Californias Economic Double Whammy: Tech, Housing Losses Mount

The two mainstays of California's economy — technology and real estate — seem to be shaking up pretty well.

Check out the latest headlines on layoffs affecting California businesses.

"Twitter" fired 3700 employees. Billionaire Elon Musk took over the San Francisco-based global social media giant after finding it in financial trouble. He told employees Thursday that bankruptcy is a possibility, Bloomberg reported.

"Meta cuts 11,000 jobs," billionaire CEO Mark Zuckerberg announced more layoffs (and not just in California) at the Menlo Park-based Facebook owner. He admitted that he had misinterpreted the ad request and made a big bet on the new "metaverse" communities.

Meanwhile, there are more reports of tech relocations or hires. It was a grim forecast for Cupertino-based tech titan Apple. And Mountain View-based Alphabet, the owner of Google and YouTube, is cutting its hiring plan in half.

The tech crash follows a disastrous summer for California housing.

Rising mortgage rates have spooked house hunters. Sales fell to an all-time low during the Great Depression. Prices have weakened.

No deal, no loan. Then Orange County-based LoanDepot said it was cutting jobs. The mortgage lender, which started the year with 11,300 employees nationwide, had 8,500 in September and plans to cut that to 6,500.

Twin disorder

How much will the tech and housing crisis slow California's economy?

Counting is not easy. Industry impact studies show that technology and housing make up a third of all business activity.

Tech jobs make up 18 percent of California's economy, according to the annual CyberStates survey. The National Association of Realtors reports that the broad spectrum of residential real estate, from sales to furniture, accounts for 16 percent of California's commercial output.

I did my math by looking historically at California's unemployment rate, the Nasdaq Composite Index (a stock market technology barometer and indicator of industry health), and the California Federal Housing Finance Agency's Home Price Index in one table believable. . I looked at 12 month, quarterly changes since 1976.

History tells us that over the past 46 years, when unemployment has risen in California, the Nasdaq has risen by an average of 5% per year.

Not a bad comeback, huh? So the Nasdaq has risen an average of 17 percent over the past 12 months as the state's unemployment rate has fallen. That's why it's hard to separate tech success from California's job market.

Additionally, the Nasdaq has fallen 19% this summer, its worst decline since the Great Depression. Twitter shares fell by half this year before Musk bought the company. Meta shares are in the first quarter of 2021.

Remember that technology is a dynamic business.

Consider one piece: California data workers like Twitter and Facebook.

In the year After the dot-com stock frenzy in 2000, the media lost 20% of its staff. The Great Depression reduced it by 10 percent. Since then, the news business has grown nearly 50%.

It's a safe bet that tech executives will keep a close eye on future spending, considering winning investors.

Similar examples can be found in the world of real estate.

Since 1976, home prices have risen an average of 1% when California's unemployment rate rises. Meanwhile, when unemployment falls, home values ​​rise by 9% each year.

It makes sense: you need a good job to buy a home in California. Unless prices hit 20-year highs and buying a home fits within a small family budget.

So it's no surprise that LoanDepot shares are down 95% from their 2021 highs.

Cold weather

California's tech and housing woes come as the state's economy cools after heating up days of the 2020 Covid-19 lockdown.

At the end of June, the Fitch Ratings survey of the country's economy ranked the country weak.

Personal income in California rose 1.5%, the sixth slowest among states. The state's Gross Domestic Product rose 0.3 percent, the eleventh slowest growth. California's tax revenue grew 11.9 percent, ranking 30th among the states. In September, California climbed to 24th place, replacing 99 percent of the jobs lost during the shutdown.

When my table averaged these state rankings, California's economy ranked 39th lowest.

Remember that technology plays an important role in any economy as the industry employs well-paid workers. A typical technician in California earns $117,000 a year, according to CyberStates.

These higher wages, without increasing real estate prices, increase costs in the state. Also, the state of California benefits from large capital gains tax refunds when the Nasdaq index rises.

Double dipping

You see, California's economy is known for its ups and downs.

Unemployment is now at 4%, which is close to an all-time low, which is driving up inflation even as wages are rising. The number of news cases hit a record high in August. California home prices broke price records, rising 22 percent year over year this spring.

When you follow the warning signs from tech and housing, it's surprising how rarely these two industries are in trouble at the same time.

Since 1976, this double dip has happened only three times, at least by Nasdaq and FHFA standards.

In 1982, the Fed hiked for 9 months to curb inflation. During that time, unemployment in California rose from 8 percent to 11 percent.

It had been almost two years since the Great Depression. The apartment was destroyed. World financial markets were in turmoil. And between 2008 and 2010, unemployment in the state doubled to 12%.

And Out: Winter 1994-95.

In these six months, the central bank again played a key role. The Fed's rate hike boosted stocks, bonds and real estate.

Ironically, this did not prevent California's economy from suffering a severe recession in the early 1990s. During this period, unemployment fell slightly.

Jonathan Lansner is a business columnist for the Southern California Newsgroup. He can be reached at jlansner@scng.com.

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