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The Wealth Effect Illustrated

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When home prices rise, homeowners tend to spend more money. In some cases their newfound real estate wealth emboldens them to save less and spend more, while in other cases they actually borrow against increased home values to increase their spending money. In either scenario, the net effect is that people buy more stuff.

This so-called "wealth effect" is a widely acknowledged side effect of asset market booms.

The accompanying graph attempts to measure the wealth effect in San Diego by displaying year-over-year growth in both home prices and retail employment since our little housing boom really took off in 2003.

And while the magnitude of moves in each series are different (home prices having been changing about 10 times as much as retail employment), the correlation between home prices and retail employment is almost picture perfect.

The housing wealth effect has clearly been at work here in San Diego.

--RICH TOSCANO

A Nerd's Eye View

Rich Toscano is a financial advisor with Pacific Capital Associates*;
he also writes about San Diego real estate at Piggington's Econo-Almanac.
Contact him at rtoscano@pcasd.com.

Recent Nerd's Eye View Posts

Update From the Chamber (August 29)

A Migration Mystery (August 25)

Liar Loans (August 24)

Affordability Wars (August 22)

Much Ado About Renting (August 16)

The Wealth Effect Illustrated (August 16)

ARM Wrestling with Bernanke (August 11)

Housing Bulls Rejoice? (August 11)

Same Nerd, Different Format (August 10)

*Investment advisory services and securities offered through Girard Securities, Inc., member SIPC/FINRA.

This Just In

Recount Really Dismissed:

Judge officially tosses 50th election challenge.

Tuesday, August 29 -- 5:15 pm

Aguirre Pushes Own Route:

The city attorney wants a full discussion on the reforms pushed by Kroll and Sanders.

Tuesday, August 29 -- 5:07 pm

'Honest Broker':

Former UCSD economist says airport instigator Richard Carson is a straight dealer.

Tuesday, August 29 -- 4:44 pm

Poverty Plateau :

Very slight ups and downs in the local poverty rates reported today.

Tuesday, August 29 -- 10:48 am

LETTERS TO THE EDITOR

Consolidated Flights Could Ease Strain on Lindbergh:

Tuesday, August 29 -- 9:45 am

CAFÉ SAN DIEGO

Temecula to the South :

With the ever blurring border and more Americans living in Baja, should our priorities stop at the border?

Tuesday, August 29 -- 1:45 pm

COMMENTARY: SLOP

A Wall Street Gamble, Continued :

The county of San Diego's employee pension system actually plans to earn more than the estimate we blasted last week.

Tuesday, August 29 -- 4:50 pm

COMMENTARY: RICH TOSCANO

Update From the Chamber :

The Chamber of Commerce removes the mystery data and readies a new version.

Tuesday, August 29 -- 1:05 pm

More Maas:

The CCDC chairman's take on his defense of Nancy Graham.

Wednesday, August 20, 2008 -- 11:57 am

Sanders on SEDC:

The mayor explains his rationale behind the appointment of four new SEDC board members.

Tuesday, August 19, 2008 -- 4:30 pm

CCDC Suspends Investigation:

Agency takes the step after reviewing Graham's testimony.

Tuesday, August 19, 2008 -- 3:05 pm

The Composer:

A clip of the man who claims he was duped into buying that house in Santaluz.

Wednesday, August 20, 2008 -- 11:59 am