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Catching a Wave Out of Pricey California * Migration of young professional families may be creating a ‘smart belt’ in the Sun Belt.
Soaring property values in California have made many homeowners there rich — and many real estate agents here delighted. In an exodus that some demographers say could reshape the American landscape, young professional families are increasingly fleeing the exorbitant coast for Austin, Dallas or San Antonio, for Atlanta, Denver or Phoenix, for Charlotte, N.C.
By Stephanie Simon and Lianne Hart, Times Staff Writers
They’re selling their cramped "starter homes" in California, some worth $500,000 or more, and buying luxury homes, for cash, in the nation’s interior.
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John and Nicole Hutmacher will be moving here this summer, leaving a tract home in a jam-packed subdivision in Santa Rosa in Northern California for a 3,000-square-foot estate on an acre in a gated community overlooking central Texas’ rippled hills. They’ll have enough money left over to buy a boat and a pickup, even to see the world.
"We wanted to do more with our money than pay for a house," said John Hutmacher, 27, an engineer who can work from anywhere in the country. "We want to travel. Eventually, we want to have children." In California, he said, "we couldn’t afford to."
It’s hard to quantify exactly how many families are joining the Hutmachers in sacrificing day trips to the beach in favor of bigger homes, smaller mortgages and shorter commutes.
The 2000 census tracked movement of college graduates around the country and found the metropolitan areas around Atlanta, Dallas, Denver and Phoenix were top magnets. (San Francisco made the list, though demographers say it’s attracting more single dot-com workers than young families.) Experts say the migration inward has accelerated since the census, as housing prices in California and New England have soared.
Calling the shift dramatic, demographer William Frey has dubbed the Southwest and Southeast the nation’s "brain gainers." A scholar at the Brookings Institution, a Washington think tank, Frey sees a "smart belt" emerging in the Sun Belt.
Real estate agents see it too.
"I’m flooded with clients from California," said Larry Regan, a broker in Dallas.
"It’s so exciting to work with them because everything looks great to them," said Kristal Kraft, who sells homes in Denver.
In Atlanta, Ellen Crawford recalls one gleeful refugee from high-priced New Jersey who kissed her hands after she sold him a four-bedroom house in the sought-after suburb of Alpharetta for $189,000. Compared to the coasts, Crawford said, "homes are practically for free here."
Though the colder, grayer Midwest has proved a less attractive draw, cities such as Minneapolis, Kansas City, Mo., Ann Arbor, Mich., and Madison, Wis., are also beginning to lure professional families from the coasts.
Demographer Joel Kotkin, a senior fellow at Pepperdine University’s Davenport Institute for Public Policy, predicts that the trend "may lead to a stabilization, or even a limited resurgence," of the long-declining Rust Belt. It’s already reshaped the way some entrepreneurs view the vast Plains once derided as "flyover country."
Forbes magazine recently ranked Madison the best place in the U.S. to do business. A similar survey in Inc. magazine put Atlanta on top. Both lists were dominated by, as Inc. put it, not "the fashionable coasts," but "more prosaic places" where the cost of living is low enough to attract and retain well-educated workers, and companies don’t have to pay them a fortune.
Steven Kiser, president of a San Antonio computer firm, calls that the "corporate greed standpoint" — and he admits it’s a factor for business owners.
When Kiser ran the research department of a software firm in Southern California, some of his employees seemed constantly stressed, barely able — despite what he considered ample salaries — to afford more than the basic "hygiene factors" of shelter, food and clothes, he said.
His 110 employees at SecureInfo in Texas earn less but live better because they have more discretionary income for travel and entertainment. And Kiser can use some of the savings he reaps from a lower payroll to provide better benefits, such as retirement plans. He’s noticed less turnover — and more satisfaction — in his workforce.
The surging interest in such moves reflects a deep divide in the nation’s housing market.
Property values in California and in parts of Florida, New England and Washington D.C., have doubled or close to tripled in the last decade, gaining more than 20% last year alone. In the broad expanse of middle America, however, housing prices have tended to plod modestly upward at 3% or 4% a year.
