Though just this Wednesday we shared in infographic illustrating a slight rise in year-over-year housing affordability in California, it doesn’t appear to have helped the exodus. The bottom line remains that many California residents are leaving for one simple reason. They can’t afford to live here anymore.
In fact, real estate data and analytics firm CoreLogic found that for every one home buyer moving to California, there are selling and moving out of state.
“There is clearly a relationship between the migration patterns and home prices,” said CoreLogic’s deputy chief economist, Sam Khater. “The middle and lower middle can no longer afford to live in California.”
Home prices in California have risen an astonishing 71% in the last five years alone. That price jump has made California the most expensive state in the greater 48. Only Hawaii and Washington, D.C. rank more expensive than California’s statewide median home price of $428,000. And that number includes condos and townhomes, the single family median home price in California is over $515k.
Many local markets are even less affordable. According to the latest data from the National Association of Realtors, California holds four of the five most expensive housing markets in the country. Not surprisingly, Silicon Valley’s San Jose is currently the most expensive city in the U.S. with a seven figure median home price just north of $1 million.
Unfortunately for the middle and working classes, incomes haven’t kept pace with this dramatic rise in home pricing. According to a report from Beacon Economics, the loss of Golden State residents is so great that we could soon face a shortage of middle-wage workers.
This is even more concerning when you consider that California has had very strong job and wage growth compared with the rest of the country. What happens if our state or country’s economy takes a turn for the worse?
One thing we’re seeing everywhere is the increase in wealth inequality. Take Silicon Valley as a prime example. It’s growth is so concentrated it’s actually hurting many longtime local residents.
“All the gains aren’t coming in support of the rest of the economy, they’re coming at the expense of the rest of the economy,” said Christopher Thornberg, founding partner of Beacon Economics. “Folks in the tech industry make craploads of money and they can afford to live there and will force out other people.”
California also continues to attract deep pocketed foreign buyers who continue to drive up prices despite often not living full time in their new homes.
“It makes it harder for the average person to make a living there,” said Khater. “So that means less teachers, fire fighters, retailer workers. It’s causing the entire state to become more expensive.”
So where are all these former Californians going? Turns out, not far. Neighboring warm weather states like Arizona and Nevada are a big draw as is the Pacific Northwest. But the biggest migration is to Texas of all places, where affordable housing markets and lower costs of living are the norm.
California residents on the move have a big advantage over other buyers. The equity in the house they’re leaving averages out to a $495,500 selling price. Whereas they’re only spending an average of $315,000 on their new, and almost certainly bigger, home.
“They are saving money and moving up market,” said Khater. “You can increase your standard of living.”
Take Karen Francis and her husband as prime examples. They left the Bay Area to move across the river from Portland in Vancouver, Washington. While a new job was the cause of the move, they’re thrilled with their improved living conditions..
Instead of renting, they’re now homeowners living in a 2,600-square-foot home that’s nearly twice as big as their former residence in California.
The couple are also enjoying the lower cost of living from cheaper gas and utilities to affordable daycare for their infant daughter.
“You have to drive 20 minutes to get anywhere in Silicon Valley,” the 28-year-old said. “Here, the drive to the store, church, gym where I workout, everything is 10 minutes or less.”
While California continues to be a booming real estate market, especially its urban metro areas like Los Angeles, the number of residents leaving due to affordability is a concern. Certainly the luxury Los Angeles home market doesn’t look to be going anywhere but up anytime soon. But ten minutes to the store and the gym? What Angeleno couldn’t get used to that?
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