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!
The size of our town and state clearly matters. Nevada has about 3 Mill people, and we feel clearly overwhelmed and overtaken if 0.1% Californians want to move here! Similarly Idaho. It is the generation that is retiring and does not need a job. That does not mean they are 65 or older. I just talked to a prospective tenant in their early 50s, they sold their Bay Area house for 2.2 Mill and do not have to work. The fact is there is a net outward migration from CA, which is new. The middle class, business like the airline industry -Gulfstream, HP are leaving. Illegals, griffters and movie star wanna bees are still moving in.
I have not seen any reliable statistics of people moving out in an increasing rate from California. As far as the bay area goes, tech workers & owners have more money now than ever as the tech stocks have increased in value and practically no one lost their job. So mostly the prices will go up. Many of the move outs might be temporary and as companies and schools reopen by next year, people will have no option but to come back to bay area. No major company has announced full time remote work so far as a persistent arrangement. So the dynamics which made the bay area crowded and expensive remains the same so far. Hence there is no reason to believe that prices or demand will come down in long term.
I live in Texas and while I am new to the investing world, I have lived in this state my whole life and have witnessed the influx of Californians to our state capital, Austin. I have had the luxury of traveling to California once and aside from Colorado, it is by far one of the most beautiful places I've seen. Texas is not much to look at except for select areas and I can see the allure of moving to Austin because hill country is beautiful. While I have a place in my heart for the people of California, especially given what they've been through recently, I sure hope the legislation that people complain about there doesn't follow them.
In any case, I'd be happy to sell a house to them... hehe. :)
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."
The numbers you are using really do show the main thing I saw as a problem in CA. The wealthy come to CA for the high paying jobs. That population increases and drives up the cost of everything, housing and so on. They also seem to be a population with enough wealth that they do not mind paying high taxes--property, income, sales to fund what ever they desire. e.g. high speed trains to nowhere, special medical research, social programs, renewable energy. And that makes sense as they can afford it...but instead of setting up non-profits to do it they do it through laws and propositions, so everyone has to fund their wishes.
Then you have the number of people in poverty in CA also increasing so the poorer population has increased significantly also. This requires more funding for social services. This population does not pay much in taxes, but benefits from the social programs the rich desire to put in place.
The middle class is the population on the decline in CA. They do not qualify for any of the benefits the poor get, but also can not afford to fund all the programs the rich desire. Those are the people who are leaving. I was one of them.
I was born and raise in CA. I left in the 1980s after college to follow a job in PA, then moved to AZ then back to CA. Why did I return to CA? Same reason as I went to AZ -- to care for my parents. When they needed more help than I could do from 5 hours away in AZ I moved to within an hour of my childhood home where I could find a job. Were it not for my parents needing help, I would not have returned. After my mom passed away I could retire a year later from my job. The day I retired I drove out of CA never to return as a resident. But I do return to visit friends, go to a museum, etc. as a vacationer. Best way to go to CA. It has a lot to offer, but is not a place to live.
In CA the property tax last year for my house was $5316. My house in TN, the property tax for this year is $640. And my house in TN is better than my house in CA. IT is sitting on a lake with a dock in by backyard! I pay NO income tax in TN, no one does. There is income tax in CA. Sales taxes are similar. Plus everything else is cheaper. MY insurance for a brand new Subaru Ascent is less then $300 for 6 months of 250/300 coverage in TN. Never get that rate in CA! I can go to a restaurant with my two 17 year olds and myself and pay less than $30, including tip. Gas is less than $2 a gallon. In general pretty much everything is less.
Only thing I am concerned about is there are a lot of my new neighbors coming from the NE and CA and many of them want all the costly social programs they left behind. So they will try to recreate what they left. The locals say those are the ones they try to return to their original states, but they like me, I can stay!
Folks leaving CA need to look carefully at where they are going. If they like the CA politics, Austin or Washington are great places to go. TN is better suited for those that do not like to political aspect of CA's culture. The native of TN seem more into conservative politics. I am guessing that Idaho will end up like Austin; it will change to be like CA.
