the one that are building more homes. No one can afford to tolerate mistakes currently it has to be right the first time. Companies could not lose them therefore his negotiating power is up.

    In the Mortgage and Real Estates industries, individual with good connection, selling and persuasive skills are the one who can do the job. Sellers are seeking the best broker to represent them. I would not trust a mediocre agent to hindering my sale.

    Architects with creative skills are demanding extremely high salaries at this sluggish economy because only they can produce an attractive home that would appeal to buyers’ emotion. One bad mistake in design could BK the whole project.

    Those who do not have an education and multidisciplinary skills would have to start at another profession at entry level and works his way up again.

  21. graphrix

    I agree with you and you make a very good point. Especially on the IT side of things since software and hardware has changed extremely in just the last few years.

  22. graphrix

    I agree especially with CPI that you shouldn’t make data exclusions. I don’t think that I was excluding any data but seperating them out. To compare it to CPI core is within and acceptable range including food and energy it is above the acceptable range. Put the two together and you have CPI that is still unacceptable.

    Take core jobs excluding RE and payroll wise they are down and growth is weak but add in RE jobs payroll wise and growth was up. Put the two together and you can say payroll and growth is up.

    Now when RE is headed down in growth and payroll and non RE has been weak the two together would equal weak employment. That was more my point. Do you agree that is reasonable way to look at it? If not how would you look at it?

  23. graphrix

    Joe – I try to stay with real numbers and not nominal but lets take a look at the nominal numbers.

    According to CAR median home prices were up 107.5% from 2000-2005.

    Total non-farm wages were up 22.6% from 2000-2005.

    Total non-RE wages were up 13.6% from 2000-2005.

    Total RE related wages were up 35% from 2000-2005.

    California’s inflation rate was up 15.9% from 2000-2005.

    Inflation adjusted median home prices were up 91.6%.

    Inflation adjusted non-farm wages up 6.7%.

    Inflation adjusted non-RE related wages down -2.3%.

    So as you can see nominal or real numbers it is scary. I think this is a very good point to bring up.

    Inflation adjusted RE related wages up 19.1%.

  24. graphrix

    Nano – I posted this in the forums about something similar to what you are talking about.

    “And I have to add this stat as well lets consider 2005 median price and the amount of sales with a 5% commission this would be $1,429,400,000 in revenue. The 2006 median price and amount of sales with a 5% commission would be $1,120,072,800 in revenue a loss of $309,327,200 in revenue. The 2007 median price and taking a 25% reduction in sales with a 5% commission would be $842,734,200 in revenue or a loss of $586,665,800 in revenue from 2005. Add the loss from construction, escrow, title, appraisals, inspections and finance and I now need a couple of billion dollars.”

  25. MMG

    Truth Seeker , I’m sorry but I have to call you on your BS. I will counter your anecdote by saying “all the people I know (and alot of them by the way )including doctors, accountants, engineers have seen a decrease in living standards as compared to 5-6 years ago for a variety of reasons”.

    just my 2 cents

  26. k.o.

    One thing to note that is different between the aerospace layoffs and the ones today are that aerospace tends to be very skilled labor. RE on the other hand, not nearly as much. So, even though we are downplaying the aerospace industry losses of the 90s (according to ‘history’), which do you think will have a more significant impact? Loss of highly skilled labor or those who many refer to as the “community college dropouts”?

  27. nirvinerealtor

    Dear all,
    I have been blogging for a while now on this site. Eventhough most of you are not purchasing, I do work with folks who are in contract to purchase or are seriously thinking about purchase. A definite change in attitude toward buying. Perhaps due to rent rate and/or interest rate increases recently.
    I see relocating into OC is still going strong.
    I feel lucky that I am busy in this real estate business. I am sure many of my fellow agents are experiencing same.

  28. Hold Out in LA

    The tea leaves for the OC job market are hard to read but the IE is an easy guess. Except for the gigantic national distribution centers sprinkled along the 15 freeway every other job in the IE depends on the happy “equity spending” homeowners. Look around out there in the IE, every commerical space is dedicated to filling homes up with stuff or toys in the garage.

    What happens when all those commuters to the OC and SD end up underwater in that new house in Winchester. Do you think they are going to keep spending like crazy at the Lowes, Staples, B-B-Q City, Bob’s Billards, ATV Town, Best Buy, Kohls and the like. I don’t think so.

    What happens when big chain stores start seeing same store sales drop from one year old stores sprinkled all over the IE like pickie dust. Those big shot CEO’s are going to shutter the underperformers. They have to prop up their falling stock values with big pronouncements on cut backs and efficiencies. When the big anchors in the corner mall close, the little mom and pops and Quiznos next door will die a quick death.

