California Bad-Dreamin'

Despite the aerospace contraction in the 1990’s and the tech bust in 2000-2001, Californians have managed to keep riding high. Our housing prices had been (a lot) more expensive than in most other states, and many homeowners were using their houses as piggy banks, borrowing more and more to finance their lifestyles.

Those who have climbed the highest have the farthest to fall. The recession will be worse in California due to our high cost of living, debt burden, government deficits that started years before the current difficulties, and labor costs that make us uncompetitive with other states, not to mention the rest of the world. One silver lining is that we’ll probably hit bottom---and start to recover---before the rest of the country.

Some economists also believe the state's housing market may hit bottom before the rest of the nation's, and could start an upward tick earlier as well. The loss of construction and finance jobs has slowed. In San Diego, one of the first housing markets to falter, home prices are roughly in line with the city's incomes and rental rates. "Housing is becoming affordable again," said Steve Cochrane, an economist at Moody's Economy.com.

Another silver lining may be that our kids will learn that the good life shouldn’t be taken for granted, that there’s virtue in saving for a rainy day, and that life doesn’t necessarily get better every year. At the school of hard knocks the tuition is expensive. © 2008 Stephen Yuen