Long-term Outlook For California
Real Estate Agent · Georgetown/Austin and Houston TX · Member since 2019 · 4 posts · 6 votes
Howdy Bigger Pockets Peeps, As an agent in Austin TX, I have felt the inundation of California Natives to the Hill Country of Texas. This exodus has only just started but it has had a fairly significant impact on our market giving us a large amount of demand for both rental and luxury properties and a lack of supply (30% less supply than Q3 2019). Have my people inlaces like Nevada,Tennessee, Florida experienced this as well ? I am just curious about the current state of home demand in California and if the home prices will somewhat plateau or if they will depreciate. I feel that it is important to point out how geographically amazing California is, meaning that there will always be some demand to live there even if you are overpaying and taxed out the wazoo. Lastly, I have a question for all of my Californians, are as many people truly considering leaving the state as the internet is making it sound ?
Thanks , Jackson Andrews
To answer your question as someone living in the Bay Area: I am definitely considering leaving California, and I know a lot of people who want too also. My reasons are not only due to insane taxes and HCOL , but also for political reasons that I just can't wrap my mind around anymore. One reason I am staying for now is I can make way more money here with my current job , to help with starting REI.
"I want to leave California because it's too expensive, but I want to stay because I make so much money." Classic!
I am from Springfield Massachusetts and moved to California 47 years ago. I live the Los Angeles area because it is never too hot, never too cold and everything is so close you can go swimming and skiing in snow on the same day.
This has been the greatest and simplest place to become a multi-millionaire during the past 47 years because of the millions of people and diverse ethnic groups. California is still the best place I've seen to make money in real estate. While properties in other states sell for less than $200k there is no spread to make a profit. In California, the same type house that sells in other states for $200k sells for $1 million and there is often a profit spread of $100k or even $300k if you get a sweet deal and there are plenty of them if you look.
The huge downside , and I would never move, is the constant increase for taxes taxes, the high cost, difficulty and insane time it takes to get building permits approved, the cost for gasoline is the highest in the country and the cost to rent an apartment is more than the mortgage and property taxes to buy a house in other states.
There are homeless people on literally every street corner, in front of every donut shop and they camp in groups of hundreds everywhere they want and nobody does anything about them. They poop on sidewalks in plain view with no shame and nobody does anything. They camp in front of and on the side of multi-million dollar homes, throw tons of trash everywhere and the only thing the cities do is they send crews to remove the trash.
I am always guessing that there is a reason properties and other things cost less in other states and I think that reason is because it is not as easy to make millions of dollars in other states. Not saying there are not a lot of millionaires in other states. I think you have to be really lacking in some areas if you can't become a millionaire in California. Millions of people in California become millionaires, accidentally.
@Jackson Andrews there was a study done by Spectrum, a location services company, that tracked over 18,000 companies leaving CA between 2009 and 2018 - they took 275,000 jobs and ended up leasing or acquiring 133 million SF elsewhere. The #1 place they moved was Texas.
I’m not thrilled about this trend, but CA can sustain a decline in population so long as there is a correction at some point. Our housing stock in major cities has not even approached keeping up with demand over the last 50 years. The cost of living in my market, Los Angeles, is 50% higher than the national average, but wages are only 35% higher than the national average and stagnating. I am bullish over the long term, I think the next few years will be an investment opportunity for longer term holds, but CA is not a low barrier to entry / high return market. Your betting that the best and brightest will continue to want to live in some of the best weather in the world and around each other. Entertainment and the Port anchor LA, the military and border anchors SD and Tech and the port anchor SF. These are strong economic factors that are unlikely to change.
Lots of great responses from CA residents on this thread but is it fair to say that the outward migration on CA citizens is of overwhelmingly greater interest to folks who don’t live in CA and have nothing much to do with CA!
That’s kind of my observation on the BP forum.
People who own businesses seem to be the ones really evaluating and the ones moving out. Joe Rogan, Ben Shapiro, Elon Musk (and Tesla, eventually) - out.
W-2 employees moving in. Don't get me wrong, I know a guy who recently joined Google and makes $600K a year. Plenty of them in the SF/San Jose area.
Gotta pay to play in the state of California. 13.3% income tax is no joke!
@Jackson Andrews
As an agent you would see more Californians because they have the cash to buy a house. If someone average left Nebraska, what would the likelihood be that they would rent and not have the cash to buy.
The people leaving California probably are doing so because of the crazy tax stuff on the table. In August California was looking to tax people that left California for up to ten years after they took residence elsewhere.