Until the mid-1990s, "home prices in different regions were starting to converge," said Nicolas Retsinas, director of Harvard’s Joint Center on Housing Studies. Since then, "we’ve seen an increasing disparity."
The disparity has created wildly different experiences for buyers.
Home prices have so far outstripped income growth in California that the average worker would need to save every penny he earned for more than eight years to buy the average house. In Wisconsin, that worker would need less than 2 1/2 years of income to pay cash for a house.
"It’s just amazing," said Robert Shiller, the Yale University economist who made the calculations for a recent study. "Californians must be so stressed out."
On the plus side, Californians who stretched to buy a home find themselves flush with equity as the market soars.
That gives them options owners in more stagnant markets can only dream about. They can draw a home-equity loan at a low interest rate to cover a child’s college tuition or pay down credit card debt. They can remodel, expand, refinance. Or cash out and call U-Haul.
That’s not realistic in places like Fort Wayne, Ind., where housing prices fell 1.8% last year, or Salt Lake City, where prices dropped 0.5%, or even Austin, where property values eked out a bare 0.1% gain.
Such soft markets have created a sense of stagnation in the heartland — the sad inverse of the California boom.
Workers laid off from textile and manufacturing plants in Indiana, Ohio, Georgia and North Carolina often find they cannot afford to move in search of a new job. Not unless they want to sell their home at a loss, or give up and let the bank foreclose.
In Georgia last month, 6,194 residential properties were listed in foreclosure. In California, there were 649.
"Many households are simply stuck," said Mark Zandi, chief economist for the research firm Economy.com. "In the worst case, it means that many people have to step out of the job market altogether, completely discouraged because they can’t afford to move."
That analysis rings true for Stacy Ester, 36, a laid-off warehouse worker in Galesburg, Ill.
She and her husband, John, had listed their three-bedroom home for $79,900 when their employer, Maytag, announced plans to shut down its Galesburg plant, throwing 1,600 people out of work. Overnight, property values plunged 10% or more.
"We lost at least $10,000 just from that announcement," Stacy Ester said. They took their house off the market to wait for a better time to sell. A year and a half later, they’re still waiting.
"To put your house on the market now is almost suicidal," Ester said. "No one in town could buy it."
Since they can’t sell, the Esters can’t move, though they have heard there are good jobs for people with their skills in the Carolinas. "I’d move tomorrow if I could," Stacy Ester said.
Some analysts see potential political fallout from the widening gulf in home values.
Led by California, New York and New England, the states that Democrat Al Gore won in 2000 enjoyed a 49% increase in home values in the last four years. The states that Republican George W. Bush won have seen an appreciation rate of 28%, according to a recent study in the National Journal.
The anxiety that homeowners in soft-market states feel — especially if they’re unable to move for another job — could affect their assessment of Bush’s performance.
"It’s just one more thing to add to the general angst about the economy in those parts of the country," Zandi said. "It weighs on the prospects for the president’s reelection."
On the other hand, on the flush coasts, people like David Gallagher couldn’t be enjoying life more.
Gallagher, a 36-year-old software engineer, plans to move to Denver this summer with his wife, Lora, and their three young children. They expect to sell their "very, very average" 1,400-square-foot home in Chino Hills for at least half a million dollars. Considering they bought it six years ago for $175,000, they’ll reap quite a profit.
So Gallagher doesn’t much care that he hasn’t found a job in Colorado. "We’ll be able to buy a house in Denver for cash and have so much money left over, I won’t have to work for a year or two," he said.
The Gallaghers are excited about moving to Denver for several reasons. They love to ski. Their future neighbors seem warm and welcoming. They can’t wait to explore the vibrant downtown.
Most of all, they’re glad for the chance to escape the traffic, the heat and the outrageous prices of a state that no longer seems so golden.
"California," Gallagher said, "seems to take a lot and give you little."
*
Hart reported from Austin, Simon from St. Louis.
Copyright 2004 Los Angeles Times
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