Age and education in the golden state

This article comes from First Tuesday Journal Online

Part II of this article series delves into specific age and education data to complete a portrait of some of California’s largest and most dynamic counties.

This is the second article in a series discussing demographic trends statewide. For more information and demographic analysis about California’s major counties, including specific charts of income by county, see The distribution of California’s human resources.

Data courtesy of the US Census Bureau

The above charts track age and education levels at the start and end of the last decade for the five largest counties in Southern California (SoCal) and Northern California (NorCal), as well as the state as a whole. Together, these charts present the ten most populated counties statewide.

Age and propensity to own

Homebuyers may purchase a house at any time throughout their lives, but certain age groups are more likely than others to buy and sell their homes. Experienced brokers and agents are aware that they can count on young adults aged 25-34, the primary demographic of first-time homebuyers, to become dissatisfied with renting and, with little encouragement, purchase their first small single family residence (SFR).

On the opposite end of the spectrum, the newly-retired can be depended on to sell their oversized homes and buy a replacement home in a new location, often along the coast, to enjoy better weather, closer proximity to their professionally-employed Generation Y (Gen Y) children, and access to cultural, hospitality and medical centers. [For more on the movement patterns of different age groups, see the first tuesday Market Chart, First-time homebuyers and new housing.]

While there is no hard distinction between “youthful” and “elderly” communities in California, some useful generalizations can be made. As the charts demonstrate, median age is rising throughout California. The median age is almost two years older now than it was in 1999. Some communities have grown more exclusive and less appealing to young career-seekers, such as Orange County, and thus have aged much faster than others.

Others, especially the counties of NorCal, have aged hardly at all but remain older on average, probably due to high housing prices, a mature and specialized workforce and lower immigration numbers (the Center for Immigration Studies reports that the average Mexican immigrant is 30 years old). [For more on the changes in local population, see the first tuesday Market Chart, Golden state population trends.]

The most dramatic changes have taken place throughout Southern California, where Los Angeles and especially Orange County both aged faster than the state average. This may be due largely to the boom in housing prices, which drove out less established young homebuyers while drawing successful older citizens with the accumulated wealth to buy a home. As prices drop and some of the youth are able to return, the recent age rise may well level out. San Diego was also influenced by this boom, but aged slightly less, perhaps due to its many universities, its proximity to the border (and thus to generally younger immigrants) and its association with the military.

Brokers and agents in counties seeing expansive growth in the elderly population, like Orange County and in particular the city of Irvine, need to prepare for a sort of calcification in their demographic. Time has shown that the older people become, the more they act like themselves  and the less amenable they are to change. Retirees and senior citizens living in the Southwest are likely to pursue the same SFR-based suburban living that they have known all their lives, with the Census reporting that 40% remain in the same communities. While rental properties flourish in urban centers, and debt-laden inland buyers are forced to rent until their finances recover, the elderly population will (for the main part) continue to live comfortably with well-mown lawns and cars for every garage.

In the meantime, the young population has concentrated itself in California’s Inland Empire, where low cost-housing was accessible within driving distance of major cities and the careers they offer. Not incidentally, Riverside’s population grew faster over the last ten years than any of the other counties listed, gaining 644,254 people – a 42% increase in size – in the first decade of the 2000s. San Bernardino followed suit, growing by 19% while the median age grew by only seven months.

Population growth in these inland counties was also fueled by international immigration from Mexico, much of it considered illegal, adding to the population of homeowners and renters, which has a much less direct effect on most of Northern California. [For more on the role of immigration in the California economy, see the January 2011 first tuesday article, Immigration’s impact on the housing market.]

The counties of Northern California have aged more uniformly, generally keeping pace with the state as a whole. Orange County residents who want a glimpse of their future should have a look at Alameda, Santa Clara and Contra Costa counties, which retain the highest median ages in the state. Accompanying this population are high home values, strong employment in careers that cater to the elderly (especially in the field of medicine) and a low number of rentals.

An aging population means a different kind of home sales activity. Retirees very frequently remove their wealth from the stock market, called dissaving, and relocate to a smaller, more comfortable home upon their retirement. This home may be in a different part of the state, but approximately 40% tend to find a more convenient and central location within their own community.

Brokers in Orange County and most of NorCal should work to prepare for these buyers and sellers looking to enjoy their golden years. [For more on the economic function of retirees, see the September 2011 first tuesday article, Boomers bust open doors to real estate investment era.]

NorCal’s exceptions, again, were the less wealthy counties of Sacramento and Fresno, where low home prices and available jobs in untrained positions (especially, in Fresno, in agriculture) served to keep the population young. The population in these counties, like that of Riverside and San Bernardino, lacked the accumulated wealth and home equity necessary to remain homeowners on a broad scale during the Lesser Depression, even as an economically debilitating number of jobs were lost statewide.

