The Mythical Equity Locust

There are many arguments to be had between the Seattle Bubble housing bulls and bears, but one belief that seems to be commonly shared is that one of the primary drivers of demand and pricing in our market is a steady stream of rich Californians moving up and driving prices up. The bulls argue that our booming market is fueled by a never-ending flow of California equity, and that this situation is unlikely to end because Seattle is just-so-special. The bears point out that, as the California market slows down, so will the flow of emigrants, which will bring this gravy train to an end.

I counted myself more in the latter camp than in the former. But as someone who is always on the lookout for data to support my viewpoint, I was excited to find out that the State of Washington Office of Financial Management publishes an annual population estimate for the state. In this report, they show immigration trends based on license surrenders by major source of population. The chart below, showing the long-term migration trend from California and Oregon, is the one that caught my eye.

The dips and peaks of California immigration shown on this chart looked suspiciously like the oscillations of our local real estate market. So, I put in a couple of calls to Theresa Lowe, the State Demographer – and soon found myself in possession of the data from which this chart was derived.

From there it was a quick effort in Excel to compare this data to the Case-Shiller Index, the longest running and most accurate gauge of price available for this market. I matched the 12 month rolling total of immigration to the year-over-year appreciation in the index, because looking at annualized data should smooth out seasonal variations. The results of this comparison surprised me.

The left hand side of the graphic below shows California immigration versus home prices. To the naked eye, there does appear to be a relationship. Major peaks and valleys roughly align. However, the right hand side of the same graphic, which uses the same data, tells a very different story. This chart shows a scatterplot of the two time series. As you can see, there is almost zero correlation between the two. The coefficient of correlation is negative 3%, and the R-square is practically zero. Based on this data – there isn’t a slight relationship between the two data series, there is effectively no relationship at all!

Actually, if you look closely back at the chart on the left- you can see why this is the case. At the beginning of the time series, immigration is still climbing right through the biggest drop in home appreciation. Then for the next 7 years (through 1998), immigration tails off, while the rate of appreciation climbed steadily. Both trended the same way from 2001 to 2006, but more recently immigration has held steady while price appreciation has drastically eroded. The two series don’t move together at major points of change, and for a good part of the series they are moving in opposite directions altogether.

Not ready to give up yet, I thought that perhaps most people are like me – and don’t go to get their licenses immediately after moving. They do important things first, like buy houses. So I experimented with shifting the moving-date data data out further – between one and 12 months. That modification only served to make the explanatory value worse – and if anything, ended up showed a greater negative correlation. (in other words, more Californians equals lower home prices!)

So the relationship between the number of Californians moving here and home price appreciation appears to be a bust. What about immigration at large? I ran the same analysis for all immigration to the state versus home prices to see if that showed any relationship. Here, I found a greater correlation. This time, I got a coefficient of correlation of postive 34% and an R-square of 0.116 – which can be interpreted as “moderate” correlation. There is definitely a relationship, but with such a low R-square -the explanatory value of immigration as a driver of home prices is very low.

So it appears, at least based on drivers license data (which should include most, if not all, potential home buyers), there doesn’t appear to be that great of a relationship between immigration and home price appreciation – and that old standby that California Equity is driving our market doesn’t appear to have much substance behind it at all.

The “California Equity Locust” appears to be a mythical beast, whose powers are greatly exaggerated.

Edit: The graph below shows how CA immigration compares to a blended CS index for California, built from weighting SF, LA, and SD in the same way they are in the CS 10 city index. As you can see, there is a very strong negative correlation between these two time series, as many readers have commented.

CA Emigration

58 comments:

  1. 1
    Lake Hills Renter says:

    I’m not very proficient in statistics (slept through that class in college) but according to the line graphs, there seems to be a visual correlation starting in 1996. Is it possible that the earlier part of the data set is throwing off the R-value? Is there value in just looking at data starting in 1996 to see if it’s stronger? Maybe sometheing changed around 1996 that caused a stronger correlation?

  2. 2
    Eleua says:

    What happened to the spike of Golden Bears and the spike in home prices in the late ’80s? That might tighten up the correlation a bit.

    The problem comes with the mid-90s. California RE was not so good, while ours showed a modest climb. Remember, this was when Microsoft became huge, and the entire tech bubble started. X-Cals were still “trapped” down South, but we were able to decouple to some degree due to the massive explosion in tech stocks – led by MSFT.

