Every time real estate prices go up, there is a sub-set of California investors who rush out to less desirable, or lower income, areas and scarf up the real estate because it “is so cheap.” Then, evey time the investing craze is over they discover that without speculators to pay higher prices, the locals can not pay at that level because the local salaries won’t support the mortgage. When locals are the only buyers, prices go back down to what the locals can afford on the local job market.
The only areas where prices are high and stay high and ride out down cycles well, is were it is desirable to live, and there are excellent high paying jobs (or it is a retirement community for the well-to-do).
Houses in Bakersfield were cheap before the bubble because it is NOT within commuting distance of Orange County, and nobody in their right mind would live there if they didn’t have to. So LA investors run out there, grab up all the real estate, drive the prices up, and now that the speculators are out of the market, the locals can’t pay those prices. So prices go down to a level that the local economy will support.
The same with the central valley. None of those towns are within commuting distance to Silicone Valley, yet investors from San Francisco run out there, grab up “cheap” real estate, and then discover that once the speculators leave, the locals aren’t paid silicone Valley wages, and they can’t pay that kind of price. So prices must come back down to the local income level, or it is no sales at all.
For the past several years I’ve listened to the Californias going on about how they were buying in X or Y, because “that house would cost $600,000 in California”. Well, that house isn’t in California, and you can not evalute deals out of your area with your local prices.
They’ve done the same in California. They buy a house in Fresno because it is only $300,000 and that house would cost them a million and a half in San Francisco. Well, that house isn’t in San francisco. Fresno has it’s own market forces.
I’m in Oregon, so I’ve watched the Californians do it over and over. Real estate has a boom in California, and the Californians run up here, paying “California prices” and we have another up cycle until they run out of money.
This bubble wasn’t technically any different at my local level, just a lot bigger than what we usually see.