The Market Tectonics of California Real Estate
Originally posted at The New York Times By Debra Kamin
Jameel Khalfan and Shikha Mittal moved from their high-rise apartment in San Francisco to a house with a backyard in the small city of San Ramon in October 2020. After working from home with their daughter and her nanny both at home, they realized they wanted more space than their two-bedroom city apartment could offer.Credit...Jim Wilson/The New York Times
Jameel Khalfan, 36, and his wife, Shikha Mittal, 34, loved their two-bedroom apartment in East Cut, a walkable little square of high rises and urban energy in San Francisco’s SoMa neighborhood. Ms. Mittal, a lawyer at the software company Databricks, walked the two blocks to her office every morning. Mr. Khalfan, who does business development at Google, took the company shuttle to his office in Mountain View four days a week, and on Fridays, when he worked from Google’s San Francisco office, had his own two-minute walking commute.
In December 2019, the couple had a baby girl. And three months later, when the pandemic forced them to both begin working from home, they realized that their apartment was suddenly much too small.
Mr. Khalfan and Ms. Mittal were each trying to carve out separate work spaces while sharing the apartment with their baby and her nanny. By October 2020, they gave up. They left their high-rise and bought a house 35 miles east in the small city of San Ramon, joining about 36,000 others who left San Francisco in the last three months of 2020.
A shopping center in San Ramon, Calif., about 35 miles east of San Francisco. In some neighborhoods, residents have seen their home values rise by as much as $400,000 since the start of the pandemic.Credit...Jim Wilson/The New York Times
California, the most populous state in the union, saw its population decline in 2020 for the first time since 1850. But while reports of a mass pandemic-induced exodus from California are greatly exaggerated, there is a significant migration afoot. California’s biggest cities are shedding residents, while its suburbs and exurbs are seeing rapid population gains. The shift is fueling a red-hot housing market in areas once ignored by city dwellers, and turning some of the state’s secondary cities into small-scale boom towns.
According to a brief from the California Policy Lab, a research arm of the University of California, San Francisco saw 35,855 residents exit in the final quarter of 2020, a loss that’s 61 percent higher than in the same period of 2019. Los Angeles lost 126,679 residents, and San Diego shed 49,928. Data from Orbital Insight, a geospatial analytics company, and the real estate firm FCP show that both Los Angeles and San Diego’s populations had a net loss of 2.1 percent between June 2020 and December 2020; San Francisco, meanwhile, had a net loss of 3.6 percent.
But 80 percent of those who moved from San Francisco went to the surrounding, and still quite pricey, counties of San Mateo, Marin and Alameda. Another four percent chose Contra Costa County, which includes Mr. Khalfan and Ms. Mittal’s new city of San Ramon.
Thirty percent of those who left Los Angeles headed to San Bernardino County, which sits just to the east. More than 17 percent went to Orange County, which is directly south, and 16.8 chose Ventura County, which is immediately northwest.
From San Diego, nearly 37 percent of residents who left headed to Riverside County, which sits north of the county and stretches east to the Arizona border.
Mr. Khalfan and Ms. Mittal, who decided they wanted a house with a yard, looked first at neighborhoods within San Francisco that attract a lot of families, like the Inner Sunset and Bernal Heights. They also checked out Oakland and other cities in the East Bay. They were always either outpriced or outbid.
“We both have good jobs, but there’s limited real estate in San Francisco, and there’s a lot of people with good jobs,” Mr. Khalfan said.
They turned to a real estate advisory company called Suburban Jungle, which helps people decide which suburb might be a good fit. San Ramon, which has multiple parks and top-ranked schools, felt right. The fact that Ms. Mittal’s sister was already living there sweetened the deal.
Their home cost $1.7 million. Their neighbors on both sides are also couples with young children who relocated from San Francisco during the pandemic. And since they moved in October, prices in their neighborhood for similar homes — detached, new construction, with enclosed yards and multiple bedrooms — have increased by as much as $400,000.
“Pre-Covid, were never thought we would live in San Ramon. It’s too far, too remote, and there were no good restaurants. But after Covid hit, we realized that the kind of house we wanted, at the price we wanted and with the lifestyle we wanted, we just weren’t going to find it” in the San Francisco and East Bay neighborhoods where they initially looked, Ms. Mittal said.
A quiet street in Beaumont, Calif., which until recently was little more than a bedroom community in Riverside County and is now one of the fastest-growing cities in California. It’s less than two hours away from both San Diego and Los Angeles.Credit...Beth Coller for The New York Times
In the central California farm town of Fresno, recently dubbed the nation’s hottest housing market by The Los Angeles Times, rental prices have soared. Beaumont, which until recently was little more than a bedroom community in Southern California’s Riverside County, has been among the fastest growing cities in California for more than a decade, and is now home to a new Amazon fulfillment center which in 2020 created more than 1,000 jobs.
In the Sierra Nevada mountain towns of Lake Tahoe and nearby Truckee, the median home price has increased by 25 percent, and in Fallbrook, a rural community 50 miles north of San Diego that’s known as the Avocado Capital of the World, the average home is now selling after eight days on the market, compared to 31 days a year ago.
Jessica and Joshua Foote moved with their three children, Miles, Micah and Maiah, from San Diego to nearby Temecula in 2018. They are now seeing more couples like themselves — college educated and dual-income — make the same shift.Credit...John Francis Peters for The New York Times
Jessica Foote, the chief executive and founder of Native, a luxury real estate brokerage in San Diego, says that between 10 and 20 percent of her clients have moved out of San Diego into more rural areas over the past year. Usually that number is closer to 1 percent.