I know the differences well as I played baseball for the University of Tennessee and have spent plenty of time there. Many of my old teammates from CA settled there. It is certainly cheaper but the pay scale matches the cost. It is wonderful if you are bringing a bunch of money from CA with you but not so great if you are not and you have spent your entire career at Tennessee wages. The average wage across all industries is $19.55. Real estate investors in TN are not pulling the kind of rips we see regularly in CA. It is really nice there... but the earning potential isn't the same. With a few IPO's last year there were over 5000 new millionaires in the Bay Area within a few months. Tennessee has 88,264 millionaires in the entire state. CA has 1,040,027. I see your point about the middle class shrinking but I think a lot of that has to do with a huge cash economy in CA. The last time the EDD tried to calculate the CA cash economy they came in at $389B in 2012. That is close to the entire GDP for the state of Tennessee. Just in my circles I know a lot of restaurant owners, contractors, bar tenders and hair dressers that I am sure are near the poverty line on their tax returns but are no where close to it in real life. Part of buying a home for a lot of people in CA is getting their tax returns honest for two years so they can get a loan.
California has problems we need to fix but states like Tennessee do as well. Their economy grew 42% in the past decade and their tax revenue only grew 7%. There are flaws everywhere, people will chose what is best for them.
California has problems we need to fix but states like Tennessee do as well. Their economy grew 42% in the past decade and their tax revenue only grew 7%. There are flaws everywhere, people will chose what is best for them.
Very true that the wages are lower in TN than in CA, but the wages vs cost seems to be coming out ahead. The money I took to TN came from a career with many stops, in PA and AZ as well. Neither of those wages in general were in line with CA, and that rural area of AZ was a lot closer to TN. My CA time was not in a big city, but a border town and a small village surrounded by forest, so I never had that big city wage. However I was also excellent at money management.
TN is financially conservative. They have a billion dollars in their reserve/emergency fund. I like that aspect. It does match my values better. And even with COVID, they are eliminating the Hall tax on schedule next January. I like that too! So it is a match for me. Glad you found your match too! Neither is better than the other, just different based on different values and goals.
California has problems we need to fix but states like Tennessee do as well. Their economy grew 42% in the past decade and their tax revenue only grew 7%. There are flaws everywhere, people will chose what is best for them.
Very true that the wages are lower in TN than in CA, but the wages vs cost seems to be coming out ahead. The money I took to TN came from a career with many stops, in PA and AZ as well. Neither of those wages in general were in line with CA, and that rural area of AZ was a lot closer to TN. My CA time was not in a big city, but a border town and a small village surrounded by forest, so I never had that big city wage. However I was also excellent at money management.
TN is financially conservative. They have a billion dollars in their reserve/emergency fund. I like that aspect. It does match my values better. And even with COVID, they are eliminating the Hall tax on schedule next January. I like that too! So it is a match for me. Glad you found your match too! Neither is better than the other, just different based on different values and goals.
CA had $18B in reserve when Covid hit. We were looking at a surplus of $5.4B but that swung into a $54B deficit projection very quickly. I know TN is much smaller but one billion in the bank is not a big number. They are conservative but that leads to issues like not being able to send your kids to public schools is most cities and the freeway being in a constant state of construction like nothing I had ever seen.
What I have learnt over the years is no two states are alike and they each have their pros and cons. Want to hear the cons about CA, don’t go too far. There is plenty of CA bashing everywhere including here on BP forums. Many posters who don’t live in CA or have barely even visited think CA is going down the drain at an unprecedented rate. All this based on click bait headlines from paid media.
Contrast this to opinion of CA residents about State X, Y or Z, the response often is that they would never move because it’s either too hot, too cold, not progressive, has frequent hurricanes, tornados, yearly floods, snowstorms, lacks a robust economy etc etc.
I’d say all of these opinions are extreme and lopsided. 40 million people live in CA. Nearly 300 people live outside of CA. By and large everyone is happy in place and not looking to move.
