Middle Class Migration Out Of California

[flyer]

Thi scenario does not seem it will bode well for current and future “domestic” generations who would like to stay in CA.

Thoughts?

Middle Class Migration Out Of California: While domestic migration is up, international migration is filling the gap.” (Dr. Housing Bubble)

“People look at population growth in California and see nothing that stands out. Digging into the numbers you find some interesting figures. First, the main reason California is actually growing is because of international migration.

California for well over a decade is losing domestic residents. That is, “domestic” Californians on a net basis are heading out of the state. On a more micro level, you are seeing the middle class either being phased out of the state or being pushed into lower priced inland regions.

It is an interesting trend that is also happening in the tech hungry Bay Area. Housing continues to be an important topic because the vast majority of income is spent on housing. California has one of the highest percentage of families spending half or more of their monthly income on either rent or housing payments.

In places like Los Angeles the main international migration is coming from Asia. You also see this driving up real estate values in certain areas and this contributes to domestic out migration. The migration numbers are interesting and shed light on this global trend.

California is dramatically changing. It was telling to see the housing protests in the Bay Area where tech buses were stopped by anti-gentrification protesters because of crazy housing costs. It is odd to single out the tech industry which is highly progressive as some kind of aggressive capitalist juggernaut. But NIMBY policies, antiquated tax laws, and employment centers are shifting demographics. Many in the tech industry are progressive socially but are fiercely free market when it comes to ideas. So when it comes to housing, it is open season and many original residents can no longer compete with current prices. Hence the out migration.

Take a look at migration patterns in the Bay Area first:

In a global market, talent will come from all over the place. This is how you can have million dollar crap shacks in San Francisco selling with multiple bids. Of course, we are currently in a big bull market and the tech sector is blistering hot (and many companies are looking extremely frothy).
California is growing because of international migration and natural births. Domestic migration has been trending out for well over a decade:

During 2006 and 2007 California was losing over 200,000+ people that were originally Californians to other states. But internally, you are seeing some other shifts occurring because of economics as well:
“(SacBee) Between 2007 and 2011, as a severe recession hit California, Southern California counties were the nation’s most active in terms of human movement.

The nearly 42,000 people who moved from Los Angeles County to adjacent San Bernardino County during the period was the largest county-to-county migration in the country. It was followed by the nearly 41,000 who moved from Los Angeles to Orange County and, interestingly, the more than 35,000 who moved to Los Angeles from Asia, the nearly 31,000 who moved from Orange to Los Angeles, and the more than 27,000 who moved from Los Angeles to Riverside County.”

Many have transplanted from high cost Los Angeles to lower priced San Bernardino. You have a similar pattern of people moving from Orange County to Riverside. But you also have a large number of foreign migration from Asia.

While Los Angeles was a net loser in the migration of residents to other nearby counties and other states, it was a net gainer in foreign immigration, particularly from Asia. It also attracted a high percentage of domestic and foreign migrants with advanced degrees, but was among the leaders in losing highly educated residents to other locales.”

All of this of course impacts real estate. In the bigger picture California may become more volatile as industries reflect the whims of the market (tech is currently very hot). With the markets hot, excess cash is flowing into real estate. As we mentioned in a previous article, the money isn’t flowing all over the region blindly. It is laser focused on certain areas.

California in higher priced markets is becoming more renting centric because of current costs. In San Francisco, only 36 percent actually own their homes. The vast majority rent. San Francisco is an interesting market because of the tech sector wealth being created. SoCal on the other hand is seeing prices being pushed up but more of it coming from all hat and no cattle living. In other words, simply more net income is being funneled into housing from domestic buyers. International funds and investors make up the rest.

It is interesting to hear of people using their homes in good areas as AirBnB “hotels” for extra cash. For example, I’ve noticed some people in Santa Monica renting out rooms or garages at fairly hefty prices:

*Sample AirBnB locations in Santa Monica
But like any business, I think some of these people are underestimating the liability potential. As most landlords know, you can have one bad tenant and this will eat deep into profits so careful management is absolutely vital. Yet this also unlocks a hidden stream of income from your home. Given current rates, you can make a nice stream of income from doing this.

To bring all of this back home, you are seeing that the room for the middle class in California is largely disappearing. And people are voting with their wallets. For many others, the only option is to rent.”

[spdrun]

A few points.

(1) Why is international migration a bad thing? More foreign migrants probably start businesses than red-blooded Americans, who tend to want a “full time” job. California and NY have been ports of entry for migration for, oh, the last 100 years or so..

