Will San Diego 'Bust' With the Housing Bubble?

Rich Toscano has this editorial today. "San Diego, it is widely understood, experienced a housing boom in the late 1980s and a commensurate bust in the early 1990s. But despite the fact that the 'boom' phase of the 1980s has been absolutely dwarfed in every respect by San Diego's current housing run-up, we are often assured by those in the business that there is no 'bust' forthcoming." "Now, the conventional wisdom goes, things are entirely different. San Diego's robust and diverse economy is no longer dependent on any single industry for its continuing health. But San Diego's economy is still overly dependent on a single, vulnerable industry. It's just no longer aerospace or defense. It is the real estate industry itself." "Since 2000, according to the Bureau of Labor Statistics, San Diego employment outside of the real estate and construction sectors has annualized out to just 1 percent per year. Employment in the real estate and construction industries, meanwhile, grew at almost 6 percent per year. Forty percent of all new jobs in the past 3 years were in either real estate or construction. This calculation doesn't even include the explosive mortgage industry." "The real estate boom has aided San Diego's economy through more than just direct employment. It turns out that for the past few years, San Diego's per capita income has been declining against the local Consumer Price Index. How are people paying for their new BMWs and Fashion Valley spending jags? The answer is that the money came from people's homes." "Home sales volume declined by 9 percent between 2004 and 2005, a trend that appears to be getting more pronounced as time goes on. Housing-related employment surged while home sales were increasing. There is no reason to expect that the reverse will not take place if home sales continue to decline." "There are 115,000 San Diegans employed in the real estate and construction industries. Even the bullish housing analysts acknowledge that San Diego home prices are likely to flatten out for a while. But a flattening of home prices represents an economic threat as well. If people run out of home equity to extract, the wealth effect-related stimulus that San Diego has enjoyed for the past several years will disappear." "The standard contention is that San Diego's economy will keep the real estate market strong. This argument is circular, as it is the only real estate market that has kept our economy so apparently strong. San Diego may have weaned itself from the defense industry, but it has only replaced over-reliance on one vulnerable sector with over-reliance on another."