A high income earner already is looking at federal and California combined of over54% of their earnings. Add another percentage for a state with additional income tax and it would be crazy.
Texas and the the other 7 no income tax states will look attractive to the high earners.
The other income tax free states, Texas is closer to a similar weather. Washington state weather is horrible. New Hampshire gets wicked snow. Florida is humid. Tennessee is very christian. Alaska is dark and cold and snow half the year.
New Mexico is, well, poor and high elevation. And Nevada is also seeing a lot of Californians.
I have property in southern California, and buying in bay area currently: In the bay area, properties are gone within a week, averaging ~30k over list from my anecdotal experience. Market is red-hot still. San Francisco and silicon valley seem to have more inventory for rentals, and slightly cheaper rents. These are areas that were/are highly desirable and had such high demand, low supply for so long that it has been a necessary minor correction in my opinion.
There are 2 California storylines that are contradictory:
1. "Homeless is out of control! No affordable housing! Tent cities everywhere! rent control is making things worse! Homeless on every street corner, under every bridge! Not enough places to live!"
2. "Mass exodus out of California! Everyone is leaving en masse! Too many homeless and taxes have finally got out of control! State poorly governed!"
Either people are leaving California and alleviating the housing shortage OR there still is not enough housing supply and we have severe homeless crisis. Pick one.
Howdy Bigger Pockets Peeps, As an agent in Austin TX, I have felt the inundation of California Natives to the Hill Country of Texas. This exodus has only just started but it has had a fairly significant impact on our market giving us a large amount of demand for both rental and luxury properties and a lack of supply (30% less supply than Q3 2019). Have my people inlaces like Nevada,Tennessee, Florida experienced this as well ? I am just curious about the current state of home demand in California and if the home prices will somewhat plateau or if they will depreciate. I feel that it is important to point out how geographically amazing California is, meaning that there will always be some demand to live there even if you are overpaying and taxed out the wazoo. Lastly, I have a question for all of my Californians, are as many people truly considering leaving the state as the internet is making it sound ?
Thanks , Jackson Andrews
Understand that California transplants bring “California equity” which is a two-edged sword that translates to both good and bad. Bend Oregon is a perfect example which was a symbol of what economists referred to as a “lifestyle destination.” If Californian’s are leaving due to political reasons then that’s a different incentive. Regardless, they are self-made exiles cashing in on their overpriced real estate which can unduly impact the recipient economy. Another example, Coeur d'Alene Idaho.
@Jackson Andrews I live in Oakland and lived in San Francisco for 15 years.
What you are experiencing in Austin is not an increase of people leaving California but an increase *percentage* of people from California wanting to live in Austin. The bulk of the increased appeal of Austin over the last decade is the tech industry in Austin which was already strong but is now much bigger (Silicon Prairie although maybe that’s an outdated term)?
Even if net migration out of California goes down over the next few years the net migration to Austin (or Portland) will almost certainly continue to increase and maybe even accelerate as long as housing costs remains below California and Austin as a *long* way to go before it gets that high.
I keep seeing cars with license plate from other states driving in Bay Area. Yesterday just signed a lease with a tenant moving from Seattle to Bay Area.
Older people moving out of CA is normal. Young people moving to CA is routine.
That is what I have been seeing as well. We have a net loss of about 130,000 people per year. That sounds like a lot until you consider we have almost 40M. I am not a mathematician but I think we can stand to lose approx 0.003% of our population and still be ok as long as its not the top of the top. According to a Sacbee article in 2017 800,000 of the 1.7M people that left CA from 2010-2015 were at poverty level. The average person moving into CA was earning $121,000 (pre CA wages) so you have to assume they got a raise to come here. I know a few millionaires that have liquidated and cashed out but they are not the norm. I know this is a very small sample size but Bezos just dropped $250M on two homes in LA so clearly not all the wealthy are running away. I have older clients retiring in Idaho and Montana but my mid 20's successful cousins (attorney and programmer) moved to the Bay Area from Montana. Another mid 20's friend moved from Mizzoula to LA. I know you can read a lot of doom and gloom and know a few people personally that leave and it feels like its a huge trend... but objectively its not. You hear that 1800 businesses have left and there are some big names on that list but CA has averaged 29,200 new jobs a month for the past 9 years. That ties a record set in the 60's. You can try to argue that CA is falling apart but we added 300,000 jobs last year. Mostly high paying. I totally understand people leaving CA for multiple reasons but lets not pretend its imploding without objective facts to back that up. Needless to say I am still positive about CA real estate. A wise investor in Southern Cal has said.... "you cant make 6 figure profits on 5 figure houses."
