How The Entrepreneur Affects California Home Prices

There is a debate I find myself in when I discuss the future of Orange County Real Estate and it is this: who is going to buy the homes that come into the marketplace either for sale or by foreclosure, especially the higher priced ones when unemployment is high and folks are going broke?

First of all, in spite of our tough economy over 30% of current purchases are for cash, so someone is doing OK but who are the other 70% that will make those purchases and how.  Here is part of the answer as to the who, it may not be all of the 70% but they have a great influence on our local economy.

This last weekend I read an interesting article which I already understood intuitively because of the nature of the creative entrepreneur and their never ending quest for success, but this article points out an important natural resource we have in that entrepreneural spirit here in California and in specific, Orange County.  These are some of the same people I have financed for years who take an idea and build a family owned business so they can afford that dream home.  I hope you enjoy this article as much as I did.

Analyst: Entrepreneurism will save housing

April 6th, 2012, 11:14 am · · posted by Jon Lansner

Veteran Southern California real estate analyst G.U. Krueger adds his commentary on the housing market to this blog in a spot we call “Thursday Morning Quarterback.” Here’s his latest installment, albiet a tad tardy …

New business formations and entrepreneurial activity are one key to housing’s recovery.
The Kauffman Index of Entrepreneurial Activity, which measures business start-ups mostly of smaller firms. Here, California ranked second among states after Arizona in 2011, and on par with Texas. The Los Angeles-Orange County metro was No. 1, regionally.  In addition, a measure reflecting money flows into more sophisticated new business activity, mostly of future growth industries, is venture capital spending, which is in search for the new Google’s and Facebook’s.

As far as venture capital spending in 2011 is concerned, California scooped all other states, according to the latest report by Price Waterhouse and the National Venture Capital Association. Overall ventures in the Golden State received $14.5 billion, up 24% from 2010.

Regionally, the Silicon Valley received the lion’s share of venture capital spending in the US in 2011 – and at the highest level since 2001, the tail end of the dot-com boom (or bubble). Ventures in the Los Angeles-Orange County metro were funded, too, at the highest since 2001, and putting it in 4th place after New England and the New York Metro — and ahead of Texas!

California tops venture capital spending because it is well positioned to benefit from future growth industries, which are of course, the main focus of venture capitalists. What does all of this strong entrepreneurial activity tell us about the California future?

1. New, small entrepreneurial firms are obviously propelled by people who lost their jobs during the Great Recession. One could belittle that. But this would miss the “cunning of capitalism” and “creative destruction” that makes for a stronger economy.

2. Venture capitalists and the entrepreneurs benefiting from their capital flows have a pretty high confidence level in the future of California. This is particularly meaningful, because they have “skin in the game”.

3. Money flowing into Silicon Valley and Los Angeles-Orange County will create jobs. Not just any jobs, but high paying jobs.

4. This inevitably results in higher housing demand: first for rentals, then for ownership homes. That’s what starts a new housing cycle.

5. A sea change is under way in urban California housing markets. Rents are going through the roof in the Silicon Valley. In Orange County, resale inventories dropped sharply.

Entrepreneurial California and the “cunning of capitalism” is creating conditions for a housing recovery here.

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