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August 16, 2006

Movin' Out

Chris Palmeri

Sales data released yesterday by the National Association of Realtors showed a clear pattern--the states with the biggest drops in home sales were the ones who've seen the steepest price appreciation over the past few years. This data jibes with another report on migration that caught my eye this week. Milken Institute data shows that the states with the largest losses of residents are also those with the highest home prices. The five states with the largest out-migration were California, Illinois, New York, New Jersey and Massachusetts. I was surprised to see cities such as Los Angeles, New York, San Francisco and Boston actually losing hundreds of thousands of residents to other states. Granted, newborns and immigration from other countries continues to keep populations in those cities rising. But many people seem to be voting with their feet and moving to where the housing is more affordable.

05:08 PM

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Whenever the propert market overheats, and "hot" areas accelerate above the average - there will be a necessary correction. However, the "hot" areas rarely fall back to the average.

For example, in London, UK - property prices are beginning to rise above average although in previous years there had been a correction. But, and the big but they did not drop back to the UK average.

In France, the south of France there are hots spots - especially in the Cote d'Azur, Provence. Along the coast in the Languedoc-Roussillon property prices rose 30% 3 years ago. Then there was a correction, and again we are seeing renewed interest.

Howard

1st for French Property

French Property

Posted by: Howard at August 17, 2006 11:39 AM

Interesting recent post on RealBlogging by Stfean Swanepoel where blogs that according to the California Department of Real Estate the number of licensed agents passed in June reached 504,144 in California – that’s one for every 73 Californians. Wow!! What is a declining market going to do to the surplus number of agents?

Posted by: Dan at August 18, 2006 12:01 AM

All those inflated appraisals are coming back to bite the buyers. The public has been duped a lawless real estate industry for years to a degree never seen before. Better get out that parachute.

Posted by: Whistleblower at August 18, 2006 11:30 PM

So this surpises you? I guess you really didn't even glance at the comments I posted a little over a year ago at your happy talk piece about the absence of a "mass exodus" (http://www.businessweek.com/the_thread/hotproperty/archives/2005/07/no_mass_exodus.html?chan=search)

Since then enrollment at my daughter's elementary school has dropped 20% due to people cashing out and moving to places like PA, CO and TX with comparable salaries and homes that cost 1/4 as much in areas with MUCH better schools. Where I work half the offices are empty. Those who have stayed work from their homes in Phoenix and Denver and my employer is desperately trying to lure more workers here but cannot get anyone to move to the land of the $850K fixer for an $85K job when people can basically get the same salary in the land of the $225K McMansion and without the traffic, crappy schools, smog. Go figure!

Posted by: Dave at August 20, 2006 01:06 AM

Also, the U-Haul ratio I posted in Dec 2005 for (the cost of one way rentals from Dallas to LA divided by the cost of one way rentals from LA to Dallas) has increased from 2.98 to 3.33. In other words, the outflow volume that produced these numbers that you somehow found suprising has increased by 12% since last year. Better get ready to be surpised again!

Posted by: Dave at August 20, 2006 01:20 AM

Chris

What are your thoughts to the number of agents and the ease of entry into the industry? Read the thread on the blog titled "When is it Going to Stop?" on site RealBlogging.com. With the number of transactions declining as per your blog, what will happen to the industry?

Posted by: Dan at August 20, 2006 06:59 PM

The reason you may be surprised to see cities like LA, NY, SF and Boston losing "hundreds of thousands of residents to other states" is because that's not really what's happening in real life.

The numbers are based on the Census Bureau's newly-released 2005 "American Community Survey" which employs new methodology that is pissing local gov'ts off because a lot of people didn't get counted -- like people in hospitals, dorms, and prisons.

You don't need to look at migration to understand why the biggest drops in home sales are taking place where prices went up the most. The market can't justify them, but sellers don't want to concede that yet, so they're just sitting unsold. The demand is still there, but people who live in the real world and work for a living can't afford to buy anything.

By the way, how are immigrants from other countries supposed to "keep populations in those cities rising" if nobody can afford to live in them?

This kind of cause-and-effect stuff requires some complicated statistical analysis, not just "oh i read this the other day and look at this seems to be related aren't you glad i pointed that out for you?"

Posted by: grumpy at August 24, 2006 08:05 PM

The Languedoc Roussillon is still only being discovered. Property prices there have being rising consistantly over the past several years but are still only catching up with Cote d'Azure prices.