CA will always lure the young fortune seekers in fields like the movie business or Tech business. Similarly CA residents overtime might want to move to cheaper states as they scale down, want a slower pace of life or be close to extended family.
We have a very acute housing shortage in California and the giant influx of homeless people being sent from Colder midwestern states is very evadent near any large city. Even if we built 1.4 million new homes this year we would still see homelessness and high rental prices. On multifamily buildings, I almost must wait for someone to die to buy, and then the price is upside down unless you can redevelop the property and add additional Units to get close to a positive cash flow. Curious if anything the new Changes made to Fannie Mae loans to Multifamily properties will affect your next Acquisition. looks easier to qualify now after January. on the plus side before the pandemic, we had a job shortage so potentially a new source for labor. Think California will become stronger once the homeless are rehabilitated housed and enter the workforce. It's always cheapest to provide housing and preventative medical care than what we see now everyone showing up at the ER with over-priced healthcare being billed to the State.
@Chad Hale this is a good question. I think it comes down to longer term, post COVID workplace trends. We're already seeing a lot of people moving to lower cost areas with more flexibility to work from home. If this continues, I have to think it's going to have a significant effect on rental rates and possibly home values,
I can say I personally have not looked at much of the migration data, that being said, just today, three moving companies have all told me a similar story. We happen to be relocating family members to the East Coast with house closing date in 2 weeks! One full service company said they have been booked solid for the past 5 months with next available in 4 weeks ( not good ). Second company is a "You pack" type deal, we were told 3 weeks out. They currently have had an average of 7 moving trucks leaving for every 1 truck moving in. Cost of this is also being passed along to the mover. What was going to be a $4000 move is now $6900. The third told us similar story to the second. Who knows. I know our part of TN has seen an unprecedented influx over the past 1 year.
It's the next Detroit, will go to shambles and then 20-30 years form now it will start to come back. I hate to get political but all these cities that end up running people out have one thing in common!
I have been living in the Bay Area for a few years. The upsides are excellent universities, density of smart people, great weather, and some of the highest salaries on the planet. By the way, California alone is roughly 25% of the US GDP.
That being said, it has serious problems. You need to make a lot of money to live a normal life there, which also applies to a lesser extent to LA and San Diego. The home prices are astronomically high and while they could go higher, I think that buying one would be a huge gamble. As it stands, not many normal people can afford to spend $1.4million for an average house. It IS a great place to be a high earner, as you can make so much more than other cities that it makes the astronomical costs worth it. If you have an average or below average income, this is not the case.
California's government seems to be doing everything in its power to drive away businesses and those with options by making higher taxes and business-unfriendly policies. On the flipside, Cali is the home to Silicon Valley and Hollywood. While they might do better relocating elsewhere, it's unlikely that will happen immediately, or ever.
On a personal level, I think it is currently a good place to be but it is crumbling. I absolutely would not invest in California property aside from maybe a personal residence. In the bay area, you are lucky if you can break even from rents, most likely you will be underwater hoping that property values and rents appreciate enough for you to make a profit. Seeing as the prices are already at the point where people can barely afford them, that's not a bet I'd be willing to make.
One interesting metric you should look at is the price to move TO California vs the price to move FROM California. A few months back, a regular u-haul from the bay area to Oregon cost about $1200. The reverse was about $250. When I asked about the huge price disparity, they said it was due to supply and demand. That sounds like a ticking time bomb if I ever heard one.
Just heard an interesting twist about the CA exodus theory. Obviously the guy was a lot older. He opined that CA started going down hill when the New Yorkers started moving in! Which supports the liberal contagion. As to the astronomical prices for real estate in CA, a lot more money is contributing to this. International money from China, Asia in general, some European, and there is still the lure of the beach! Unfortunately the Silicon Valley tech companies are also propping up the market, to provide housing for their staff.
The common trait among threads like this is that they are always initiated by people who don’t live in CA. In fact across all social media I have noticed people living in non CA tier 2 cities thinking this is finally the time when the big cities like NY, SF, LA will finally fall to their knees and all the population in those cities will move to smaller cities and outer areas.
