With beautiful weather and a wealth of cultural offerings, California has long been a state of aspirations for many Americans. What many people don’t realize, though, is that the Golden State is also one of the most expensive places in the country to live.

Glass half-empty

The Golden State’s real estate has long been a national favorite, and prices have soared over the last decade as many people who can’t afford to live there have moved to other states. But California’s housing bubble could be due for a major pop—and it could have national implications. According to the report, California has had 69 four-quarter periods with double-digit price gains (the most in the nation) since 1975. Plus, there have been 46 periods of depreciation (No. 4 among the states).

The historical volatility of the California market is 62%, which is higher than any other state and almost double the national norm of 32%. In fact, California has had 69 periods with double-digit price gains since 1975 and 46 periods with price depreciation. That means there's a 62% chance of either extreme (i.e., either a high level of overvaluation or undervaluation). The next wildest state was Rhode Island at 58%, Connecticut and Massachusetts at 55%, and New Hampshire at 52%.

Glass half-full

Real estate has been a strong investment for many years, but with the job market tightening in California, it may be time to rethink the wisdom of buying a home in the state. According to a recent study, over the last 47 years, California homes have given investors and homeowners small but consistent gains. In fact, California homes returned 6.7% each year from 1975 to 2012. That's second only to Washington DC, which brought in 6.9%. However, if you look at states that were strong throughout this period and not just hot spots early on, New York put up 8.3% annualized returns over this time period and Texas came in at 7.6%. At the opposite end of the spectrum are states like Mississippi and West Virginia which posted gains of 3.3% and 3.8%, respectively.

As you may have guessed by now, California was a strong market early on but wasn't able to keep pace as other markets around the country gained steam. With this information in mind, it might be time for prospective home buyers in California to look into whether other locations offer more opportunities for growth than their current area does before making a commitment to buy a home there.

Conclusion

The bottom line is that while all eyes are on the performance of California's real estate, we have yet to see many signs that the state's housing rebound has a sustainable economic foundation. In fact, what has happened so far looks significantly less attractive when you consider the level of underlying economic growth California has generated throughout this recovery versus other states. This is a key consideration for buyers who may be wading into the market seeking to benefit from this surge in demand but are not overly concerned about purchasing an asset which could turn out to be — and might well be at some point — overvalued because it has been fueled by investor activity rather than underlying economic fundamentals.