Languedoc Roussillon is one of the nicest areas in France and is far less commercial than Cote d'Azure. With white sandy beaches along the Mediterranean sea and a fantastic climate together with a relaxed lifestyle, it easy to understand why it's becoming more and more popular with the foreign investment buyer.

Expect Languedoc Roussillon prices to continue rising for the foreseeable future.

Posted by: South France Property & Travel Guide at September 1, 2006 09:44 AM

To the reader who doesn't believe a mass exodus is happening, contact the Las Virgenes and Conejo Valley school districts and ask how enrollment has changed in the past three years. These are not the hideous Los Angeles schools that produce future taco bell employees and provide mainly babysitting for children of renters who make $10-15/hour but blue ribbon school districts containing schools that win academic competitions. These are the school districts supported by well educated home owners who value education. Enrollment is dropping dramatically in these districts because families cannot afford to buy a home here and most homeowners with some analytical skills have begun to recognize how badly this crash is going to impact their equity. Many thousands have left suburban Southern California for cheaper places in the West and South with good schools and similar salaries. This migration was well documented by the mainstream media links I posted here a year ago. The city of Los Angeles might have a steadily growing population base, but most of these people are not homeowners who support good schools.

Posted by: Dave at September 7, 2006 01:54 AM

Another article in the Daily Breeze confirms massive out-migration of Californians. In terms of population these people are being replaced by international immigrants, but 90% of those immigrants are renters and the biggest group are very poor people from Mexico (not really home buyers). Home buyers and "owners" (i.e., people who rent $400,000 from a bank to live in a house that will soon be worth less than $400,000) are leaving California in larger numbers than they did during the last real estate bubble implosion in the 1990s. Here's the article:

Go west, young man.

Or maybe not.

The popular 19th-century adage urging Americans to move westward in search of new

opportunities has been turned on its ear -- at least where California is concerned.

The nation's most populous state, a traditional magnet for throngs of daring,

ambitious people seeking everything from gold nuggets and great weather to good jobs

and Hollywood glamour, now carries an unflattering designation.

The Golden State is No. 1 in outward migration of residents to other states,

according to the most recent figures provided by the U.S. Census Bureau.

From July 1, 2004, to July 1, 2005, the net flow of residents from California to

other states -- those moving to the state minus those leaving -- was negative 239,000

people. That's higher than any other state in the union.

California even edged out former No. 1 New York by 7,000 people.

"You think of California as kind of a growing state. And overall, California did gain

population," said Robert Bernstein, a Census Bureau spokesman. "But (it was) because

a natural increase and immigration from abroad exceeded the loss to other states."

California has been losing residents to other states each year since the period of

July 1, 1988, to July 1, 1989, when the outflow began as a trickle.

As of last year, the state's outflow was at its highest point since the mid-1990s,

when a severe recession and aerospace industry slump drove engineers and other

professionals out of California in search of work.

Back then, the departures peaked from July 1, 1993, to July 1, 1994, with a net

outflow that surpassed 400,000 residents.

But instead of returning to California's historical trend of a positive net inflow of

residents, the outflow has continued nonstop.

And after a lull of a few years, the net departures again seem to be accelerating.

For example, the period from July 1, 2000, to July 1, 2005, saw a net outflow of

664,000 people from California, an average of nearly 133,000 a year.

That average is about half of the latest figure.

As a percentage of population, New York still has greater outward migration of

residents to other states than does California.

"But that still begs the question: Why are nearly 240,000 people leaving

(California)?" said Paul Ong, a demographics expert at the UCLA School of Public

Affairs.

The current outflow comes at a time of relative economic strength and moderate job

growth in the state.

In contrast to the recession of the 1990s, this most recent outflow has been driven

mostly by an economic boom.

The housing boom has made buying a home or even renting much more expensive than just

a few years ago. That has inspired many of the state's residents to eye cheaper homes

in other states while giving pause to those considering a move to California.

"California is an extremely expensive place to live, particularly compared to some of

the markets close by like Phoenix or Las Vegas, (where) you can get a lot more house

for your money," said Steve Cochrane, senior managing director of Moody's Economy.com

in Westchester, Pa.

In July, the median price for an existing, single-family detached home in California

was $567,360, according to the Los Angeles-based California Association of Realtors.

The figure for Torrance was $610,000.

