Why, as California is being depopulated are housing prices going up—and there is still a shortage of housing?
“This isn’t surprising. California is expensive. Even within the state, you have those that move more inland to afford homes. But the appeal of California is largely on the coastal areas and tech hubs like San Diego, OC, LA, SF, and Silicon Valley. Those areas are expensive because you have limited supply and people are still pumping out kids and once that clock starts ticking, people are willing to FoMo into anything. Last I checked, tech people still want to pop out kids in the real world and not the virtual world.
However I do want to point out that people are leveraged to an insane level. A minor recession can crush this market. I do want to share a history lesson that the vast majority of foreclosures that hit during the Great Recession were vanilla mortgages, not your NINJA mortgages. It is a nice narrative to say the bubble popped because of subprime borrowers (aka those floozy losers that conjure up whatever propaganda image a person may have in their mind) but what happened is that the economy hit a grifting wall and everyone was impacted. And the largest grift was from Wall Street where sitting next to a Bloomberg terminal is glorified and picking up a hammer is looked down on.
The goal of Sacramento is to depopulate the State—while keeping the rich and ultra rich, the very poor and the illegal alien. Looks like Newsom is getting his way—for the rest, they can call themselves Texans.
Dr. Housing Bubble, 5/21/21
Depending on what you read, you are living in parallel universes regarding what is happening in California. On one hand, you have the world is ending narrative and that people are moving to greener pastures to places like Texas. That narrative took a hit when the Texas grid went off the rails because no man is an island. On the other hand, you look at California real estate prices and they are going up as if no pandemic ever happened. This applies to most metro areas. Real estate supply is low and house humping people are willing to FoMo since they fear they will live in an apartment for the rest of their lives if they do not act now. Also, California’s budget is now flush with cash which reinforces the idea that things are going well. But when you look at the data, something is very clear. California is drawing in people with college degrees and those that do not have a college degree are largely leaving. Let us look at the data.
Education and Politics
While California may not be growing as fast as it once did, it is certainly growing. But you can look at this chart and see what is happening:
California is losing many adults without a college degree. My sense is that many of these people want the “American dream” which means owning a home. And for many, looking at crap shacks for $1 million just doesn’t seem within reach. So these people are leaving to cheaper places like Texas and driving prices up there as well. However, you will see on the chart that those with college degrees are still coming to the state. We still have companies like Google, Apple, and Facebook for example that are technological powerhouses and pay very well. But you are not going to work there if you do not have the required skillset (aka a technical college degree). Then you have companies like Coinbase which are riding the $2 trillion crypto currency wave (that story is still yet to be written).
So California is not done by any means although that fits into a convenient political narrative – especially for those wanting to avoid taxes. Yet that is the beauty of the US. We have 50 states with a variety of flavors and you are able to leave very easily. Get a U-Haul and take off. But what this tells me is that people want the Tesla lifestyle of California but want it on a Pinto budget. So that is where the cognitive dissonance comes in. “Oh, you mean you want good schools and colleges but don’t want to pay for them?”
Orange County just announced that the “typical” home is now $1.1 million. This is for a county with 3 million people. However with cheap rates and two professional working couples, swinging a $4,000 or $5,000 mortgage payment is doable. It means a sizable portion of your cash is going into your home but you can eat McDonald’s and live in a nice crap shack. That seems fine for people that are leveraged up to their eyeballs in debt.
This migration out is also seen among income lines:
This isn’t surprising. California is expensive. Even within the state, you have those that move more inland to afford homes. But the appeal of California is largely on the coastal areas and tech hubs like San Diego, OC, LA, SF, and Silicon Valley. Those areas are expensive because you have limited supply and people are still pumping out kids and once that clock starts ticking, people are willing to FoMo into anything. Last I checked, tech people still want to pop out kids in the real world and not the virtual world.
However I do want to point out that people are leveraged to an insane level. A minor recession can crush this market. I do want to share a history lesson that the vast majority of foreclosures that hit during the Great Recession were vanilla mortgages, not your NINJA mortgages. It is a nice narrative to say the bubble popped because of subprime borrowers (aka those floozy losers that conjure up whatever propaganda image a person may have in their mind) but what happened is that the economy hit a grifting wall and everyone was impacted. And the largest grift was from Wall Street where sitting next to a Bloomberg terminal is glorified and picking up a hammer is looked down on.
So yes, people are leaving and coming into California. But what is driving this is education and politics. Net-net things are still growing but there are so many variables out there like inflation, Fed policy, and other factors since this kind of stimulus we are doing is unsustainable long-term. As we open up things are going to get really interesting.
