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The Wealth Effect Illustrated

E-MAIL STORY

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 Post

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)

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

This Just In

Sanders' Town Hall:

The mayor calls a Thursday night town hall to discuss the Kroll report's recommendations.

Monday, August 21 -- 5:01 pm

Review Slated:

Airport Authority will take up public outreach strategy.

Monday, August 21 -- 4:18 pm

The Echoing Screams:

As Americans struggle with the actions of a few in Iraq, the LA Times sheds more light on the abuses of Vietnam.

Monday, August 21 -- 12:31 pm

Feeling Lowe :

A successful sit-com may have been named after the concept of home improvement, but executives at hardware giant Lowe's found little to laugh about today.

Monday, August 21 -- 5:27 pm

LETTERS TO THE EDITOR

Kroll vs. Police Compensation Study... Which will cost us more?:

Monday, August 21 -- 11:47 am

CAFÉ SAN DIEGO

Prigogine's Theory :

Mike Aguirre is just a part of the physical process that periodically occurs in natural systems that have gone to imbalance.

Monday, August 21 -- 4:12 pm

COMMENTARY: SLOP

Not Just the Pension :

I wasn't just talking about the issue of the day (year?) (decade?).

Monday, August 21 -- 3:53 pm

COMMENTARY: RICH TOSCANO

Much Ado About Renting :

A former non-issue becomes the stuff of public brawls.

Wednesday, August 16 -- 6:17 pm

Graham Left Fla. Same Way:

Her exit from a redevelopment post in West Palm Beach similar.

Thursday, July 24, 2008 -- 7:15 pm

'Difficult Decisions':

Nancy Graham explains her resignation.

Thursday, July 24, 2008 -- 4:53 pm

Audits, Audits Everywhere:

In addition to auditing SEDC, the city will also look at three other city agencies.

Thursday, July 24, 2008 -- 4:47 pm

KB's Gone Fishin':

She's getting some deserved vacation, but will be back soon.

Wednesday, July 23, 2008 -- 4:13 pm