Will People Moving Out of California Affect the Housing Market in 2022?

Ever since the coronavirus pandemic began, we’ve heard reports about people leaving California for less crowded and/or more affordable states and housing markets. A recent report from the California Policy Lab backed this up with some data-based insights.

The bottom line to their report: the pandemic and other factors led to an increase in the number of people leaving California, and a decline in the number of people entering the state.

The question is, how will all of this affect the real estate market going forward? Will the California housing market cool down in 2022, due to more people moving out of the state? And how might these patterns affect real estate trends such as home prices, sales, and buyer competition?

Yes, More People Are Moving Out of California

In December of 2021, the California Policy Lab (a research and policy group) published a report that revealed some interesting population trends for the Golden State. Among other things, it showed there was a clear increase in the number of people moving out of California, which correlates to the coronavirus pandemic.

The short version is that the pandemic and related factors led to an increase in the number of people leaving the state, and a decline in the number of people entering.

To quote the group’s December 15 report:

Since the pandemic began, California has lost population due to domestic migration, mostly because fewer residents moved here from other states. At the end of September 2021, entrances to California were 38% lower than at the end of March 2020. Exits, following a dip early in the pandemic, have rebounded and are now 12% higher than pre-COVID levels…

All regions of the state experienced a significant decline in the number of people moving in from elsewhere in the U.S. These “out-of-state entrances” declined by 25% to 45%, depending on the region.

San Francisco Bay Area Affected the Most

As you might have guessed, the relatively expensive San Francisco Bay Area experienced the biggest drop in the number of people moving in.

According to the CPL report: “These pandemic trends were especially pronounced in the Bay Area, and especially in San Francisco, Santa Clara, and San Mateo counties, which saw out-of-state entrances decline by 48-53% since the pandemic began.”

During that same time period (March 2020 to September 2021), the number of people moving out of the Bay Area increased significantly. The exit rate increased by 34% in San Francisco County, by 26% in Santa Clara County, and by 15% in San Mateo County. But all Bay Area counties experienced similar declines, to varying degrees.

So yes, people have been moving out of California in higher numbers during the pandemic. But the bigger trend has to do with entrances, or people moving into the state from elsewhere.

While the pandemic affected both entrances and exits, the biggest change occurred on the entrance side of the equation. As of early 2022, there are far fewer people moving into California when compared to previous years. There are several factors driving this trend, ranging from housing costs to COVID-related migration patterns.

Moving on to the next question: How might all of this affect the real estate market in California, as we move further into 2022?

How Might This Affect the Real Estate Market?

Will the trend of people moving out of California affect the housing market? Could it reduce the demand for homes or slow price growth across the state?

While it’s hard to make a direct correlation between these trends, it stands to reason that an overall population reduction could reduce competition within the real estate market. (With all other things being equal.)

But we have to remember there are two main forces that influence housing market trends — supply and demand. If more people are leaving California than coming in, it would likely reduce the demand for homes. Fewer residents would mean fewer home buyers, and therefore less demand.

But that’s only half of the equation. The supply side plays a role here as well, and a big one.

For many months now, real estate markets across California have suffered from severe supply shortages. There have been plenty of buyers out there looking for homes, but not enough properties for sale. This has increased competition within the housing market while boosting prices as well.

This makes it harder to predict if (and how) California’s population trends might affect the real estate market in 2022. Housing-related predictions are more challenging when there are multiple variables involved.

That being said, here are some ways it might play out in 2022:

• Population declines could cool the real estate market by reducing demand.
• If housing inventory levels rise in 2022, it could contribute to a cooling trend.
• If inventory remains very low, population reduction might not affect the market as much.
• Overall, real estate conditions will probably continue to favor sellers over buyers in 2022.

The one thing we do know is that the California housing market remains highly competitive, as of early 2022. The future is less clear. But as of right now, home buyers in many cities across the state are still encountering stiff competition from other buyers.