“Purchases now are complete lifestyle decisions, where people decide to live based on where they love to be and what they love to do, not what they do for work,” she said.
Ms. Foote and her husband moved from San Diego to Temecula, a nearby city in southwestern Riverside County with a thriving wine industry, in 2018, and she has watched over the past year as couples like them followed in droves. “At the time it wasn’t socially acceptable to leave San Diego. When the pandemic hit, that changed,” she said. “A lot of the people now moving out to these areas are college-educated dual-income couples, and it’s changing the dynamic of these communities.”
Left: Farmland and wineries in Temecula, Calif., about an hour from San Diego in Riverside County. Credit: John Francis Peters for The New York Times
Right: Temecula has seen its housing market heat up as families from San Diego look for more space and lower prices. Credit: John Francis Peters for The New York Times
The pandemic created a massive shift toward remote and hybrid work, freeing hundreds of thousands of Californians from the shackles of a city commute. But it also worsened the state’s decades-old housing crisis. The movement from California’s cities, said Freddie Mac’s chief economist, Sam Khater, tells a simple story of cost, supply and demand.
“There’s clearly a relationship between affordability and migration,” he said. “In the past Americans used to move for opportunity. But in recent years, they’ve been moving for affordability.”
Hundreds of thousands of people did leave California entirely during the pandemic, with Texas as the primary destination, and Arizona and Nevada close on its heels. High taxes, and disagreements over Gov. Gavin Newsom’s strict Covid-19 lockdowns, are often cited as catalysts. But Dr. Richard K. Green, chair of the Lusk Center for Real Estate at the University of Southern California, said the root cause is likely much more simple: they just couldn’t afford a house.
“Overwhelmingly, the people who have left California have been those who make $50,000 a year or less, while until recently, we still had immigration from many people making $200,000 a year or more,” Dr. Green said. “The tax story is not a very compelling story but the cost of housing story is.”
Joslyn Dehner, 43, who will be moving from the San Francisco Bay Area to Austin, Texas, with her husband, Craig Dehner, and their two elementary-school aged sons in July, said finances were the number one motivation behind their move.
“We had felt for years like it was getting harder and more stressful living in California, but we had a lot of things keeping us here,” she said. “I know a lot of people have fled California because of the politics, but that wasn’t really a driving factor for us. It was just that in 2020, with everything stripped away, we were like, why are we here?”
Mr. Dehner works in finance and Ms. Dehner works part-time in e-commerce. They briefly considered moving to Southern California, but decided after last year’s ferocious wildfire season that it wasn’t worth the risk. Life in Texas, she said, will offer a lower cost of living, and hence, more peace of mind.
“Finances won’t be a driving factor in every decision we make,” she said. “It gives us a cushion to enjoy life.
In April 2021, the median sales price for a single-family home in San Francisco County was $1,800,000. In Sacramento, 100 miles northeast, where home prices have jumped 22.5 percent since last year, it was $490,000.
“In the last 10 months the market has caught fire, and migration is absolutely up,” said Ryan Lundquist, a real estate appraiser in Sacramento who also maintains a blog about the Central Valley housing market. “We have increased migration from the Bay Area, and there are also so many local buyers on the prowl for whom Covid has been the catalyst to make that decision to live in outlying areas.”
While San Francisco and Los Angeles both saw their population dip in 2020, California Policy Lab found “no evidence of a pronounced exodus from the state,” adding that “the pandemic has not so much propelled people out of California as it has shifted them around within it.”
It has also shifted where those people do business.
Ryan Swehla, co-founder of the Modesto, Calif.-based commercial real estate firm Graceada Partners, has seen a swift uptick in low-rise office leases throughout the pandemic. California’s Central Valley — which includes the state capital, Sacramento, as well as cities like Fresno and Stockton, has been steadily growing for decades, and now, he said, is benefiting from a brain drain of tech workers fed up with the congestion and inflated prices of Silicon Valley.
The gears were already in motion before the pandemic — Zennify, a computer-software company, tripled its Sacramento work force in 2019; Intel’s campus in nearby Folsom was established in 1984. But now that many Bay Area tech companies have embraced remote or hybrid work, tech workers are increasingly looking to cities like Sacramento, which is 90 minutes by car from San Francisco, and local tech companies are moving in a bid to attract them.
“Covid was an amplifier. Before, you needed to be a super commuter, but now, with hybrid and remote work opening up, people are saying, ‘Hey, maybe I don’t want to be completely out of the mix, but I can move over the hill and buy that house with the yard, and maybe just once a week I’ll drive into the office,” Mr. Swehla said.
Riaz Taplin, owner of the property development firm Riaz Capital, believes that the Covid-19 pandemic — and the rise of hybrid work schedules that require a commute only one or two days a week — could be what he calls “a panacea,” reducing traffic and expanding the radius of affordable homes for workers in the Bay Area and beyond.
“When companies like Facebook, Google and Apple shift to a model where employees are in the office only three days a week, it reduces traffic by 40 percent,” Mr. Taplin said. “The decreased congestion doubles the radius of reasonable housing and puts less expensive places like Concord and Stockton within a reasonable commute.”
And for many homeowners, said Mr. Lundquist, there are reasons to stay in the state that supersede the housing market.
“People live in California for a reason. We love our waves and our snow and our warm weather,” he said. “With all the talk about crazy prices and politics, it’s easy to forget the compelling reasons people live here. And that’s why so many within California will just move to other parts of the state.”