For California, Torrance and many other cities statewide, you would have to go back

only five years to find prices at half their current value.

This has made otherwise robust home appreciation in other parts of the nation look

downright meager.

"Look at San Francisco and parts of Los Angeles," Ong said. "If you look at the last

decade or so, the people who can afford to stay tend to be better educated and higher

income. It's driving out working-class people with children. They're moving to the

suburbs. Some of that must spill into moving to other states."

As a result, Los Angeles County saw a net outflow of 154,320 residents to other

counties from July 1, 2004, to July 1, 2005, according to the Census Bureau.

Ong added that even with the current slowdown in home appreciation, the damage

already has been done since the prices have reached a "very high plateau."

California's high cost of living may help explain why about four in 10 Nissan

employees followed their jobs out of state when the company's North American sales

and marketing headquarters moved from Carson to Nashville over June and July.

So, where are Californians moving to?

From 1995 to 2000, the most recent period with available statistics from the Census

Bureau, the top destination state was Nevada. Arizona came in second, followed by

Texas, Washington state, Oregon, Colorado and Florida.

Each of these states had a positive net migration of residents into their borders,

according to the latest census figures. Most are relatively close to California. And

all are less expensive.

That's good news for Jason Braford, ZipRealty's Las Vegas district director.

"We're seeing a continual influx of people from California," Braford said. "The

lion's share are people coming in from California."

Home prices, lower taxes, shorter commutes and a burgeoning community in Las Vegas

entice many Californians, Braford said.

"In California, you can (sell) your $500,000 or $600,000 property, you can come here

and usually you get something that's in the $300,000 to $400,000 range and gain in

lot size," Braford said.

In addition, people moving from the East Coast and Midwest in search of a warmer

climate usually first look either to Los Angeles or Las Vegas, Braford said. But

often Las Vegas wins out because of California's higher cost of living, he said.

A survey conducted by UCLA demographers found that most Southern Californians still

see this region as attractive. The top three positive elements cited were the

weather, economic opportunity and cultural diversity, said Ong, who worked on the

survey.

"Transportation and traffic emerged as the least attractive aspect of Southern

California," Ong said.

Pollution, crime and public schools also were viewed as problems.

"We've reached the point where our amenities are being outweighed by some of the

perceived costs -- air pollution, crowding, congestion and so forth," Ong said.

In addition to so-called "push" forces such as high home prices that make California

seem less hospitable, a big "pull" comes from other states, Economy.com's Cochrane

said.

"The rate of growth of employment in California is OK, but it's not great. It's

average at best," Cochrane said. "There are a lot more fast-growing areas (like)

Arizona, Nevada, Colorado, Utah, Washington state. And increasingly, Texas is back on

its feet.

"So, for economic reasons, there's a pull from the surrounding region because of

employment opportunities, and there's a bit of a push from California because of the

expense of staying in California."

Despite California's net loss of residents to other states, in a seeming

contradiction, the Golden State remained No. 1 in attracting foreign immigrants,

drawing about one in every five entering the U.S., according to Office of Immigration

Statistics figures for Oct. 1, 2004 to Sept. 30, 2005, the latest available.

Indeed, California's 232,000 foreign newcomers in that period were nearly double that

of the second top immigrant magnet, New York.

California's ethnic diversity is a big reason for the attraction despite the high

cost of living, Cochrane said.

"Migrants go where there's a place to live and where there's a support system,"

Cochrane said. "And certainly all of California, and L.A. in particular, provide that

for migrants in many regions of the world."

Another reason for California's popularity with immigrants is the state's massive

economy that offers vast job opportunities, Cochrane said.

He added that coastal cities such as Los Angeles traditionally have served as points

of entry for foreigners.

California's immigrant inflow plays an especially critical role, given the state's

outflow of residents to other states, Cochrane said.

Notably, the number of immigrants admitted to the state from Oct. 1, 2004, to Sept.

30, 2005, almost equaled the net loss of residents to other states from July 1, 2004,

to July 1, 2005.

California's immigrant infusion appears to effectively nullify the population loss to

other states, in terms of numbers.

That reality bears heavily on the state's economy, Cochrane said. The pace of

economic growth is based partly on the work force's rate of increase. A slow rise in

the work force's size could stunt economic expansion by limiting the labor supply.

"California depends so much on international migration, particularly to maintain

positive (economic) growth," he said.

Posted by: Dave at September 19, 2006 01:58 AM


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