@Bobby Larsen - It is easy for us in CA to say that it is no big deal when people leave, but the data indicates that California IS losing population and losing it faster than almost any other state, save NY ... More specifically:
We have lost 7-8% due to Net domestic migration (i.e. how many Californians leave for other states - others states moving to CA) since 2000 (https://www.newgeography.com/c...)
2019 was also the first year that we have a total net loss, even when counting foreign nationals moving here (https://www.latimes.com/california/story/2019-12-21/california-population-continues-to-decline-with-state-emigration-a-major-factor).
These are not good signs.
@Joe Bertolino - Thanks for sharing and encouraging people to be more objective. As I have dug into the info you note (job growth and domestic migration for instance), I have come to some very different conclusions based on objective facts:
First, we have been losing population domestically for nearly a decade. That is a bad indicator of desirability.
We are actually going to lose a seat in congress for the first time ever, due to decline in population (https://www.mercurynews.com/20...)
Los Angeles saw a 17% decline in children in the last 10 years (https://www.latimes.com/califo...)... not a good indicator
We are unfortunately not creating "mostly high paying" jobs... Since 2008, the state has created five times as many low-wage jobs as high-wage jobs, according to an analysis of Bureau of Labor Statistics numbers (https://www.newgeography.com/c...)
Maybe most sad of all, California’s poverty rate, adjusted for cost of living, is the highest of any state and was higher in 2019 than in 2007. Bad Trend
I still live here with my family, so I am not telling people to run, but let's acknowledge reality for what it is. California is not the beacon it once was. Hopefully, we turn it around.
California is fine long-term. It will always offer a lovely climate and topography for the rich and will provide the assistance for the poor. In these two populations there is a lot of opportunity for a savvy RE investor to make money. When I had rentals in SF my tenants under their own free will paid 7k to live among the homeless. I also had class C rentals where my tenants received govt assistance. CA is an equity play for sure.
I'm a real estate agent in Oklahoma City. I have a client from Southern California that just put a home under contract in OKC and is moving this fall. The same reasons; taxes, regulation, HCOL. The home inspector who did our inspections this week said this was the 4th family from California this week to put a home under contract in Oklahoma City. This is anecdotal, of course, but not something I've run across in years prior.
As we can see there is a deluge of “California is falling” / “Massive Exodus” / “People are tired of politics, homelessness”, taxes” type of statements and opinions from people who don’t live in CA.
It’s kind of similar to how most CA residents would talk about other states and cities. For example, many CA people will tell you how they would never move to xyz state or states because of lack of jobs, lack of diversity, lack of scenery, conservative mindset, harsh weather etc etc. Honestly, when I have actually visited/lived/worked in those cities and states I found it not so bad after all. So let me just say it’s not bad at all here on the ground. CA is shinning. It is the 5th largest economy in the world and home to 40M people. People who live here love living here and it’s still one of the most sought after destinations in the world. Few thousand people moving is not new or breaking the bank. If anything I see it as healthy migration.
I also see posts endorsing the “exodus and decline of CA” because 3 CA families have moved to their local area!!
Here is the bottomline, using CA RE currency to move to cheaper state very easy. Moving from a cheaper state to CA, very difficult. Most people who live outside of CA cannot unfortunately move to CA unless they are young and in well paid jobs.
@Jon Schwartz I agree that exodus is a strong word, but there is a trend moving towards lower population growth in California. The last year or two have recorded the lowest population growth rates in California going back over 100 years. Population growth isn't even keeping up with births-deaths, meaning there is net out migration. That has never happened in CA in modern history, so things are changing.
I am not ringing the alarm bell, but tech companies are letting employees work remote permanently. There are plenty of people deciding to take their CA salary and live someplace less expensive. So in the past, people believed CA is where the "work and money" is, but COVID is flipping that upside down.
The other danger is when high net worth people and businesses leave these high tax states. They are paying the majority of the state budget, so when you lose tax base, it has a negative impact on the state.
In the end, real estate is about location and California benefits from one of the best locations in the world. On top of that California is the technology and entertainment epicenter of the world. That won't change overnight or even over a decade.
I'm in Northern California east of Sacramento. I think it also depends on the region and age group people are in as to trends.