    You still have to admit that a huge spike in ’89-90, and again today strongly correlate to EXTREMELY rapid housing price appreciation.

    Anecdotally, you can go to many X-Cal hotspots and see the effect. Talk to any RE agent on Bainbridge and ask where the big money comes from. Uniformly, they will respond “California.”

    I am no stat expert – I admit that. Your conclusion does not pass the smell test, IMHO.

    I think you have two phenomena that are driving the graph. First, is our own organic growth with Microsoft, which explains the counter-trend in the mid-90s, and the enormous migrations in the late 80s and today, which have been the two strongest periods of RE price appreciation.

    Remember, the California economy started to slip in the late ’80s with all the defense cuts. Why move to Land O Gortex when you can still make big bucks down in Fantasyland. Once things slip, and you can still sell, you decide to move.

    Today, I would submit the same is happening.

    I have a hard time disbelieving the Equity Locust, when I see them everywhere I look. Look around and count all the UCLA, Cal, Stanford, USC, UCSD stickers on the backs of BMWs and Volvos.

    These equity locusts are also in Southern Utah, Arid-zona, Vegas, Bend, Taderho, and Hawaii.

    Sorry, not buying it. Nice analysis though…

  3. 3
    deejayoh says:

    Is there value in just looking at data starting in 1996 to see if it’s stronger? Maybe sometheing changed around 1996 that caused a stronger correlation?

    I see the fit, but unless there is a strong rationale for excluding earlier data then it’s just cherry-picking the data to prove the point you want to. When I started working on this I expected to find a strong relationship and figured the post would have a very different title…

  4. 4
    Eleua says:

    More simply stated, I think the flaw in your otherwise fine analysis, is you are trying to explain a correlation of one thing (property prices) with two causes (organic growth, and California migration patterns). This makes sense when you said there is a higher correlation between total migration and home prices, as UW/WSU don’t have the engineering necessary to run the business realities of the PNW during the mid-90s. You needed people from everywhere in the US to manage the software build-out of that era.

    This is like trying to explain social success by graphing for IQ only, but leaving out socio-economic background (SEB). The only way to get an accurate correlation is to control for the out-variable. To show the relative correlation of IQ, you need to control for SEB. To correlate SEB, you need to control for IQ.

    The same applies. If you could control for Microsoft and the software build-out over the entire time period, you could more accurately show the validity of the X-Cal equity locust.

    Right now, you have one equation trying to explain two variables.

    Good luck controlling for the software build-out.

    I still believe in the Equity locust. They are everywhere.

  5. 5
    Lake Hills Renter says:

    I don’t see it as necessarily cherrypicking data to say there’s been a strong correlation since 1996 (if the data shows that). It just makes me wonder what might have changed to make it happen. Ten years is a decent amount time and it seems too long to me to be coincidence or statistical anomaly, partcilarly when it’s the last 2/3 of the data. But like I said, I’m no expert.

  6. 6
    deejayoh says:

    More simply stated, I think the flaw in your otherwise fine analysis, is you are trying to explain a correlation of one thing (property prices) with two causes (organic growth, and California migration patterns).

    E – so what you are in essence saying is that the “organic growth” factor is so great, that it trumps trumps X-Cal to the point that you can’t see the impact?

    Or in other words, um, I think you are agreeing with my assertion that California immigration doesn’t have too much explanatory value in terms of real estate prices, compared to almost anything else. If there are two factors in a regression where one matters so much you can’t see the impact of theother – then the second factor probably doesn’t have too much explanatory value in that model.

    16 years of data with zero correlation. I think I got a bead on that one…

  7. 7
    NoFate says:

    This is an interesting study, though flawed in one sense. The impact Californians have on price changes is a secondary effect. The initial effect they have is on inventory.

    This effect depends on 2 things.

    First, what is the number of Californians compared to the number of houses in inventory? If it is 50% it will have a huge impact …if it is 5%, then probably not so much.

    Second, how high is the inventory? If there is a 9 month supply they will have little impact. If there is a 15 day supply they will have a strong effect on prices.

    If you can determine the effect a change in inventory has on prices …and then determine the inventory change due to Californians …then I think you would have a good model.

  8. 8
    Eleua says:

    E – so what you are in essence saying is that the “organic growth” factor is so great, that it trumps X-Cal to the point that you can’t see the impact?

