California Exodus Leaves Me With a Lot of Questions and a Bad Feeling In My Gut

Thanks to this housing bubble, Californians are leaving the state in droves. Why? There are two main reasons: 1) huge profits are hard to resist, and 2) lack of affordable housing. For many of those who resist moving, the feeling is that of being trapped.

Trapped? Just take a relative of mine (please). He bought a Marin house 10 years ago and has an average income. Although he has a large paper gain, he is smart enough not to go into further debt by doing a cash-out refi and so that paper gain is pretty much useless. But to where can he move? All of his friends and family are here. If he sold the house he'd have to live somewhere and most of the places he would seriously consider moving to are also affected by the housing bubble so he'd be facing a higher property tax just to live in a house of similar quality to the one he'd be selling. Nor does he want to move some place where there is resentment against Californians. Plus, he now has to think about schooling for his new, young child. Schooling here isn't very good (well, public schools here are a bit above the state average but California is like second from the bottom when comparing nationally) so he is trapped into the local public school system as he cannot afford private school.

But anyway, is this exodus a good thing or a bad thing? Or is it just normal social change? I don't know. I do know that I don't feel good about it; somehow it doesn't seem right and it is hard for me to believe that it will end well. I mean, all through human history natural disasters, wars, etc. cause huge population migrations, but real estate bubbles? Am I the only one who feels this way? What does it mean for the state? What does it mean for Marin? Does anyone even care? How do you feel about it? Post your thoughts.

Given all the people who are leaving, who are buying their houses and on what terms? Sure, some are being wise and rent their California houses while they "try out" their new state. But I am sure most sell their houses. But to whom? It's been suggested on other blogs that a lot of such purchases are by illegal immigrants who purchase with no money down, IO loans, etc. Is this an over generalization or is there some truth to it? If it's accurate to any degree, then it would seem to suggest that market stability is even more dependent on continued price appreciation than what we've been led to believe before.

Here are two articles that discuss the exodus. The first:

The gap between the number of people hiring United Van Lines to move them out of California vs. those moving into the Golden State widened again in 2005, reaching 55.7 percent outbound, the household goods carrier announced this week.

The most significant trends identified by United's annual migration study, based on business booked by the largest U.S. household mover, saw many people moving to new homes in the Southeast and West, apart from California. At the same time, Midwest and Northeastern states experienced an increase in residents leaving.

While San Joaquin County is seeing its population grow as Bay Area residents enter the region seeking relatively affordable housing, when it comes to interstate moves, the majority do seem to be heading out of California.

"It was about a 2 to 1 outbound traffic," he said. "In fact, there were a couple months this summer where it peaked out as a 3-to-1 imbalance."

"Of these moves that are outbound from California, 70 percent of our moves are going to eight states: Washington, Oregon, Nevada, Arizona, New Mexico, Texas, Idaho and Colorado," he said.

"People are cashing in on the values of their homes, moving to states close to California but may have different income tax policies or just a different way of life," he said.

The state is in no danger of losing population, due to high rates of immigration from foreign countries as well as natural growth, he said.

The second:

Go east. Go north. This is the rallying cry for a growing number of Californians who are packing up and moving out. A decade ago, a distressed economy drove people out of the state. Today, it's soaring house prices. Some simply can't afford a home. Others own homes and are taking advantage of the strong real estate market to cash out and move to nicer homes in Nevada, Arizona, Texas, Washington, Oregon and beyond.

A survey by the Public Policy Institute of California in 2004 found that a quarter of Californians said the cost of housing was forcing them to seriously consider moving to another part of the state or away from California. The numbers were higher for renters (37 percent) and people younger than 35 (31 percent).

The California Association of Realtors' annual survey of its members shows that in the last two years more Californians selling their homes intended to move to other states. In 2005, 31 percent of sellers were planning to go out of state, compared with only 20 percent from 2001 to 2003, the survey found.

Data compiled by Moody's Economy.com using Census Bureau and IRS numbers show that in 2004 half a million people left California for other states while fewer than 400,000 came to California from other states, a net deficit of more than 100,000 that has been growing since 2001.

Californians are changing the real estate landscapes in the communities they're moving to. Many are buying homes for themselves, but many others are investors who are buying houses to resell quickly or renting them out until they appreciate, Realtors in Houston and Phoenix said.

Keitaro Matsuda, senior economist for Union Bank of California, said as investors and families leave California in search of better real estate bargains, the competition for housing is sharply pushing up prices in states throughout the West, starting with those closest to California.

Sandra Harris, 44, is moving back into an apartment because she can't keep up with the mortgage payments on her Riverside home, which she has lived in for three years. She said she plans to put her house on the market soon and is strongly considering moving to Phoenix because she can get a condo for less than $200,000 there. "The toughest part is I have friends here, but I can't afford to stay," said Harris, who designs and sells boutique items.

Roxanna Moreno, a single mother, spent two years looking to buy a house in Moreno Valley on her wages of $16.50 an hour as a health services assistant for Riverside County. All she could find at $200,000 and less were old houses needing substantial repairs. Then she saw pictures of a house that her uncle and aunt from Los Angeles were buying in a new subdivision under development near Dallas, Texas. She immediately changed her plans.

One consequence of this migration out of the state and the out-of-control cost of housing is that there are fewer children; so schools have to be closed and/or consolidated. People are thinking to themselves that if housing costs so very much then surely the schools would be very good. You might even think that the public infrastructure would be very good. The thinking goes something like this: 'I am spending a million dollars for a pretty crappy house compared to what I can get pretty much anywhere else in the country. So there must be something tangible that I am getting in return'. But it's just not so:

The San Francisco public schools have a math problem: Students outperform those of all other large, urban districts in the state, but children are leaving -- in droves.

So it doesn't take an honor student to see that if San Francisco's enrollment continues to plummet, there will be more wrenching decisions like the ones reached Thursday night when the Board of Education agreed to close or move 14 schools.

The district of 56,578 students has been losing up to 1,000 students per year for five years, the school board says, and the trend is expected to continue.

"With the housing prices what they are, I would hope for public schools with a better reputation than those in S.F. seem to have," wrote one person.

"S.F. schools are an embarrassment," responded another.

"(We) felt that if we stayed in the city, we would have to send our kids to private schools, and we could not afford to do that. S.F. schools feel very 'inner city' in a negative way," wrote a third.

In all, 70 percent of the respondents said housing prices caused them to leave the city.

"We were most concerned that if we were locked into San Francisco with a mortgage, then if we got a school that was too far away or we didn't like the way it was run, we'd be trapped," Samaras said.