Can California’s Economy Handle a Real Estate Collapse?

Bubble Watch looks at trends that may indicate economic and/or housing problems in the future.

buzz: California’s economy faces modest risks of seeing its business growth cool due to serious real estate weakness compared to other states.

source: This trusted spreadsheet analyzed country-by-country GDP data for 2021 from the US Bureau of Economic Analysis. The collapse damage estimate was determined by looking at the growth of three property-related areas—construction, financing, and real estate—within the state’s GDP and comparing them to the broad scheduling of business output.

direction

California has long been known for its dynamic and volatile property-related industries. But pandemic-era real estate fever was a national phenomenon.

For example, California had 21% of its 2021 GDP growth tied to these three real estate categories. But that’s just a 25% share of average size between states and less than 23% nationwide.

History tells us that the more an economy depends on the success of real estate, the more anxious one is about the future. These are tough times for the real estate sector as financing costs are skyrocketing – interest rates are on a par with what was seen during the infamous rate hikes of the 1980s.

Wyoming’s growth has been largely dependent on real estate in the past year, with 82% of its business expansion in 2021 tied to real estate outlets. It is followed by Delaware with 52%, Oklahoma 41%, New York 39% and Louisiana 38%.

The smallest share is found in Alaska with 3%, followed by Nebraska with 7%, North Dakota with 9%, Maryland with 10% and Indiana with 12%.

What about the main competitors to the economic California? Texas was ranked 13th with the highest 26%. Florida ranked 11th with 28%.

anatomy

Let’s look at the risks.

By my count, California real estate growth in 2021 was the eighth highest at 1.6% versus a nationwide expansion of 1.3%.

Remember, GDP is the sum of all spending on goods and services, so it’s a huge number. It is usually a slow economic benchmark compared to fluctuations in the value or sales of real estate.