    No. What I am saying is that you are trying to explain two variables with one equation, which is a mathematical no-no. The X-Cals clearly have come in waves, and there was a large time in the 90s where they were not the dominant factor. Microsoft millionaires were being minted daily, and that had an inverse, but unrelated, correlation with XCELs. It just happened to occur when Californians were trapped in their homes. The software build-out was book ended by massive EL migration.

    Do I think the EL phenomenon is secondary to organic growth? Yes and no. During the mid-90s? Yes. During the late 80s, and today? No.

    What is your correlation if you include the late 80s? We had the biggest spike at that time.

    Total migration (Cals and non-Cals) does correlate, and that makes sense. During a period of high organic growth you would expect the EL phenomenon to be very secondary. During periods where high organic growth can’t explain the RE prices, the EL phenomenon should be present (as we had in the late 80s, and today).

  9. 9
    Eleua says:

    Bigfoot is a myth. There are great stories, but no breeding population, habitat, etc. If you told people to go find a Bigfoot to prove the existance, you would come up empty.

    I can get my bag limit on Equity Locusts by 10am with just one visit to a Windermere office.

  10. 10
    Matt says:

    You are attempting to correlate immigration numbers (from CA to WA) to Case-Shiller housing appreciation. First, immigration is a bulk number, and appreciation is a YOY percentage, and I wouldn’t recommend comparing those 2. YOY tends to distort the data, because your reference is always changing. Second, immigration is a state-wide measure, and Case-Shiller is for Seattle, so your granularity is off. Finally, I think that a good argument could be made that the system changed around 90-95. When analyzing a complex system, ie an economy, it is necessary to take into consideration that the system itself might change, and thus the way it responds to inputs. Your analysis assumes that the system was constant for 91-07, and I don’t know if that is a correct assumption.

  11. 11
    Eleua says:

    I will say that the most encouraging news from your graphs is the rate of increase of Californians is on the wane.

    Now, if we can only get it to go negative…

    (I don’t know how to embed a javalink, so try this)

    Click here, and then click on the 300K (or whatever speed your internet is) on the “Californians Leavin’ ” link.

    Pretty funny stuff.

  12. 12
    deejayoh says:

    E –
    You said

    I am no stat expert – I admit that.

    and

    you are trying to explain two variables with one equation, which is a mathematical no-no.

    I say: Multi-variate regression ;^)

    I don’t have good price data for the late 80’s run-up. What I do know is that from articles on Median Price, the peak year of appreciation was 1989 at ~25%. 1990 was ~15%. Check the first chart. California immigration peaked in 1991 – two years after price peak. I think that is going to show up as more noise.

    Mind you I’m not saying Californians aren’t buying expensive properties, or that you are incorrectly reading those license plates. What I am saying is that the story that they are a consistently significant driver of price appreciation is not borne out by the data. We have had long periods of both positive and negative correlation between CA immigration and price appreciation – the net effect of which says you cannot draw a conclusion that there is a causative relationship.

  13. 13
    Eleua says:

    I agree that XCELs are not a consistent significant driver of RE price appreciation. I think today is a period where they are driving the market, whereas 10 years ago, that would not have been the case.

    I also admit that my anecdotal sample is probably skewed. You probably live in King County, so your day-to-day observations probably look alot like your graphs. My experience is with Kitsap, Port Townsend, and Sequim. It’s practically the 59th county of California.

    My argument would probably have been different if we were having this discussion in the mid-late 90s. Today, we are seeing lots of XCELs. It is my opinion that since the beginning of the most recent parabolic runup in RE prices, the XCELs are the most significant factor. The shoddy lending standards have allowed their equity to explode, thus putting the E in EL.

    My guess is you would agree, no?

    If that is the case today, then if you could find some miraculous way to shut off the influx of XCELs, not only would I nominate you for a Nobel Prize, you would probably see property prices deterioriate significantly and immediately.

    Kitsap has every school district experiencing declining enrollment (except Bainbridge), yet, we are experiencing the biggest building boom since WW2. My theory is the XCELs are buying homes and not bringing their children. They are empty nesters or buying second homes.

  14. 14
    Eleua says:

    Also, even though the peak XCal immigration was ’91, but the peak price appreciation was ’89, we don’t have a handle on how much equity these people brought with them. By ’90, California was in a real estate funk, whereas in ’88 it was just crazy.

    The best time to transport equity is when your job prospects wane at the same time you still have equity.

