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What is the California effect, and how does it affect our Colorado real estate markets? When we look at the sources of transplant residents, California is indeed the number one importer of people into the state of Colorado.

Eric Thompson from Windermere Local explains how Californians moving to Colorado impacts our real estate values across the state — known as the California effect.

Each State’s Real Estate Market At-a-Glance

Did you know: the median price of a home in San Francisco is currently $1.5 million — yes, you read that correctly, million. And the median price of a home in Los Angeles isn’t too far from that at $937,000. How about San Diego? Well, the median home price in that market is a nice round $800,000.

Now let’s compare those prices to what we’re currently seeing in the Colorado markets, specifically along the Front Range. Starting with Metro Denver, the average price of a home is currently set at $611,000. In Larimer County, the median home price is just under that at $598,000. Finally, the average home price in Weld County sits at $498,000.

Quite the difference, right? These extreme variances between the two markets are what ultimately create the California effect.


What Does “Worth” Have to Do with It?

We’ve all heard the saying – “something is only worth what someone is willing to pay for it.”

We in the business regularly apply that to real estate. You may have even heard in real estate that “a home is worth what someone is willing to pay for it.” Well, that’s true. However, what’s also true is that something is worth what someone is able to pay for it.

So, a very expensive item placed for sale somewhere that happens to be well-populated with people who don’t exactly have a lot of money — no matter how valuable that item might be — will not fetch the same high dollar price that it would if for sale in a high-income population.

Let’s look at the California effect as it relates to the aforementioned point:
The first way is that Californians are coming to Colorado with a lot of cash — essentially because they’ve sold their California real estate, and they have made (in many cases) an exorbitant amount of money. This is due to high appreciation values. This is a big factor in the increasing rates of our local real estate market values because they are able to pay a high price.

The second thing to keep in mind is that a property is only worth what it is relative to. For example, those moving from California to Colorado see our current real estate market values as a bargain compared to the near million price points they are used to. On the other hand, longtime or native residents of Colorado may express the opposite sentiment — feeling costs are rising far too high and very rapidly.

So, in summary, we’re saying that value is:

  • Worth what someone is willing to pay for it
  • Worth what someone is able to pay for it
  • Relative to each individual

What to Expect from the California Effect

This effect, factor, or dynamic will continue to push the prices of Colorado-based properties up. The California effect has been happening for as long as most can remember and is not going to stop anytime soon. Here’s why: the Colorado cat’s out of the bag — people know how amazing it is to live here and what an incredible place it is to be in regard to amenities and quality of life.

With that in mind, we can confidently say that relatively speaking, the cost of living in Colorado is an extremely good deal.

Topics covered in this article are based on a recent episode from the Colorado Living Podcast — hosted by Eric Thompson and produced by Windermere Local — your hub for real, raw, and authentic insights on the Colorado real estate market. Check out the full episode on ‘The California Effect’ at the link HERE or using the player below.

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