According to the Mercury News; “With stratospheric housing prices pushing an unprecedented flow of college graduates out of the state, a prominent think tank says California faces a worrisome shortage in future decades: A lack of highly skilled workers to buttress the state’s quality of life.”
“Much of the worry is prompted by the new exodus of college graduates. Historically, college graduates have flocked to California from elsewhere in the United States. But according to PPIC’s analysis of Census data, since 2000, more college graduates have been leaving California for other states than are arriving.”
“‘It’s safe to say that certainly we haven’t seen this kind of flow out of the state in the past,’ said Hans Johnson, a PPIC demographer who co-authored the report. ‘Probably what’s happening now is unique in California’s history.’”It seems that if enough time passes, prices of homes will drop enough to end this trend...in one part of Sacramento “At a recent courthouse auction, a five-bedroom, four-bathroom 3,500 square foot house on Richfield Way that sold in July 2005 for $526,000 was offered by the bank for $295,000. There were no takers.” That offering price is getting close to a 50% haircut. The massive overbuilding that has taken place throughout California will lead to significant price shrinkage throughout the state, but it may take ten years for the change to filter throughout the market.
I see the factors that drove California's home prices to such stratospheric levels as taking effect over a 35 year period from about 1973 until now. First, the advent of significant national general inflation in the 1970's moved home prices up along with the prices of other products. Second, the mass entrance of women into the workforce (which likely began earlier in California than the rest of the country) increased total household incomes of which a significant chunk went into buying more expensive homes. Third, the defense spending boom of the 1980's put a lot of cash into California as a large share of the defense industry was based in the state, which added to personal income available to spend on housing. At that point, due to the price appreciation of housing, the trend of buying homes primarily for the investment potential rather than just as a place to live pushed California prices to a peak in the late 1980's. The defense industry cutbacks of the 1990's poked a hole in that peak; but although prices fell somewhat and then remained flat for a few years, regression to price levels of the early 80's and late 70's did not occur. Then a combination of income from the dot-com boom, the persistent drop in long-term interest rates, and then finally the use of sketchy mortgage products pushed prices to their most recent peak.