Now that working from home is and probably will be the norm going forward, people are moving around within the state while, people nearing or in retirement who have built up their wealth (including real estate) are either looking at relocation out of the state or have already done so. There are a lot of boomers out there.
I know that people are moving out of some areas of the bay area and into areas like Sacramento and the surrounding areas for quality of living reasons.
It would be interesting to see statistics but, I think that boomers would be pretty high on the group who has left or will be. Mainly because of lower overall costs while getting a bump in standard of living in retirement.
@Joe Splitrock
Agreed. The remote work trend may actually be a driver that could have an influence on the pace of outward migration. Put on top restrictions on foreign worker visas, fewer international students coming to the US, you can start to see a new trend emerge. How that plays out remains to be seen.
What is ironic however is that Wuhan where the virus originated is back to normal and experienced massive tourist inflow this past few weeks.
Domestic air travel in China is back to pre-pandemic levels and in Singapore there were all of 5 positive cases of Covid as the country has been diligent on preventive measures and contact tracing. There is no vaccine in either country. The US on the other hand is a sad story and thinks a vaccine will be the answer. I don’t think it will and even if it did, it will be a long time to adopt.
So net/net - looks like the virus is here to stay and grow. That means remote working and yes that is an impetus for people to start thinking if they want to live outside of the state.
Just about everyone I know around my age (mid to late 50's) has either already left or are seriously considering it, myself included. Had 3 close friends move in the last year to: Austin area, Boise, Salt Lake City. Another is about to move to Colorado Springs. All upper middle-class / wealthy people, they are not leaving the kind of housing that the homeless will be backfilling.
Taxes, homelessness, traffic (pre COVID, but getting back to those levels), cost of living, poorly managed
@Jon Schwartz I agree that exodus is a strong word, but there is a trend moving towards lower population growth in California. The last year or two have recorded the lowest population growth rates in California going back over 100 years. Population growth isn't even keeping up with births-deaths, meaning there is net out migration. That has never happened in CA in modern history, so things are changing.
I am not ringing the alarm bell, but tech companies are letting employees work remote permanently. There are plenty of people deciding to take their CA salary and live someplace less expensive. So in the past, people believed CA is where the "work and money" is, but COVID is flipping that upside down.
The other danger is when high net worth people and businesses leave these high tax states. They are paying the majority of the state budget, so when you lose tax base, it has a negative impact on the state.
In the end, real estate is about location and California benefits from one of the best locations in the world. On top of that California is the technology and entertainment epicenter of the world. That won't change overnight or even over a decade.
Yeah, the thing about those CA salaries... they will stagnate the moment they leave the state. Average Salaries in SF have increased 31% since 2018. Let me say that again. The already high salaries increased 31% in 3 years. That the average, you know the top performers were much higher. Here is the link as it is nearly unbelievable.
https://www.cnbc.com/2019/05/2...
This will also be anecdotal but I have two friends from childhood that are C level executives in mid level tech companies. The regular ole $100-200M in revenue tech companies with 500 employees that you have never heard of. Both got to the C suite by jumping from company to company through friends and connections in the business. Opportunities like that require you to be present. This will not happen for people working out of the home office in Boise or SLC or DFW. Both have been part of multiple liquidity events with various companies. They basically said that the minute you take off and work from home, you will be stuck in that position. Those positions will essentially be frozen as you will now be competing on the worlds stage. You working from home or a guy working from Mumbai is the same thing for many of the jobs. Unless you are just extremely talented and they can't get things done without you... your CA salary is not going to increase. You can go job shopping but now you are a nameless face among the masses of applicants all over the country. Out of sight, out of mind. These people can go live in a big cheap house in one of those areas and stagnate or they can stay in silicon valley and be part of the next crop of billion dollar start ups. People are definetly going to move out of state but I don't think a huge percentage of the tech talent is going to fan out all over the country and there will be a portion of those that do who bounce back to CA.
I'm personally seeing and hearing a significant amount of people relocating and staying in CA and finding more affordable areas to lives such as the Central Valley / San Joaquin Valley. This is direct knowledge from people calling on units I have for rent, and properties I have for sale.
Few observations on “CA is drowning” posts:
1) 100% initiated by people who don’t live in CA
2) CA doomsday conclusions - made mostly by those who don’t live in CA - based on either paid media “exodus” articles or the 3 cars they saw in their town that had CA license plates
3) Yes we have a homeless problem here in CA and taxes are higher, we have had wild fires but it seems like the folks living outside of CA are feeling more stress about CA taxes & problems than CA residents.
