Can the California economy handle a real estate crash? – Orange County Registry

bubble clock‘ addresses trends that may indicate upcoming troubles in the economic and/or real estate markets.

To hum: California’s economy has a low risk, relative to other states, of its business growth being dampened by severe real estate weakness.

Source: My trusty spreadsheet analyzed state-by-state gross domestic product data for 2021 from the US Bureau of Economic Analysis. An accidental damage estimate was defined by looking at the growth of three real estate-related niches – construction, financial, and real estate – within a state’s GDP and comparing it to the broad chart of economic output.

The tendency

California has long been known for its dynamic and volatile real estate industry. But the housing frenzy of the pandemic-era was a national phenomenon.

California, for example, had 21% of its 2021 GDP growth tied to these three real estate categories. But that’s only a mid-25th largest proportion among states and below the statewide level of 23%.

History teaches us that the more dependent an economy is on real estate success, the more concerned one should be about the future. And these are turbulent times for the real estate business as the cost of financing is experiencing a staggering surge – interest rate hikes on par with the notorious spikes of the 1980s.

Wyoming’s growth was most dependent on real estate last year, as 82% of its business expansion in 2021 was tied to real estate niches. Next was Delaware with 52%, Oklahoma with 41%, New York with 39% and Louisiana with 38%.

Alaska had the smallest share with 3%, followed by Nebraska with 7%, North Dakota with 9%, Maryland with 10% and Indiana with 12%.

And California’s economic arch-rivals? Texas was 13th with 26%; Florida was #11 with 28%.

The section

Let’s look at the risks.

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

Remember, GDP is the sum of all spending on goods and services, so it’s a huge number. And it’s usually a slow-moving economic benchmark compared to, say, fluctuations in property sales or values.

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