    The big chains will force everyone to travel farther to established stores. This will make traffic even worse in the IE. But the same store sales numbers will look better and Wall Street loves it when you lop off underperforming liabilities, take a $30 mil write down and promise better times ahead for your stock . Everyone should be really happy that they will do this, right. Your Retirement depends on that 401 K don’t it?

    All of those folks in the service/retail market will be out of work and not be able to pay the option ARM monster mortgage pushing foreclosures up even more. Prices will sink and the commuters who are the only ones left with incomes will be in a deeper funk. Driving in traffic longer with $5/gal gas. Getting home and to depresed to go out to the movies or the restaurant.

    And “poof” even more places start closing down. No more Macaroni Grill in BFE Wildomar, you’ll have to drive into downtown Temecula for a meal or a movie.

    To heck with that, just get 50 lbs frozen bags of stuff at Costco and watch Pay Per View at home. Wake up earlier tomorrow to beat the traffic.

    Do you see where I am going with this. All those workers in retail are gonna have to go somewhere. And that somewhere is right back to the tiny, junky apartment complex in Santa Ana or Garbage Grove.

    That means all those low income jobs and business in the OC will have more traffic in their stores.

    The service sector in the IE will shrink back down to what it was in 1999-2001 in terms of how many people need to be employed to service a ghost town of commuters trapped in negative loan to value mortgages sprinkled in between all those empty homes.

  29. graphrix

    This where we are in new territory and the outcome will probably be completely different. What I do know is that the jobs being created do require a degree, advanced degree or specialized vocational training. Do people in the RE industry have that? I agree with you many do not. The highly talented and skilled people will either keep thier jobs or find new ones in the industry.

    The question is where will these people find jobs since every other category has shown weak growth. I have a feeling many will leave OC for other areas like the 90s.

  30. awgee

    Every report I read concerning the number of homes sold and the prices show there are less homes being sold and prices are decreasing, which is in complete opposite to what you are saying.

  31. IrvineResident

    persumably, nirvinerealtor lives in his Irvine not “Irvine”. In his Irvine “most of his fellow agents” are experiencing a great selling season, “a definite attidue towards purchasing”. that is different from Irvine we all know of. a down to the hill selling season, remaining 10% afforable people very cautios of purchasing, flippers despearte to get out.

  32. NanoWest


    The numbers seem sort of staggering to me…….it seems that when a local economy looses this much income, there will be some knock on effects. My bet is that this is enough income loss to create a local recession, especially when you add in all of the closed mortgage bankers.

  33. Lost Cause

    Good points about jobs and wage growth. I would have put more emphasis on inflation in your discussion on wage growth, since it seems to be really high right now when you look at the price of gas and housing. Also there are so many other jobs indirectly related to RE – even furniture, landscapers and nurseries are affected. I don’t see that many signs of good times personally — most people seem to be hunkering down.

  34. Ken

    At some macro level I believe the following to be true:

    – Job growth drives housing unit growth and wage growth
    – Wage growth drives housing price growth

    Only in OC (that I know of) has this been a closed loop recently where:

    – Housing unit and prices growth drive job and wage growth

    When that cycle inverts it’s going to be an ugly downward spiral, and the speed at which it’s occurring is going to stun everyone. I think several year’s worth of job growth in RE could be wiped out this year alone (and even those who remain employed will be making less in commissions, bonuses, profit-sharing, etc.) The resulting vacuum in jobs will be hard to fill–unlike aerospace which was eventually able to downsize, modernize, retool and retrain into other areas, RE is really a dead-end career. People losing jobs in RE will have to find other sales jobs (which are unlikely to pay nearly as much), stop working (assuming they have a spouse who can carry the load), or choose a new career, often starting at the bottom again.

  35. nirvinerealtor


    Don’t want to be argumentative or defending anyone….

    House price and wage growth share the same analogy as chicken and egg! My honest opinion.

    If you ever work as a realtor, you will see it is the hardest job ever to master; therefore, the skill set that you acquire in hard working, sale justification, managing people, problem solving, and project management is priceless and is very transferable to other high paying jobs such as running your own business or someone else’s business.

    I have done other high paying jobs; and real estate sales have been the most challenging, stressful, demanding, and requiring more and more education.

    You would have to be in someone else shoes to know what it is liked.

  36. Jwm in SD

    Ahahahahah…..ahahahahaha….Are you freaking kidding me?? Seriously NIR, you just lost whatever meager credibility you might have had here.

  37. graphrix

    Sorry NIR but economics 101 shows that job growth and wage growth are the number one factor for housing prices. And you really do believe this since you have made several points at the aerospace industry as to the reason why housing prices dropped before. So you are clearly flip-flopping and you need to make up your mind what you believe.

    But the point is there are more than just RE agents involved in the employment numbers and most agents are self-employed and are not in the numbers I site. We have had tremendous growth in RE related jobs espeicailly in lending. Many of these people do not have college degrees and some that do do not have the degrees required to get the jobs that are being created. Plus you have escrow, title, appraisers, architects, construction, inspectors, designers and many other positions that do not show in the RE category.