  15. 15
    GetMeTheHellOutOfCA says:

    As a recent CA emmigrant and SEattle home buyer who left CA with zero home equity I was interested in your analysis. I am always suspicious of simple explanations for complex issues and the belief in the CA equity locust theory so prevalent on this blog struck me as such a simplistic explanation for a relatively complex phenomena. Unfortunately, statistics alone will not enable you to debunk the myth here! Interestingly enough, our realtor mentioned that fully one third of her office’s business was with ex Californians. However, most californians leave california for better quality and cost of life and a large proportion of these people leave precisely because of unaffordable housing in CA i.e. they want to buy a home.

    Congrats on providing a fact based argument. There are so few people with strong opinions on home prices that do.

  16. 16
    Joel says:

    Everywhere I go it seems that people blame Californians for all of their problems. Bad drivers on the road? Must be Californians that have never driven in rain/snow. Home prices too high? Must be Californians escaping to a cheaper area. Crime? Californians. Global warming? Californians.

    What horrible effect do immigrating Californians not have?

  17. 17
    Eleua says:

    What horrible effect do immigrating Californians not have?

    They don’t seem to add to the pool of serial killers.

  18. 18
    deejayoh says:

    First, immigration is a bulk number, and appreciation is a YOY percentage, and I wouldn’t recommend comparing those 2. YOY tends to distort the data, because your reference is always changing.

    Matt –
    Given that the argument I wanted to test was “Californians are moving here and driving up our housing prices”, I am not sure what comparison to use other than the number of Californians compared to the change in housing prices…. I am pretty sure there’s at least one statistician on the boards, perhaps they can commment. I’m more than open to suggestions as to other ways to make the comparison – I looked at it a bunch of ways and this is the one that seemed most logical to me.

    As to your point about YoY distorting the data, I am not sure I understand. I am using a rolling 12-month total for immigration compared to the appreciation for the same period. That should have the effect of smoothing out “noise” that is introduced by using M2M data – things like seasonal variability, which can distort the relationship.

  19. 19
    Alan says:

    Maybe CA immigrants only have an impact when the prices of houses in CA is much greater than the prices in WA. Trying weighting the data points based on the ratio of median housing prices between CA and WA.

  20. 20
    TJ_98370 says:

    Tim, DJO,

    Interesting info. I would agree that the presented data would indicate that California transplants are not the only driver of price appreciation but that doesn’t mean that the California equity locust is a myth. I remain convinced that affluent California transplants can be a significant driver of real estate prices at times. There are other important variables influencing price appreciation such as local economies, inflation, inventory, or even market psychology (such as the so called irrational exuberance). All of these variables have varying influence on prices over time.

  21. 21
    RefractedThought says:

    “I can get my bag limit on Equity Locusts by 10am with just one visit to a Windermere office.”

    Ha ha! Yeah, I’m always joking with my friends that I live in a giant retirement community for Californians (Bainbridge Island). The maintenance guy for my rental calls himself a retired beach bum.

  22. 22
    Finance says:

    Lake Hills Renter – One thing to note is the tax laws changed in 1996/1997 for deductibility of interest for tax purposes…

    We can all see that the % increase in California drivers in the state is decreasing, yet there is still near a record amount of them moving here on an actual # basis. Would be interesting to see how many WA drivers are moving to CA?

    Matt is 100% correct that you cant compare the Seattle Housing Index with WA state drivers…if you compared CA drivers moving to the Everett/Seattle/Tacoma region then it would be an apples to apples comparison.

  23. 23
    Finance says:

    Good job on the Analysis Deejayoh! I like how you are constantly thinking about and graphing things out for us, you da man! Us Monday morning QB’s are just analytical and cant resist tweaking things…

  24. 24
    rose-colored-coolaid says:

    “What horrible effect do immigrating Californians not have?”

    I for one have no problem with Californians. I’m a little less sold on Los Angelians, San Franciscans, San Joseans, and San Diegians.

    First, a city or state name should never require two words. It’s the same reason people don’t like New York (city/state), any of the ‘New’ states, the Carolinas and the Dakotas.

    Second, in Washington, we like places to be named after English explorers, US presidents, or Native American tribes. These cities all sound like they are in Mexico. It’s very confusing for us!

    Finally, Sacramento, Fresno, Bakersfield, and Oakland are OK. They sound like WA names.

  25. 25
    GreatGizmo says:

    What will happen to the SouthWest & California when the Colorado dries up because of overbuilding? Imagine the depreciation then. where will they all move too.

