California Dreamin

A few weeks ago, an official of the Home Builders Association of Metro Denver had a bad day. He announced that "It's over" for the Colorado housing market because "the great influx of Californians has ended."

Local media gave the story big play. There is always a large audience pleased by bad news for real estate; part because of opposition to growth, the rest happy at any discomfiture of real estate developers and brokers. Lately, there has been another group grousing about "too many Californians", and the grousers are thrilled to hear that "those people" have stopped moving here.

Sorry to disappoint, but the Metro HBA has got it wrong. There is a slowdown in migration underway, but it has little to do with California.

Within our State government, there is a Division of Local Governments, and within that division is a small group known as the "Office of Demographics". They keep track of Colorado's population, including migration, and are nice folks who respond quickly to requests for data.

Migration is the most important of all factors influencing real estate prices. If you buy property in a state to which people are moving, it's hard to lose; if in a state from which people are moving, it's hard to win.

Colorado has been especially blessed by that equation: since 1951, immigration has exceeded emigration in 37 years out of 45. Growth brings its own problems, but they are preferable to abandoned houses, blighted neighborhoods, and whole towns "on the wrong side of the tracks."

Each census provides state-by-state migration information, but migration from an individual state is hard to measure between census years. This is still more or less a free country, and permits for internal travel are not required (however, give Boulder a little time, and you may have to present a visa to get past a checkpoint on the Turnpike).

For years, California escapees have been identified by counting their surrendered drivers' licenses, which is hardly an exact science (is the driver alone, or moving with five kids?). A change in trend in these numbers was the news which disturbed the Metro HBA: in the first six months of 1995, California license surrenders fell by 19%.

Of total migration to Colorado, the California component is usually about 20% per year. This fraction is disproportionate to California's population as a percent of the total US, but other states also send unusual numbers to Colorado, such as Texas (now there's a problem). In 1993 and 1994, the California fraction reached 25% of the total; however, for it to have risen a little and then fallen back to long term trend (a 19% drop from 25% of the total leaves 20% of the total) does not account for our boom, nor its end.

Total migration to Colorado does explain both the recent boom and its conclusion.

From 1991 through 1994, coinciding with the rapid rise in home prices, 226,000 net migrants moved to Colorado, an average of 56,000 per year. Projections for 1995 show a dip to 36,000 move-ins, confirming the current pause in real estate prices.

If you look further back, the correlation between migration and real estate market is overwhelming. In the seven years from 1983 through 1990, net migration to Colorado was negative a total of 67,000 souls. Not by accident, those were the worst real estate years for Colorado in the last fifty.

During the preceding real estate boom, 1977-83, in-bound migration totaled 310,000, averaging 44,000 each year. While a smaller annual gain than the '90s cycle, it was an equivalent percentage gain against a smaller population.

In the prior flat spot during 1975 and 1976, total migration was only 29,000. Before that, 368,000 migrants fed another boom from 1967-74.

Demographers don't know for sure why people migrate, nor are they able to predict future migration. If they could, they would be rich and retired after accurately predicting a few real estate cycles.

The sooner there is a rebound in total migration, the sooner real estate prices will start to rise again. When the rebound begins, it won't matter in the slightest whether the people are from California or Rhode Island.