    For further proof we need higher educated people in California and that we also are having net migration in the state check this study out:

  38. FamilyGuy

    First, let me say this is excelent stuff here. I’m a spreadsheet jockey by trade so I really liked having access to your file for review.

    Just a couple of comments / questions as food for thought. And as always, I’m throwing them out as much for input as anything else.

    1. You stated that RE jobs are “need based” and should not grow as a % of the total job market. Doesn’t this assume that all RE jobs are only supporting the market in which they were created? For example, 9k of the total 62k RE job growth (15%) in the 2000 to 2006 timeframe were on ‘Non Depository Credit Intermediation’, which I assume to be loan processors, underwriters, etc. (This is a big assumption as I’m not really familiar with these categorizations) Wouldn’t those positions be handling RE transactions nationwide? If that’s the case, then it would be less meaningful to view RE jobs as a % of total jobs for OC.

    2. 30k, or just under 50% of the RE job growth was from the construction industry. What is not specified is whether or not these jobs are for residential or commercial construction. This is important because commercial RE is still on a tear in the OC. All you have to do is take a drive up the 405, there’s buildings going up like crazy on both sides of the freeway. I guess my point is that even though it is noteworthy that there are a lot of new construction jobs in OC, they are necessarily tied to the residential RE market, and I really don’t see any reason these jobs are going away in the very near future.

  39. IrvineRenter

    Your point in #1 is well taken; however, it does cut both ways. If national trends are down, it can hurt the local job market for loan officers, etc. If subprime is just beaten down, then these jobs may return. If however, subprime is truly dead, then these jobs are gone for good.

    The problem with #2 is that commercial construction will stop once this latest flush of growth is complete. All the new commercial space will need to be absorbed before they build any more office space.

    In a typical real estate cycle, there is a boom in residential followed by a boom in commercial (commercial needs the rooftops to survive.) In a perfect world, when one boom ends the other begins and everyone keeps working. That may occur, but there is a real chance that neither side of the building industry will be doing well 2 or 3 years from now.

  40. graphrix

    You bring up some very good points. As for #1 I agree with IR that on a national basis the market is hurting and therefore it hurts the local economy. The point that I will bring up is there are jobs in other places around the US that are affected by the slow down in OC. For example the mortgage company I worked for brokered loans to Wells Fargo and that office was in Des Moines, Iowa. So the slow down here didn’t hurt the local job market it hurt the job market in Des Moines. I would say this balances it out.

    As for what jobs make up non-depository credit intermediation is mostly what you think it is. It is any lending activity not related to a bank that takes deposits. It could also include a credit card company or a car loan company. Historically this industry has been hit pretty hard during a housing slow down.

    For point #2 again I agree with IR. The point I will add is I am worried about the commercial market. If you look at the current job growth the types of jobs are not office jobs. They are medical and education based jobs. While medical needs office space the majority of commercial growth has not been designed for this. According to all the economists from Chapman to CS Fullerton OC was supposed to be our saving grace with a bunch of growth. So far this year it has amounted to 1000 jobs. Picture a guy twirling his index finger around slowly saying woo hoo. Hopefully that number gets revised higher. I, like you, see all of the office space growth and I have to wonder WTF are they doing? Do they not notice all the for lease signs? For a while there was a sign twirler for a building on Red Hill in the morning. The other problem is the downsizing of the mortgage industry is not done and many of the homebuilders are shrinking their offices. I also know of architectural offices downsizing.

    Here is my latest scary job stat retail sales jobs were down compared to last June. The last time that happened was 1993. With retail sales jobs down it shows people are not spending.

    By the way I do not like being a bear but I just know what OC went through in the last downturn. It amazes me how quickly people forgot what that was like. I promise there will be a day where you and I share a bullish opinion on RE.

  41. FamilyGuy

    I actually have a friend who’s wife was in the loan processing / underwriting business from probably 98 to sometime in 2006 when she was laid off. I’m sure she did very well while in the business, but now has been completely unable to find any work in the mortgage industry in OC. Fortunately, they were a two income family and have adjusted just fine down to one income. She is currently going back to school to become a teacher.

    Fortunately for them they were very smart about things and didn’t stop looking at price tags when things were going well so they are doing just fine now the well has run dry, but I know there are many others out there who were not as smart as them. And it is true they cannot find work in the mortgage business these days.

    One possible side effect of these people leaving that industry is we will probably see upticks in other professions (eg teaching) from people who took the opportunity to change careers. Of course, some may move which will result in a net job loss… But either way they are probably not going to be making as much money – that’s for sure.

    I’m really enjoying having these conversation with you all. You are very well informed and reasonable, which makes for fun dialouge. Thanks again.

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