Southern California Is Still Golden: If everyone is leaving, why is the housing market so strong?

Scott Wild
Lesley Deutch photo
Ken Perlman Headshot

Scott Wild

Lesley Deutch

Ken Perlman

February 19, 2021
BIA OC Industry Leaders Economic Update

In 2020, we predicted The Great American Move would create new opportunities throughout the nation. Housing demand continues shifting away from dense, high-cost areas to wherever people can find more space and lower costs—be that a new city, a new state, or a different type of home. Southern California is often the example chosen to illustrate this trend. With that in mind, we examine the opportunities we see in Southern California today.

We have all seen the headlines: the exodus from California is underway. An affordability crisis is pushing families away from the coast to relocate to Arizona, Utah, Texas, and beyond. Businesses are exiting to areas with lower taxes and less regulation.

While these trends are real, the Southern California housing market remains resilient. Builders are selling homes faster than any other time since the mid-2000s housing boom.

The work-from-home trend is igniting home sales in locations farther from dense job centers along the coast. Southern California’s inland regions offer ample land for builders and attainable pricing for buyers. Similar shifts are underway in Northern California, as people flee the Bay Area for lower prices and less-dense neighborhoods in the Sacramento suburbs.

Southern California remains an economic juggernaut and a place where people want to live:

  • Population. With about 23 million residents, Southern California is an economic engine of enormous scale.
 
  • Businesses. Southern California is projected to add 246K jobs in 2021—which is greater than the combined job growth in Phoenix, Houston, Austin, Denver, and Charlotte (projected at about 227K new jobs in 2021). Clusters of innovation surround the region’s world-class universities and research institutions such as Cal Tech, UC San Diego, and NASA’s Jet Propulsion Laboratory.
 
  • International Trade. Southern California is a gateway for international trade with Asia and Mexico, and home to the busiest port (Los Angeles) and land border crossing (San Ysidro) in the Western hemisphere.
 
  • Military. The Navy is the largest employer in San Diego, Camp Pendleton Marine Corps base occupies 125K acres of the Southern California coast, and the aerospace industry is booming in the desert around the Mojave Space Port.
 
  • Lifestyle. The Southern California lifestyle is aspirational. Great weather, a diverse culture, and stunning natural environments make people want to live here.
 

Southern California’s housing market has room to grow. Here are some opportunities:

  • Look beyond the coasts. The affordability crisis is real. Some households and business will continue to be priced out of Southern California. Although the population is projected to shrink, this will equate to a change of than less than 1% over the next 4 years. Many who leave coastal areas may remain in California, simply moving farther inland. JBREC’s consumer research found that 60% of households who are working from home right now anticipate continuing to work from home at least part-time post COVID a phenomenon that supports growth in some of the “next tier” Southern California markets like the High Desert or Antelope Valley.
 
  • Find a master plan. Master plans are still a large part of the new home landscape, and with limited supply of land, builders can focus on finished lots (which may come at a premium). Five Southern California communities are on JBREC’s list of Top-Selling Master-Planned Communities in 2020: Ontario Ranch, Irvine Ranch, Otay Ranch, The Great Park (Irvine), and Audie Murphy Ranch. Expect to see Newhall Ranch in the top 50 soon and Rancho Mission Viejo return to this list as development ramps up in coming years.
 
  • Innovate with product and density. Builders in higher-priced locations are innovating to add value for buyers. Rancho Mission Viejo introduced smaller home products that lower the cost of entry for those want to enjoy the extensive master plan amenities. The rooftop deck is becoming ubiquitous in locations with limited private outdoor space on the ground level.
 
  • Take advantage of surging demand in drive-to destinations. Second-home sales in the Coachella Valley have spiked as buyers rediscover the appeal of vacation homes and investment properties within a short drive of where they live full-time. In our August 28, 2020 edition of The Light we described how most second-home buyers are looking to purchase within four hours of their primary residence.
 

The fundamental appeal of the California lifestyle is unchanged. A strong job market is fueling demand for new homes. People still want to live Southern California; they may just be moving farther from the beach.

For strategic insight into Southern California markets, please fill out this form.

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About The Author

Scott Wild
Scott Wild
Senior Vice President, Consulting
Scott leads project specific consulting analyses throughout Southern California.
Lesley Deutch photo
Lesley Deutch
Managing Principal
Lesley has more than 25 years of experience consulting with executives in the finance and real estate industries throughout North America. She works across a wide spectrum of industries including apartments, for-sale housing, high-rise development, urban projects, single-family rental, building products, and commercial developments.
Ken Perlman Headshot
Ken Perlman
Managing Principal
Ken works with real estate executives to help them make appropriate strategic decisions regarding their residential communities, including for-sale and rental of all types. He has a particular specialty in large-scale master-planned communities.

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