  26. 26
    MisterBubble says:

    DJO,

    i>”If there are two factors in a regression where one matters so much you can’t see the impact of the other – then the second factor probably doesn’t have too much explanatory value in that model.”

    But there’s absolutely no evidence that a linear regression model between these data sets is the correct model for the situation. So you’re over-reaching — not in your attempt to create a linear model (which is the obvious first thing to do), but in the interpretation that there is no relationship between these variables, simply because the linear model has failed to be predictive. All you can say is that there appears to be no linear relationship between these two variables, over the time period examined.

    NoFate made an insightful comment to this end:

    “If you can determine the effect a change in inventory has on prices …and then determine the inventory change due to Californians …then I think you would have a good model.”

    In other words — there are latent variables that likely affect the analysis, and a simple linear regression model is unlikely to capture these effects. I don’t know if NoFate’s suggestions would result in a model that works, but I think the spirit of his comment is correct.

    Finally, an point on statistical terminology: correlation (and coefficient of determination) are descriptive statistics. You can slice and dice your data set any way you choose, and if you find a correlation between them, then it’s perfectly valid. Not necessarily meaningful, but perfectly valid.

    Slicing/dicing data becomes more problematic for regression analysis, because you’re trying to create a predictive model, and you tend to want to have a rational basis for including or excluding data. That said, you can’t always know what the correct model is in advance, and so there are a number of statistical tests (e.g. the F test) that will help to tell you if your model is statistically significant, given the input data.

    All of this is a long-winded way of saying that there definitely appears to be a correlation between these variables from 1997 to present, and it is not “statistically incorrect” to explore it further….

  27. 27
    The Bruce says:

    CA locusts don’t have to migrate to have a huge effect on the market, either. CA flippers, investors, and the gigantic new crop of infomercial amateur investors who bought RE programs at 2:00 AM once Comedy Central went off-air have had a huge effect on RE markets in the west. First to Vegas, then Phoenix, then Utah / Oregon, now WA. Contacts in Utah report they are leaving UT and ID now for Montana. IMO CA equity grinders leave large footprints even when they don’t relocate.

  28. 28
    SeattleHotty says:

    Another reason the data may not correlate, is that many of the homes that Californians are buying may be 2nd homes, and thus they may not be relocating here full time and surrendering their license. This seems particularly likely for Bainbridge and other places that make nice vacation homes.

  29. 29
    Nateboy says:

    that first graph showing Oregon and California emigrants is very interesting. If you look at the 1991 data, that spike must have been when Eddie Vedder and the rest of the wanna-bes came to jump pn grunge bandwagon, huh?

  30. 30
    uptown says:

    Oddly enough, the way we use to tell if a CA rescession was over – was by counting the number of WA & OR plates suddenly appearing on the roads. I rember going to visit the parents, in their nice town 2 hours NE of Seattle, and listen to the fathers in the cafe sadly talk about their kids moving to CA for work (and sun).

  31. 31
    deejayoh says:

    MisterB –
    You are mischaracterizing what I am saying. My comment on regression was only responding to E. I am not trying to model prices or be predictive here, I was only looking for a relationship. So, as you say, correlation is the right approach and that is the one I relied upon for analyzing my results. The formula for the trend line is only shown as FYI.

    As you say if you find a correlation between them, then it’s perfectly valid. It implies a relationship, not causation. However, if there is no relationship at all (e.g. R= (0.03), it implies there is not a relationship at all – causitive or otherwise. That’s what the data says

    As to exploring 1997 on – as I said, if someone has an explanation as to WHY the world changed then, it is fair to take that approach. However, when you have data that shows 6 years of a strong negative correlation and 9 years of strong positive correlation with no explanation as to why, I am not willing to just ignore the data I find inconvenient in order to prove my hypothesis. I’m funny that way

  32. 32
    Eleua says:

    The California property market recovered by ’97.

    To be an Equity Locust, you need equity.

  33. 33
    Eleua says:

    First to Vegas, then Phoenix, then Utah / Oregon, now WA. Contacts in Utah report they are leaving UT and ID now for Montana. IMO CA equity grinders leave large footprints even when they don’t relocate.

    Perhaps we can change the “Equity Locust” to the “Equity Seagull.”

    They fly in, poop all over what is here, and fly off…

    That’s it! I nominate that henceforth on SB, the Equity Locust shall be known as the Equity Seagull.