(2) Bigger cities have always been rental markets. Take NYC — most housing in Manhattan was BUILT as rentals, and only subdivided into owned apartments at a later date.

(3) There’s quite a bit of CA that isn’t LA, San Diego, or San Francisco.

(4) Renting out rooms via AirBnB is new. Renting out rooms is nothing new. I knew a elderly Austrian baroness in London who owned a gigantic apartment, and always had 10 or 15 foreign East-bloc students passing through. To some extent she needed the money to upkeep the place, but she also felt she was helping them by giving them cheap(er) housing in a convenient place.

People in cities have also rented out single back rooms for ages to help with the rent. Advertising via word of mouth or on paper.

The newer phenomenon is actually BUYING condos or homes to fully use as AirBnB hotels. Whereas renting out rooms doesn’t affect housing supply, or slightly increases it, renting out entire homes/condos/buildings as “hotels” eats away at supply, driving prices up. I can understand attempts to regulate it.

[flyer]

Agree international migration is not a “bad thing,” but, as the article mentions, the increased demand may push others out.

Personally, as a real estate investor, I’m thrilled with the increased demand for property in CA–wherever it may come from–but, as this article points out, there is always a “flip-side” to every issue–and that’s why I posted it for discussion.

[CA renter]

We’ve definitely been seeing this trend among many of the people we’ve grown up with.

It’s funny how people complain about taxes in California when the biggest and most destructive “tax” is the “sunshine tax” reflected in housing costs.

[spdrun]

I’d call it the “populated coastal tax” — I don’t see SD housing as much more expensive than say suburban NYC, DC, or Boston, especially when low property taxes and low utilities (cheap HVAC costs) are factored in.

It’s not unknown to pay $1000/mo tax and $600/mo heating costs on a $500,000 house in the Northeast.

[CA renter]

True. We just call it the “sunshine tax” in California.

[svelte]

Seems like I’ve seen quite a few “all the taxpayers are leaving Cali!” threads over the years on this site.

On a tangential note, my oldest graduates in May from a California university and has already received TWO job offers in state – six months before graduation!

The economy must be doing pretty good out here at the moment.

[CA renter]

Awesome news about your eldest, svelte!!!

Would you mind sharing his/her major with us? I think many of us are pretty worried about world our children will be inheriting from us.

[bearishgurl]

[quote=CA renter]Awesome news about your eldest, svelte!!!

Would you mind sharing his/her major with us? I think many of us are pretty worried about world our children will be inheriting from us.[/quote]

I’m not svelte but I believe the best majors for good jobs right out of college are the eight business disciplines at the CSU. The best of those eight for immediate good jobs are Business Admin – Acct Option and Business Admin – Mgmt Option.

If the business student follows their 4-year plan and keeps going past four years, they can get an MBA in just ONE academic year going FT or a minor (such as Int’l business or Human Resources) in just ONE quarter/semester (4-11 addt’l units).

And as I’ve posted before here, CSUN has the “Professional Accountancy” 4-year BS program available but they are very picky about who they accept as freshman into the program.

Also, unlike the UC’s, a handful of the CSU’s use only full tenured professors (NOT student TA’s) to teach class (CSUN being one of those schools).

The CSU has 4-year plans available now for the Class of 2018 on at least eight campuses. If the student (declaring a bus major, for instance) seeks out regular academic counseling from the business dept and follows it religiously, they are now *supposed* to be able to graduate in four years.

The CSU’s aren’t messing around anymore admitting marginal freshmen who are not ready for college level English and math so a lot of changes have been made to their admission procedures for Fall 2014. If your student has a “conditional” admission to a CSU campus right out of HS, they will need to attend summer school immediately after HS graduation at a qualifying CSU campus up to five days per week for five weeks in person/residence or five days per week for two weeks online for no credit (depending on their level of remediation needed) or their admission will be rescinded. The CSU will NOT accept remediation taken at the incoming freshman’s local CC. My last kid did not need remediation but several of their current classmates had to take it.

see: http://earlystart.csusuccess.org/

http://money.cnn.com/2013/03/05/pf/college/graduation-guarantees/

The CSU has had a very poor reputation for graduating students in four years in the past decade-plus and they are now striving mightily to fix that problem in campuses which are the least “impacted.” My advice for parents of high schoolers is to push them to take AP English or Math as a senior (and earn at least a “C” in both courses all year) if they don’t score high enough in their CAHSEE in these areas as a junior. This will negate the need for them having to sit for the EAP and ELM in January (in which they can get “trapped” into remediation courses before enrolling at a CSU if they’re having a bad test day).

