LOS ANGLES: Silicon Valley residents, in growing numbers, are trading in Wall Street wealth for a roof over their heads -- a phenomenon that helps explain a sustained boom in a housing market where homes average a half million dollars.

The stock market played a key role in the home-buying decision for clients of 17 percent of real estate agents in the San Francisco Bay Area (which includes Silicon Valley) and 8.6 percent in Southern California, according to the Los Angeles-based California Association of REALTORS's® first quarter 1999 Housing Finance Survey of 5,000 real estate agents.

During the first quarter of the year, 14.7 percent of home buyers used down payment money related to stock market investments, including stock sales, stock option gains and 401(K) loans.

Any first-time home buyer can also withdraw, for a down payment, up to $10,000 penalty-free from a Roth Individual Retirement Account (IRA) and more and more mortgage lenders allow uncashed stock holdings as collateral.

In recent years, Silicon Valley's technology mecca (comprised largely of Santa Clara County has also been the land of computer industry generated stock options paid as supplemental wages and initial public offerings that boost the incomes of Internet start-up employees.

Economists have been busy monitoring the flow of stock market wealth as an indicator for Silicon Valley's housing market prices, values and sales.

"I think these numbers point to the fact that the stock market did play a role in the housing market when the market has been on its way up, the concern is what will happen when the stock market has a correction," pondered G. U. Krueger an economist with the California association.

Low interest rates and relatively higher incomes (San Jose, the county seat, has a median income of $80,600) have helped keep alive a market that yields single-family, detached home prices that averaged more than $500,000 earlier this year and broke the $400,000 median price barrier in April. Now the state's real estate association has begun to quantify and document the source of some of that income.

California's realty trade association found that 41.1 percent of home buyers who used investment money for down payments were from Southern California (excluding San Diego), but 37.5 percent were located in the much smaller San Francisco Bay Area.

Among those who traded investments for housing, 53.1 percent used stock sale proceeds for the down payment, 31.3 percent tapped into their 401(K), and 23.4 percent used stock options.

"What we are seeing here is a transfer of wealth from stock market vehicles to real estate. People, like you and me, in the 'lower-income' level ($50,000 is considered low income in the area), but who may have some savings in a 401(K), can maybe transfer some of our wealth this way," Krueger said, hopefully.

The association also said 41.8 percent of of those who used stock market wealth to buy a home were first-time buyers.

Those who used stock options, the sale of stock, or their 401(K) as a source of down payment bought homes with a median home price of $285,00 vs. $240,000 for California's general home buying population.

Stock market money spenders also had a higher median gross income, $100,000 vs. $80,000, for those who didn't use investments to help buy a home.

Krueger said survey questionnaires were sent out in early April to 5,000 real estate agents where were queried only about their most recent transaction. Only 500 agents responded to questions about home buyers' source of down payments, buying decisions, marital status, incomes, purchase price and ethnicity.

"Maybe some of the bubbly behavior in the stock market is spilling over into the housing market and that's helping drive up housing prices. This is not the last word in this issue. There may be more extended research that goes directly to the consumer," said Krueger.

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Published: June 8, 1999

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