    Tim,

    Can this be a SB law?

    E

  34. 34
    The Tim says:

    Eleua said,

    The California property market recovered by ‘97.

    To be an Equity Locust, you need equity.

    You may be onto something here.

    Check this out, it’s a graph of YOY % change in the Case-Shiller indices for San Francisco, San Diego, and Los Angeles:
    California Equity
    That point where all three lines start to go positive again…

    November 1996. Huh.

  35. 35
    Eleua says:

    It just occurred to me that “seagull” might be fitting only to a portion of the X-Cals.

    Seagulls tend to ‘fly off,’ which would actually be a good thing.

    How many Californians came up here to visit in the summer, took a ferry ride in July, and decided to move here. They bought a 5 acre wooded parcel, clearcut 4.95 acres of it, built a mission style villa, and spent the summer in it. When October came, and with it 6 months of rain and grey skies, they got S.A.D., spun-out in a patch of black ice, went on a 6 month alcoholic bender, and vowed they will never go through another Oct-Apr again. They put their house up for sale and moved back to S. Cal.

    Equity seagull could be a subset of the larger population.

  36. 36
    TJ_98370 says:

    Eleua said:

    I have a hard time disbelieving the Equity Locust, when I see them everywhere I look. Look around and count all the UCLA, Cal, Stanford, USC, UCSD stickers on the backs of BMWs and Volvos.

    These equity locusts are also in Southern Utah, Arid-zona, Vegas, Bend, Taderho and Hawaii.

    I agree with Eleua. It’s hard to disregard what you see going on around you. In my neighborhood, homes that were purchased at around 14 times the median income for Kitsap County were bought by older California transplants.

    Even people in the mortgage business believe in California equity locusts:

    About two years ago I had a conversation with a relative who is/was actually working as a mortgage broker in the Olympia area specializing in subprime loans (sad but true!). Hey, business was great and the future was so bright he had to wear shades. Appreciation was going to continue forever and everyone was going to be able to qualify for loans thru all the new financing products.

    During our conversation I mentioned that appreciation could not continue forever because “….affordability has got to become an issue at some point. Not everyone is a doctor, lawyer, or dual income family.” His answer was actually (I am not making this up) – People from California will buy those properties, “….people living in a trailer on three acres (in California) sell their property for a million dollars and come up here and are astounded at how cheap the prices are here. Sometimes they even pay cash for the properties. We hate that because then we get no commission….”

    Okay. So there you have it. Proof that California equity locusts do indeed exist! Straight from the educated opinion of a respected subprime mortgage broker.
    ..

  37. 37
    Eleua says:

    ’97 was two years into the modern stock bull market, so you would expect a general recovery in property markets. At that time, you had Mr. Magoo started actively trading his now famous (soon to be infamous) “Greenspan Put.”

    This is why I usually reference ’97 as the benchmark for where the PNW, and California property markets will trade once we get into the next trough. It is where the zaniness started, so I figure we will go full circle on this. We have two bubbles to pay off.

    I guess we shall see if I am right on this.

  38. 38
    TJ_98370 says:

    Hello DJO

    Good input as always —

    …..As you say if you find a correlation between them, then it’s perfectly valid. It implies a relationship, not causation. However, if there is no relationship at all (e.g. R= (0.03), it implies there is not a relationship at all – causitive or otherwise. That’s what the data says….

    Help me understand. Are you saying that you believe that it is not possible for other variables to influence the data so that it appears that there is no relationship between immigration and appreciation?

  39. 39
    UncleOxidant says:

    OK, so how is it that inventory went down by 64% last week according to http://www.housingtracker.net/ ?

  40. 40
    deejayoh says:

    The correlation between Californians moving to Washington and a blended SF/LA/SD CS index is -65%. Very high. So yes, it explains that people are leaving California for WA due to high real estate costs. Good model
    The correlation between CA immigrants to WA and the Seattle CS Index is -3%. That says that over 16 years, there is no consistent relationship.
    If you want to argue that some big switch flipped in 1997, that’s fine. But the argument that Californians have been driving real estate prices here has been going on much longer than that, so now I guess it’s modified to be “Californian’s drive WA real estate prices up, except when they don’t”.

  41. 41
    Eleua says:

    I would say that when Californians have equity, they drive PNW RE prices. When they don’t – they can’t.

