For years, the ultimate American Dream meant not only owning a home, but owning a home in California, noted Realtor.com in a recent article. But the Golden State, according to analysts, is losing ground as the most-desirable place to dwell. So what states stand to replace it?
A severe housing shortage, exacerbated by the coronavirus pandemic, has led to California's claim to the most expensive home prices in the nation. Wildfires this summer have devastated the northern part of the state. In the midst of a deep recession, many are being priced out of their neighborhoods. Others are questioning why they're spending so much money each month to live there—especially with companies in places such as Silicon Valley allowing employees to work from home.
That is all converging at once to test the state's true appeal, reported Realtor.com.
"Nobody in their right mind would bet against California," real estate professor Christopher Leinberger of George Washington University, in Washington, DC told Realtor.com's Clare Trapasso. "However, the Golden State can't be golden forever with the ridiculousness of the home prices."
California's home list prices reached a record high in August—and have experienced the second-loftiest increases in the nation, according to the latest data from Realtor.com (second only to Utah). The state's median price tag was $720,050 in August—up a significant 23.7% from a year earlier.
That's more than 10 times California's median household income of $70,489 in 2018, according to the latest U.S. Census Bureau data.
Experts blame price hikes on a dearth of homes for sale. The shortage has been going on for years, but it's been compounded by the COVID-19 crisis.
Shut in at home for months on end, Americans are seeking more space. But there aren't enough properties to satisfy demand, with the number of new listings down nearly 11.1% from August of last year on Realtor.com.
Leslie Appleton Young, Chief Economist for the California Association of Realtors, attributes "some of that rapid run-up in prices to rich, white-collar workers who can now telecommute buying up luxury properties in more remote locations. In July, sales of homes priced at $3 million and up increased by about 76.6% year over year, she says. Homes priced at $1 million and up now make up about 20% of the state's sales ...
"The challenge is, you have the next generation of home buyers, [but] it's very difficult to buy in California," she said. "We're losing people who simply can't afford to be here."
Wealthier tech workers in Silicon Valley can still afford to drop nearly $1.2 million on a median-priced home in the San Jose metropolitan area, according to Realtor.com's August list prices.
But many others realize they can pay a fraction of that to live in other "hip cities with growing tech hubs," such as Austin, TX, with a median list price of roughly $400,000; Salt Lake City, at $490,000; and Nashville, TN, at $396,000. Even other West Coast tech hubs like Seattle and Denver are significantly cheaper, with median prices of $625,000 and almost $540,000, respectively, according to Realtor.com.
Departing residents are "much more of a threat than a fire or an earthquake” to the state, said Dowell Myers, a housing demographer at the University of Southern California, in Los Angeles. Although it attracts well-educated, high-earning millennials from other states as well as foreigners, California might see these higher-earning transplants leaving after a few years, he added.
Although there has been a steady stream of Californians leaving their home state of late, the pandemic could accelerate that trend, economists said.
“In the short term, California is going to see more people leaving due to the high cost of living combined with the ability to work remotely," predicts realtor.com Senior Economist George Ratiu.
"People are willing to pay a premium to live there," says Ratiu. "Perhaps that premium is being reevaluated by a lot of younger people.”