Those who bought or refinanced homes during the period of 2001 through 2007 are now the occupants of “underwater” homes, owing more in debt than their homes are worth. Many will return to rentals or move to new locations (typically staying within the state) unlike the years following the early ‘90s recession.

Education

More highly-educated populations tend to seek out higher-paying white-collar jobs, which are most available in higher-density population centers, i.e. cities. They also have a tendency to be more liberal in their civic concerns and more conscious of personal consumption and environmental issues, both of which are dispositions best satisfied by buying or renting in California’s urban centers.

From 2005-2009, the most educated counties in California, as measured in terms of the highest proportion of the population holding a bachelor’s degree or higher, were Marin County (64%), San Francisco county (51%), and Santa Clara county (44%). Coastal areas in Northern California tend to dominate the list of the state’s most educated communities due to:

  • the high density of colleges and universities in those areas;
  • the desirable technology jobs that make up local economies; and
  • the general access to personal and business amenities. [For more on the business-friendly side of California, see the September 2009 first tuesday article, Closed for business? The anti-business mythology of the golden state.]

Not surprisingly, each of these counties has a relatively old population compared to the state average: the median age is 44 in Marin, 38 in San Francisco, and 36 in Santa Clara (the median age for California is 35). These well-educated, well-employed and generally more wealthy communities are among California’s most exclusive and are becoming more so, and they are dominated by those who have used their education over a long period of time to work their way toward the top of their occupations.

On the opposite side of the spectrum are the state’s least educated counties, in which a high proportion of the population has neither a four-year college degree nor a high school diploma.  Although education reform in the last two decades has made great strides in high school retention rates, numerous students still fail to complete high school in these counties. The communities in which they live, and the real estate they occupy, are far different from the well-educated coastal cities, something for an agent to consider if choosing to relocate.

The state’s least educated counties (by high school graduation rate) include Imperial (63%), Merced (67%), and Tulare (67%), though Fresno is not far ahead, with a high school graduation rate of 71%. The median age in Imperial County is 31 years old; it is 30 in Merced and Tulare. While the more established older residents of San Francisco and Marin are likely to be interested in traditional SFR ownership, younger and less educated homeowners tend to be more susceptible to unemployment and foreclosure and thus choose to rent. [For more on the growing popularity of rentals in California, see the May 2011 first tuesday article, Rentals: the future of real estate in CA?]

In times of economic stagnation like the present, renters by choice are augmented by renters by necessity; those for whom traditional SFR ownership is no longer an economically feasible option. Keep in mind also that even in the ongoing financial downturn, mortgage financing is not so rare as many news reports indicate. Brokers and agents who take the extra step of getting a wavering homebuyer pre-approved by a lender or two — proving his financial viability — may give their client the extra boost of confidence needed to jump into ownership. [For more on the pre-approval process, see the April 2010 first tuesday article, Homebuyer guidance to avoid a denial of credit.]

Application to the market

With the charts and data presented above, you might be tempted to make useless generalizations about California areas. Remember, there are young people in Contra Costa and Alameda counties, wealthy people in Fresno and San Bernardino, and extremely well-educated people in the Inland Empire and Los Angeles. Nonetheless, the real estate brokers with agents who develop a broad base of clients are those who most need to be familiar with the demands of tenants and buyers in their specific county.

Likewise, the charts above indicate some clear winners and losers in the competition to develop a stable and potentially productive population. Contra Costa, especially, is among the nation’s best-educated and wealthiest populations, a fact reflected in its 71% rate of homeownership between 2005 and 2009. Santa Clara also seems to have found a working formula for success. These counties can only be expected to do well in the future, thanks to the support of the aging Boomer population and its accumulated wealth.

In contrast, Riverside, San Bernardino, and Fresno have remained unable to support widespread employment, education or housing, with the homeownership rate in Fresno at only 56% in mid-2011; level with the state average but considerably below the 67% ownership rate of Contra Costa. This lack of stability is rooted in a lack of reliable income, which has only grown worse in recent years.

Until full employment returns to California, the central valley (especially Fresno) and the Inland Empire will remain troubled by what are likely the worst homebuying environments in the state. The only ones who might be happy will be the speculators who hope to capitalize on the low prices delivered by this Lesser Depression’s rampant foreclosures. [For more on California foreclosures, see the first tuesday Market Chart, NODs and trustee’s deeds: grim signs of real estate’s present condition.]

Recovery, for these inland valleys, will be difficult, and may require a fundamental restructuring of the housing expectations of residents. The high-priced suburban model has proven, at least in these counties, to be an unsustainable and dangerous way to build a community.

Of more concern for brokers and agents looking forward are those hundreds of thousands of homeowners who have been once burned by foreclosure or shortsale in the housing market, as they will think twice before deciding to buy again. Expect a rise in demand and construction of residential rental properties (though not in the periphery counties), a very slow jobs recovery into 2016 for all counties, and increased urbanization and centralization of populations over the balance of this decade. [For more on the future of suburban communities, see the July 2011 first tuesday article, From city to suburbia then back.]

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