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How the Local Economy Impacts Real Estate

So often we hear stories about how the real estate market is doing nationally, and oftentimes this can represent a direct reflection of how the market is doing for us locally, too. But if the local economy is heavily dependent on one specific industry, how that industry is doing can have a dramatic impact on how the real estate market is performing within that specific area.

 

In Salem, state government is our largest employer.  What is interesting is that the state owns a great deal of Salem’s available land yet pays no property taxes to Salem.  This has long been an issue for city officials and Salem’s legislative representatives, but the problem has not been solved.  In Oregon, our largest employers are medical (OHSU, large hospitals), Oregon State University and corporate (Intel, Nike).  In our town, after the state, it is our hospital that holds that title.

 

In our neighboring state to the south, in the Silicon Valley area of California, for example, which is known for its concentration of hi-tech companies, 10% of the people working for Google, Apple, and Facebook are now making more than $1 million per year in income.

As an example of how much this can impact the local real estate market, one home in Palo Alto, California, which is right in the heart of the market, recently sold for $623,000 above the asking price. What’s amazing about this story is that this wasn’t even an amazing home, it was an old 908 square-foot cottage built in 1937…which sold for $2.55 million!

With this in mind, if you’re not living in the Silicon Valley, what are 908 square-foot cottages selling for right now within your neighborhood?

Silicon Valley has now begun spreading its wings, too, expanding hundreds of miles southward to Santa Monica, California, where tech firms have taken up residence at such a rapid pace that the area is now being called “Silicon Beach,” because of the city’s proximity to the Pacific Ocean. In addition, homes on 7,500 square-foot lots in the best part of Santa Monica have now been selling as tear-downs…with people paying more than $3 million just for the land! So if you ever notice that hi-tech companies are beginning to move into your area, this could be a solid signal to buy!

Las Vegas is another city that is heavily dependent upon one industry…the gaming industry…and there was a time years ago when their real estate market seemed to defy any economic downturn. But they got hammered by the last one, and so did their real estate market. So it seemed that this last downturn finally impacted the amount of money that people were still willing to lose in their casinos, and the local economy suffered.

How does this compare to Salem?  With the state agencies being large employers, we see telecommuting from Portland, people who are not seeking housing or commercial space in the area and while wages range from entry level to high level management, generally those individuals are not planning to invest in the Salem community.  As the state doesn’t pay property taxes for the land they occupy, Salem provides various services (police, fire, etc.) for which they are not compensated.

All-in-all, living in an economy that isn’t dependent on one specific industry can be a great way to weather an economic storm. You may not have the same highs that these other cities have, that are dependent on one specific industry, but you definitely won’t experience their lows either.