One poster has even compared CA to the next Detroit. I think that is very laughable. Again from a poster who does not live in CA.
What is being missed is the overwhelmingly strong economic foundation and diversity of the economies of these cities. We are not talking dependency on one industry, but the presence of many multi hundred billion dollar industries that exist in these big cities. Second, Doomsday posters need to refer to history and see how these great cities have come back from devastating setbacks that include natural disasters like major earthquakes or human oriented terrorist attacks.
Each time coming back twice as stronger. All this is hard to fathom in the middle of a crisis and especially hard to fathom when viewed from a very narrow myopic point of view.
@Justin Thorpe I live in CA, and that doesn't seem that far fetched to me. I can hardly stand to stay in this state, it's so beat down these days.
The common trait among threads like this is that they are always initiated by people who don’t live in CA. In fact across all social media I have noticed people living in non CA tier 2 cities thinking this is finally the time when the big cities like NY, SF, LA will finally fall to their knees and all the population in those cities will move to smaller cities and outer areas.
One poster has even compared CA to the next Detroit. I think that is very laughable. Again from a poster who does not live in CA.
What is being missed is the overwhelmingly strong economic foundation and diversity of the economies of these cities. We are not talking dependency on one industry, but the presence of many multi hundred billion dollar industries that exist in these big cities. Second, Doomsday posters need to refer to history and see how these great cities have come back from devastating setbacks that include natural disasters like major earthquakes or human oriented terrorist attacks.
Each time coming back twice as stronger. All this is hard to fathom in the middle of a crisis and especially hard to fathom when viewed from a very narrow myopic point of view.
@Jackson Andrews
I'm in San Jose, CA and I'm not seeing a mass exodus. Feels like the typical egress rate. There's always plenty of younger families that are lured from the Midwest to work in high tech and then after being here for a few years, they realize it's going to be 5 more years until they can buy a SFH for $1M or they just can't bring themselves to pay that much for an 1,600sf house. Thus, they choose to move back to Minnesota or wherever they grew up. Happens all the time...so much so that I've had to throttle back on befriending folks like this because we're sick of losing good friends.
@Kenneth Burdick
It’s no crime to leave and if you feel the state is no good for you, you will either leave ASAP or live an unhappy life. I can’t see any middle ground on that.
Where are you guys still seeing 'value' in the LA area to rehab homes? Thx Steve
@Justin Thorpe Don't worry - we'll be leaving. Just letting my daughter finish up her last couple years of high school so she doesn't have to start over with new friends with just a couple years to go.
@Jackson Andrews yes! In droves! I live in San Francisco CA and practically everyone my GF and I know is moving out. Sad to see our friends go but we too are discussing possibly moving out of CA.
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
Growing up 25 miles north of California, if you weren't from Oregon, you were from California in my town. The population is massive and yes, as it gets more and more expensive, people are moving out. However, California is one of the most beautiful geographical ares in the country, has terrific tepid climates, and endless opportunity. As you said, I don't see it ever plateauing. It is best to accept that when you have a state with a population of nearly 40 million and an average income of $100,000, the rest of the country is going to see movement both financially and physically out of California.
Forrest Faulconer
Over the long term you will come out ahead with appreciation in California
In regards to the long-term outlook for California (Los Angeles County specifically in my case), does anyone see realistic ability to purchase SFH to hold? I'm brand spakin new to this in Santa Clarita, I've been looking and researching, and I simply don't see how it's possible to make the numbers work with the sale prices where they're at. Am I missing something? My primary goal is appreciation, but I'd like *some* cash flow. It seems impossible unless I get into D or F class neighborhoods. (Which my wife can't stomach... at least not for our very first investment.)
My main concern for long term right now is the proposition to get rid of SFR zoning in suburbs in favor of low income housing units. I foresee higher property taxes and potentially a softening there? My counter point to myself would be if you have a SFR and it's replaced by different zoning I'd assume you'd be granfathered in with the option to develop, but maintaining a SFR could make it that much more desirable. I haven't found a lot on it yet regarding the details, but does anyone have additional info or insight on this?