    The Microsoft/software build-out of the mid-90s happened to occur at the same time California was in a RE funk. There is no relationship between the two. Had there been a huge pot of equity down-South during the mid-90s, one could imagine an enormous escalation of local RE prices – over and above what we had.

    You are correct that over the past 20 years, ALL of the PNW RE appreciation can not be attributed to XCELs.

  42. 42
    disgruntledengineer says:

    Sorry, totally unrelated…

    What horrible effect do immigrating Californians not have?

    They do not detract from the gene pool. My experience is that people from California have exceptional phenotypes for the beauty genes. Before 1990, the Northwest had some of the ugliest people. Growing up, my relatives from out of state (and especially from California) would always bust me on how everyone was ugly, and that there would only be 1 or 2 “good-looking” people out of a whole stadium full of people. I tended to agree with them as I always found myself asking Mom and Dad if I could spend summer down in California…and I fell in love many, many summers. Anyways, I’ve noticed a much, much higher ratio of “beautiful people” in the Northwest in recent years. Where were all these women when I was growing up? Thank God for those Cali locusts. As further validation of my statements, when you were growing up in school, how many times was the new hottie in class from Cali?

  43. 43
    disgruntledengineer says:

    By the way, the above was meant to be funny, and I invalidate any comments against me because I was born and raised in the NW…and so that should hint at just how exceptional my phenotype is.

  44. 44
    TJ_98370 says:

    Nothing wrong with improving the PNW gene pool with Pamela Anderson types IMHO.

  45. 45
    EconE says:

    I love this thread. So much for the welcome wagon…hehe.

  46. 46
    Eleua says:

    Finally, this thread starts talking about something highbrow, worthwhile, and captivating.

    Nothing wrong with improving the PNW gene pool with Pamela Anderson types IMHO.

    Actually, Pam Anderson is a native PNW babe. She is a Hoser (Comox, BC), but a native to the PNW. We also had a St. Pauli Girl come from Tacoma a few years ago. Uber hot.

    I attended HS in both Kitsap and California. Disgruntled is absolutely correct. I went through the 11th grade locally, and then got plopped into the middle of a California HS for my senior year. Wow! I felt like an Amish kid that was abducted and released backstage at the Miss Texas pagent.

    There really isn’t anything like being a 17yo and getting your first glimpse of a suburban California HS when the first day of school is 105F.

    I went to college in S. Cal (not USC), and my buddies that were at WWU, UW, and WSU and I would compare notes. No contest.

    Later, in order to keep the XCEL phenomenon contained, I would respond to anyone that asked where I was from in the following manner;

    TOD: So, E, where are you from?

    E: Just west of Seattle.

    TOD: Oh, I heard it is really nice there?

    E: Well…it rains all the time, suicide is the local pasttime, and the women are fat and ugly.

    TOD: Good to know.

    This was in the mid-90s, so perhaps I am solely responsible for the negative correlation between XCELs and property values during that time. You’re welcome…

  47. 47
    Eleua says:

    DJO,

    On a serious note, do you have data for how many Washington DLs are surrendered in California?

  48. 48
    deejayoh says:

    E –
    WA–>CA emigration, annual totals based on license surrenders

    1990 10,807
    1991 12,337
    1992 751
    1993 232
    1994 7,860
    1995 12,902
    1996 13,195
    1997 14,360
    1998 21,498
    1999 20,165
    2000 20,209
    2001 17,933
    2002 14,845
    2003 5,762
    2004 4,439
    2005 3,522
    2006 5,690

  49. 49
    Eleua says:

    Just looking at this and putting in the normal 10 seconds worth of contemplation, it would seem as the California economy improved, there was a sucking sound to the south. After the tech bust, the amount of people moving to CA started to fall off because there wasn’t a “real” economy. People in CA are just trading RE, and given that it is very difficult to go upstream in the equity river, the sucking sound started to fall off.

    Now, they are riding the equity river and moving here.

    I will freely admit that when all you have is a hammer, everything looks like a nail. That being said, I see the fingerprints of the equity bubble playing out in the net migration of people between CA and WA.

    Very interesting…

  50. 50
    Andrew says:

    You need a regression (with more than one variable) to find out the proper correlation. If immigration from California and Oregon is large, than it is silly to think that it has absolutely no effect.

