New York, California exodus continues, but 'catastrophic effect' of Biden economy may be on the way: experts
(FOX NEWS) - Americans are continuing to flee liberal states like New York and California for better home prices and taxes, but business experts warn the Biden economy is creating new problems for happy movers.
VonFinch Capital founder and real estate investor Steven Pesavento said that during the pandemic, employees realized they no longer needed to live in the cities where they worked, which created new opportunities for a flexible lifestyle.
"It opened up an opportunity for them to get away from, you know, the high cost of living, the kind of oppressive civil policies and business policies, the high taxes, all of those things that they were willing to stay put over because it was what they needed for their job," Pesavento said.
California saw its first-ever population decline in 2020 when the state imposed rigid lockdowns during the COVID-19 pandemic. From January 2020 to July 2022, the state lost well over half a million people, with the number of residents leaving surpassing those moving in by almost 700,000.
MyEListing.com, an online real estate portal, studied IRS migration data and found that California lost more than $340 million in 2021 IRS tax revenue due to residents moving.
New York experienced the second-biggest drop next to California, losing just under $300 million from its yearly tax base.
"A lot of people left," Pesavento said. "It was the biggest migration pattern since 1990 and likely the biggest even before that. So, a lot of people moved. They moved really quickly. And once people take an action, once they do that, a lot of people are choosing not to go back."
Pesavento noted that while cities like New York and Los Angeles have seen somewhat of a "revitalization" as COVID restrictions loosened, it is nowhere near the social and economic boom seen pre-pandemic. He said many homeowners continue moving to places like Texas, North Carolina, Florida and other states and small cities that better represent their values.
"They're chasing lower taxes, they're chasing better business policies, and they're chasing a better way of living," Pesavento said. "They're also looking for other people who believe what they believe and to kind of get away from all the craziness that's been happening in schools in those local areas where they used to live."
Real estate coach and business expert Josh Cadillac told Fox News Digital that migration to red states remains strong from its peak in 2021. He said that many people decided to move to places where they were "treated like adults" and could circumvent the paranoia and government restrictions that came along with the pandemic.
While the commercial and office market remains muscular in Florida, Cadillac said the entire New York tax base has been "decimated" and the city is struggling to repurpose building vacancies.
"What we saw was one of the greatest domestic migrations we've seen since the end of slavery. I mean, people have moved in unbelievable droves. They voted with their feet to leave places where they lost their autonomy, to go to places where they could," he said.
However, he worried that the "real catastrophic effect" of the economy may still be on the horizon, calling the restart of student loan payments "a wild card."
Real estate broker and The Masters Division founder Bianca D'Alessio was more bullish about the current real estate market in blue states, especially New York. Her research suggested that while red state hotspots like Florida, Texas and the Carolinas are prime destinations for many Californians, some are instead flocking to the Big Apple.
"I would say the Great Migration from California, which is something we feel tremendously both in the city, outside of the city and into other states, has really been very politically focused," she said. "People leaving for concerns about safety, homelessness, crime, natural disaster. I think people are fed up with California politics. I don't know if it makes the most sense for them to be moving to New York if they're trying to escape politics. But we did feel a lot of that activity."
These California buyers, D'Alessio found, are most heavily moving into suburban markets where they can be close enough to New York City for work while also taking advantage of a larger space and yard.
Much of the influx of cash into the New York real estate post-pandemic has also come from international markets, especially China and Russia.
Looking at U.S. residents, D'Alessio suggested that people who want secondary housing within the Northeast have driven a recent influx into New York.
"I think they tried out quality of life. They tried out Florida. They tried out South Carolina. They're keeping those homes, but they want to still own in New York and spend more time and figure out how do you split your travel schedule and your lifestyle to be able to incorporate living in those other places," she said.
She added that although interest rates have skyrocketed, rental and mortgage properties are still flying off the shelves amid high demand and a lack of new homes.
Supply chain issues and rising inflation have induced the rising cost of materials, leading to a meager selection of new properties.
Those contributing factors have also impacted food, a line item along with home prices that financial planner Matthew Carbray said is "noticeably higher" than years past.
Carbray, a Ridgeline Financial Partners LLC managing partner, told Fox News Digital that middle-class Americans are still spending amid low unemployment and an increased interest in travel.
"But what they're finding is everything's just immensely more expensive," he said. "So, as a direct result of that, if you look at household savings levels, they're probably the lowest they've ever been. And this is one of the best environments I've seen since, I guess, 2006 is the last period that I could remember where, as a saver, leaving your money in a high-yield savings account, you're earning four and a half, maybe 5%."
The Biden administration has tried several strategies to try and help reduce costs passed on to Americans. Carbray said some of these policies are more effective than others.
"I talk about the Inflation Reduction Act — that to me hasn't done a whole heck of a lot to curb inflation. The Fed's actions have done a lot more than that legislation," Carbray said.
He also suggested that the Inflation Reduction Act has had "very little" positive impact on prices, perhaps even a "slightly negative" effect.
Carbray said that the Secure Act passed under the current administration has favored workers willing to put in extra years in the field. The Secure Act, as it stands, pushes out required minimum distributions, allowing for higher retirement plan contribution limits.
The financial expert added that Americans should not rely on the government to fix their financial woes and instead must build up an adequate amount of emergency reserves before making any significant buying decisions. He advises that people build up between nine and 12 months of emergency reserves, depending on the cyclicity of income and job security.
"I think people are dealing with less dollars that they have to allocate to more short- and longer-term goals," he said.
Michael Lush, a financial real estate educator and founder of Replace Your Mortgage, agreed that Americans need to take their financial responsibilities into their own hands to tread water in the current economy.
"Don't expect government or politicians to solve your problems. That's something they've never done. That's something that they never will. All they will ever do is exacerbate your problems," Lush said. "So, what we need to do as Americans is kind of come together and start solving the problems ourselves. That's what capitalism is all about, right?"
Lush noted that the average American household was up $6,000 under the previous administration. Today, the country is experiencing "stagflation," wherein income has not increased, but inflation has.
"We're technically going backward at a staggering level," he said.
Lush suggested that Americans looking to hold onto more cash should find ways to create their own economy, producing goods they would otherwise purchase for more significant amounts at the store. Additionally, he advised people, especially in red states, to change their withholdings on their tax forms to average more money in their paychecks each month and put that extra cash towards investments.
"I just had this conversation last night with a client. She moved from a blue state to a red state. She was getting a $3,000 tax refund. She has three kids now. She moved to a red state. She's getting a $9,000 tax refund each year. That's actually not good," he said. "Yes, you're keeping more of your money. But think about what a tax refund is. You're actually donating your money throughout the year to the federal government. And we all know that they don't do a good job of budgeting or spending. Right. It's one vote after another so that we can raise the debt ceiling. They're terrible at it."
Lush also suggested that people avoid stringently following a "scarcity mind."
"There's only a certain point in which you could cut expenses in this day and age with the technology and opportunity that we have. It's actually easier to go out and make a thousand bucks extra than it is to save 500 bucks," he said.
Instead of only looking to cut expenses, Lush said people looking to make extra money should identify their skill set or value and turn it into an efficient service or product.
He also advised people with cash reserves to look outside the traditional savings account or mutual fund opportunities.
"Understand that there are other things outside of mutual funds," Lush said. "Buy and hold stocks for long term to try to get a rate of return. There are thousands of opportunities out there that you can get much better yield on your money, especially by having it sitting in a savings account doing absolutely nothing for you. In fact, it's going backwards because of the cost of inflation."
Fox News' Aaron Kliegman contributed to this report.
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