Saturday, 13 June 2009

Impact of Education Level to Real Estate Price....

As recession get worse, even college graduates are having tough time finding job, especially ones that they want. Under these circumstance, they may question the value of college degree. Here is interesting statistics!

- The unemployment rate for workers over 25 years old who haven't gone beyond high school rose to 10% in May, nearly doubling from 5.2%.

- Among workers who haven't completed high school, the unemployment rate rose to 15.5%, compared with 8.4% last year.

- By contrast, the jobless rate among those with four-year college degrees was 4.8%, up considerably from 2.3% a year ago, but well below the rate for people with less education.

- The unemployment rate in April among four-year college graduates between 20 and 24 years old was 6.1%; among those the same age with only high-school diplomas, it was 19.6%.

I guess college degree does not guarantee your economic success. But, without it, it will totally limit your career options.

As you seen from recent mess on US auto industry, labor union are under severe pressure in terms of high salary and benefits. This pretty much symbolize the end of American Dream --- “upon high school graduation, get manufacturing jobs and enjoy middle class life for the rest of one’s life”. In fact, in this recession, manufacturing factor is one of the most severely hit area. As US economy moves toward more information and creative based, I do not see bright future in manufacturing jobs in US. This indicate that expanding income inequities based on education level.

Anyway, let’s go back to real estate. I believe there are strong correlation on residents’ education level and real estate stability. Below is the ranking of most educated metropolitan area in USA. You can see that top ranked cities are known for high real estate price. This has to do with strong economy and higher income.

MSA College Graduate Ratio Median Household Income
1. Seattle, WA52.7 $49,297
2. San Francisco, CA 50.1 $57,496
3. Raleigh, NC 50.1 $48,131
4. Washington, DC 45.3 $47,221
5. Austin, TX 44.1 $43,731
6. Minneapolis, MN 43.2 $41,829
7. Atlanta, GA 42.4 $39,752
8. Boston, MA 40.9 $42,562
9. San Diego, CA 40.4 $55,637
10. Lexington-Fayette, KY 39.5 $42,442
11. Denver, CO 39 $42,370
12. Charlotte, NC 38.8 $47,131
13. Portland, OR 38.8 $42,287
14. St. Paul, MN 36.5 $44,103
15. San Jose, CA 36.1 $70,921
16. Colorado Springs, CO 34.9 $47,854
17. Honolulu, HI 34.7 $50,793
18. Oakland, CA 33.8 $44,124
19. Pittsburgh, PA 32.3 $30,278
20. New York, NY 32.2 $43,434
Source: U.S. Census Bureau, American Community Survey

My real estate investment is concentrated in good neighborhood in Austin, San Francisco and Manhattan (40%+ residents in Manhattan has master degree or higher!). Fortunately, real estate market is quite stable in these markets and unemployment is not as bad as rest of America.

One of the reason I have not-so-positive point of view in Las Vegas real estate is that its low education level. Only 20.4% of Las Vegas residents have college degree or higher. With this fact, you can easily understand why unemployment rate in Las Vegas has shot up to 10.4% in 12 month period. For same reasons, I am not bullish on real estate market in Inland California. Richard Florida has pointed out importance of educated workforce to be "winning cities".

As you observed that real estate bubble burst is most severe in low education neighborhood (= subprime loan + high unemployment) while, at “good” neighborhood with high-education residents, real estate price is tend to be stable. As income inequities by education level will continue to spreads in USA, I think it is more important that you focus more on good neighborhood where those with high education choose to live.

Happy Investing!!!!!

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