  51. 51
    david losh says:

    Incredible; where do you get the time to come up with the data?
    California and Washington are two different life styles. I wouldn’t live in California and know hundreds of people who would never think of living here.
    I love Spain. My children were both born there, two years apart, because we don’t have a health care system in the United States. Houses in the South of Spain are very cheap. I live here to work. It’s where I know.
    What is as impressive as hell is that some one did the work and dispelled a myth.
    I’m truly, always grateful to be able to come to this web site and get information. It’s a great service to the consumers.
    Thank you.

  52. 52
    deejayoh says:

    Andrew said,

    You need a regression (with more than one variable) to find out the proper correlation. If immigration from California and Oregon is large, than it is silly to think that it has absolutely no effect.

    I agree with the first part of your statement. Sometimes one variable has a huge amount of explanatory value, but usually you need to add others. However, your second statement doesn’t necessarily follow. Read to the bottom of the post. I show that if you take ALL immigration and compare it to price you start to see some explanatory value . But w/o playing with timing of the CA data, it won’t add much to any model.

  53. 53
    NoFate says:

    With all due respect this is simply a bad model. It tries to predict price changes (Y) with part of the change in demand (X) and nothing else. Let me present an alternative…

    Assumption: Consider for a moment that when 1 california family moves to Seattle to claim their pink pony, inventory drops by 1. This particular relationship has an R^2 of 1 (or damn close).

    Step #1: Now lets take a step back and consider what else we know. There was a post a while ago indicating a strong relationship between INVENTORY and APPRECIATION. Lets expand this INVENTORY model to cover the past 20 years and see how high the R^2 is.

    Step #2: Next perhaps add things to the INVENTORY model like LOCAL UNEMPLOYMENT, the MORTAGE RATE or possibly other variables to further increase the predictability of the model.

    Step #3: Now we have a good model, use it to calculate the APPRECIATION for each year over the past 20 years (hopefully it is fairly close to the actual CS values). Then take the median house price at the start date and see how much the price appreciates over 20 years.

    Step #4: Finally, if you assume 1/3 rent and 1/2 are married you can probably assume about 1 house per 2 CA licenses. Increase your inventory numbers accordingly and calculate a NEW price appreciation. Then see how much your median house appreciated this time.

    Conclusion: The difference in the final 2 house prices is the “California Effect” (assuming your model is fairly accurate).

    Note: This model would not adjust for the fact that Californians may buy larger houses on average (though this would require research).

  54. 54
    george says:

    You do a nice job myth-busting, but isn’t the myth a type of straw man? Does immigration from California determine price jumps here? No. I am convinced, but not very surprised by that at all.

    Who would ever expect Californians to do more than help drive up prices here, sometimes, depending on other factors?

  55. 55
    deejayoh says:

    With all due respect this is simply a bad model. It tries to predict price changes (Y) with part of the change in demand (X) and nothing else. Let me present an alternative…

    NoFate, I am curious. Did you even READ the post?
    It’s not a model. There is no correlation between the independent and dependent variable. Given there seems to be no relationship, how is it you are saying its sposta be “predictive”?

    And that post a while ago…. that was me

  56. 56
    biliruben says:

    The relationship between housing prices and immigration appears to be being modified by the effects (at least) of the economy in both California and Washington, as well as lagged price appreciation in both locals.

    This suggests a need for interaction terms, not just other variables controlled for in the models.

    This is a very complicated model, and my guess is that you wouldn’t get any more clarity out of it than simply staring at the graph provides.

  57. 57

    REALITORS LOVE IMMIGRATION OVERPOPULATION

    Looks like immigration is 40% of Seattle’s housing market sales. See the proof:

    http://www.multi-housingnews.com/multihousing/reports_analysis/feature_display.jsp?vnu_content_id=1003527005&&&&&&&&&&&&&&&&&&&&imw=Y

    Have you bloggers been listening to liberal talk radio recently on 1090 AM? It seems the “real liberals” for population control in America are screaming about the SEVERE damages OVERPOPULATION are having on our country.

    I call ’em “real liberal Democrats with a brain”.

  58. 58
    NoFate says:

    deejayoh – If there was strong correlation it would be a model right (however rudimentary)?

    I’m just saying that Californians moving here must have *some* effect on prices, since it increases demand. Your analysis seems to indicate they have NO effect, but I think your analysis is flawed.

    The method I describe would determine the effect of CA immigrants on housing prices and put it into a $ value.

    Finally, I know that the post looking at modeling price to inventory was you. I thought it was great, but should be expanded to more years.

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