4) CA residents generally seem happy living in CA although they acknowledge we have our problems. Some may leave but the overwhelming majority will stay and many people will continue to migrate into CA from all over the world.
5) CA doomsday posts have picked up steam since Covid-19 started although CA has one of the best numbers in the country in terms of Covid cases. Walk around SF and you will more mask adherence than anywhere else. Plus the CA tech economy is ideally suited to function during a pandemic.
6) The latest card on the deck is remote work and how it will empty out CA and knock it from being the economic engine of the country/world. Nope not going to happen, although it’s an interesting topic to discuss.
7) Clearly people who are talking CA doomsday have zero clue. For sure they don’t live in CA and likely have never even visited.
As a property manager I'm still seeing a number of people moving into the bay area from out of state looking for nice ($6-7K/month) rentals. Note I did not say fabulous. On the flip side, rental prices are down 8-15% from a year ago.
And the cycle continues ...
And, rental prices in the Sacramento area are up over 8% over last year.
There was a news segment on the local NBC station today saying that the rental prices are up sharply due to folks moving in from the Bay Area.
As a native Californian who moved out of San Diego, America’s Finest City, a year and a half ago, I am thrilled that I made the move. We moved to Newport, RI. We have seasons, the people are nice, the food is amazing and I’m taking my CA profits and looking for investment properties. I was also able to start my own business and get out of the rat race. I urge more Californians to do so. You can always go back for a visit...
@Jon Schwartz I agree that exodus is a strong word, but there is a trend moving towards lower population growth in California. The last year or two have recorded the lowest population growth rates in California going back over 100 years. Population growth isn't even keeping up with births-deaths, meaning there is net out migration. That has never happened in CA in modern history, so things are changing.
I am not ringing the alarm bell, but tech companies are letting employees work remote permanently. There are plenty of people deciding to take their CA salary and live someplace less expensive. So in the past, people believed CA is where the "work and money" is, but COVID is flipping that upside down.
The other danger is when high net worth people and businesses leave these high tax states. They are paying the majority of the state budget, so when you lose tax base, it has a negative impact on the state.
In the end, real estate is about location and California benefits from one of the best locations in the world. On top of that California is the technology and entertainment epicenter of the world. That won't change overnight or even over a decade.
Yeah, the thing about those CA salaries... they will stagnate the moment they leave the state. Average Salaries in SF have increased 31% since 2018. Let me say that again. The already high salaries increased 31% in 3 years. That the average, you know the top performers were much higher. Here is the link as it is nearly unbelievable.
https://www.cnbc.com/2019/05/2...
This will also be anecdotal but I have two friends from childhood that are C level executives in mid level tech companies. The regular ole $100-200M in revenue tech companies with 500 employees that you have never heard of. Both got to the C suite by jumping from company to company through friends and connections in the business. Opportunities like that require you to be present. This will not happen for people working out of the home office in Boise or SLC or DFW. Both have been part of multiple liquidity events with various companies. They basically said that the minute you take off and work from home, you will be stuck in that position. Those positions will essentially be frozen as you will now be competing on the worlds stage. You working from home or a guy working from Mumbai is the same thing for many of the jobs. Unless you are just extremely talented and they can't get things done without you... your CA salary is not going to increase. You can go job shopping but now you are a nameless face among the masses of applicants all over the country. Out of sight, out of mind. These people can go live in a big cheap house in one of those areas and stagnate or they can stay in silicon valley and be part of the next crop of billion dollar start ups. People are definetly going to move out of state but I don't think a huge percentage of the tech talent is going to fan out all over the country and there will be a portion of those that do who bounce back to CA.
Arguably a 30% increase in two years is unsustainable. Tech companies know this better than anyone. Even prior to COVID, every major tech company has been building out campus presence in other states or countries. I agree if you want to be on a management path, you need to be in the epicenter of a business or willing to relocate wherever the job takes you. That may not even be California. Global companies move executives around the globe. Many people don't want to be a slave to a W2, especially younger generations who grew up with different work/life balance beliefs. Many executives end up divorced with families who barely know them. I have seen it happen so many times. I think California will remain the epicenter of technology and entertainment for the near future, but I also know that COVID proved "work from home" works. My company is a fortune 200 company, who previously only let certain employees work from home. They are now saying long term they see flex opportunity for most positions. It helps retain talent and reduces costs by lowering office space demands. My company is a conservative company, not even progressive like tech companies. All I am saying is this is a real shift. How it will affect you or California, I don't know, but don't ignore something real is happening.