If a kid follows the proper bureaucracy in HS, they should be able to gain admission to at least two CSU campuses if they apply to at least 4 campuses (preferably 6-8) thru CSU mentor. If your highschooler doesn’t know what they want to major in and can’t decide by Oct of their senior year, then the CSU probably isn’t for them at this time as they will get up there and possibly take the wrong GE’s, spin their wheels and end up spending 7-10 years getting a bachelor degree with a bunch of excess, worthless credits under their belt. In that case, I would find a small (public or private) liberal arts college (<5K students) tucked away somewhere ruralish with little distraction to send them to where they can get enough individual attn to "find themselves" in the most expedient manner possible.

Having your 19+ yo kid tied to mommy and daddy's apron strings living in their old bdrm while wasting a lot of time at CC and working at the local McD's with their high-school buddies (many of whom they've known since K) getting nowhere is a surefire way to end up with your kid (and their kid [s]) whining at your doorstep ten years later.

The CSU can make your kid successful and your kid CAN get a good FT job in the Golden State straight out of the gate but they've got to be open as to location of first job and eloquent and presentable by the time they are a senior working their contacts: that is, be able to talk it, walk it, groom it, dress it and engage adult-interviewers in meaningful conversation at the drop of a hat. My kid(s) are products of the CSU and were/are like this and that is why they are and (hopefully) will be very successful in life. So I feel that job success for college grads is one-third choice of major, one-third perseverance and stamina to finish a rigorous 4-year plan (w/no other classes added in) and one-third personality traits (which can be cultivated in some cases if not already there).

Just my .02.

[Coronita]

[quote=svelte]Seems like I’ve seen quite a few “all the taxpayers are leaving Cali!” threads over the years on this site.

On a tangential note, my oldest graduates in May from a California university and has already received TWO job offers in state – six months before graduation!

The economy must be doing pretty good out here at the moment.[/quote]

For tech. It’s doing really well.

[The-Shoveler]

The Movie/entertainment Biz seems to be doing very well as well.

Heck whatever they got going on in L.A. seems to be doing very well, There are new Tesla’s Maserati’s and assorted German luxury and sports cars everywhere and traffic is just packed at rush hour.

[Coronita]

[quote=The-Shoveler]The Movie/entertainment Biz seems to be doing very well as well.

Heck whatever they got going on in L.A. seems to be doing very well, There are new Tesla’s Maserati’s and assorted German luxury and sports cars everywhere and traffic is just packed at rush hour.[/quote]

That’s just because the credit spigot has been relaxed again and people can lease again.

[bearishgurl]

My advice for parents of high schoolers is to push them to take AP English or Math as a senior (and earn at least a “C” in both courses all year) if they don’t score high enough in their CAHSEE in these areas as a junior.

correction: the EAP is the test taken by CA high school juniors to assess their readiness to take university-level English and Math, NOT the CAHSEE (also a required exam taken by high school juniors):

see: http://www.calstate.edu/eap/

Sorry for the error. Seriously, there is so much bureaucracy at the CA high-school level for students these days that I’m so grateful to be finally done with it.

Also, I stated above that incoming CSU freshmen could NOT take their English and math remediation courses at their local CC. I checked into this when my last kid sat for their ELM/EPT in January of this year (just in case) and the two CSU campuses my kid was admitted to would not accept remediation courses from our local CC (SWC). It depends entirely on which CSU campus your kid will accept an admission offer from and which CC your kid is planning to remediate at prior to CSU enrollment. The decision is entirely up to the particular CSU campus and should be obtained in writing before your kid attempts to enroll in English and math remediation courses at a CC.

The EPT cannot be repeated and the ELM can be repeated, although not in the same month (in SD, they are given at SDSU). The best case scenario is for your kid not to have to sit for them in the first place (be “exempt”).

see: https://www.ets.org/csu/about

[spdrun]

That’s just because the credit spigot has been relaxed again and people can lease again.

Or rather, since they can no longer make subprime home loans, they’ve moved on to newer and better products, like auto loans 🙂

[bearishgurl]

Even though SD County is losing another ~5K jobs, likely by EOY, I’m overall bullish on the CA economy. SD has always been known as a “branch office”/retirement locale and nothing has changed. A SD County parent should not expect that their college grad kid is going to be able to make a decent living in SD County and also have job security (unless they can obtain a meaningful gubment position). It’s okay. CA’s freeways aren’t going anywhere and neither is Southwest Airlines. There’s really nothing wrong with the rest of the state, not even LA. I’ve recently changed my opinion, even on some “armpit” inland cities. It’s all good 🙂

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