California has long captured the nation’s imagination with its promises of the rich life, from the days of the gold rush to the rise of Hollywood and its star-making machine, to today’s booming tech sector. With its breathtaking shoreline and strong economy, the state has become indelibly known as a place abounding in opportunities—for those eager to seize them.

Lately, however, California’s luster seems to be dimming.

It’s all converging at once to test the state’s true appeal. Despite the odds, can the Golden State’s real estate market remain, well, golden?

“Nobody in their right mind would bet against California,” says real estate professor Christopher Leinberger of George Washington University, in Washington, DC. However, “the Golden State can’t be golden forever with the ridiculousness of the home prices.”

California’s home list prices reached a record high in August—and have experienced the second-loftiest increases in the nation, according to the latest data from realtor.com®. (Only Utah saw bigger price gains.) Nine of the 10 most expensive metropolitan areas in the nation are in the state. (We included only the 300 largest metros, which encompass the main city and surrounding suburbs, towns, and smaller urban areas.) The state’s median price tag was $720,050 in August—up a jaw-dropping 23.7% from a year earlier.

That’s more than 10 times California’s median household income of $70,489 in 2018, according to the latest U.S. Census Bureau data.

The price hikes are due to the dearth of homes for sale. The shortage has been going on for years, but it’s been compounded by the COVID-19 crisis. Shut in their abodes for months on end, Americans are seeking larger homes for working and schooling their children. But there simply aren’t enough properties to satisfy demand, with the number of new listings down nearly 11.1% from August of last year on realtor.com.

Leslie Appleton Young, chief economist of the California Association of Realtors®, attributes some of that rapid run-up in prices to rich, white-collar workers who can now telecommute buying up luxury properties in more remote locations. In July, sales of homes priced at $3 million and up increased by about 76.6% year over year, she says. Homes priced at $1 million and up now make up about 20% of the state’s sales.

“The challenge is, you have the next generation of home buyers, [but] it’s very difficult to buy in California,” she says. “We’re losing people who simply can’t afford to be here.”

Many Californians were already being priced out

The lack of affordable housing is partly responsible for the nearly 3.25 million Californians who left the state from 2014 through 2018, according to the latest U.S. Census data. It’s also led giant tech companies like Google and Facebook, whose well-paid employees are partly responsible for the acceleration of prices in the San Francisco Bay Area, to pledge to build affordable housing in the area.

Looking at migration patterns in the U.S., “people have been leaving California and the Bay Area in higher numbers than they have been arriving,” says Patrick Carlisle, chief market analyst in the Bay Area for real estate brokerage Compass. “That outflow was being balanced by foreign immigration for years.”

More recently, however, that inflow of foreigners has declined.

Before the pandemic, Gov. Gavin Newsom boasted California had the fifth-largest economy—in the world. But COVID-19 has dealt the state’s economy a blow. California had a 13.3% unemployment rate in July, the sixth-worst in the nation, according to the U.S. Bureau of Labor Statistics.

“The housing supply in California is the No. 1 priority,” says Dowell Myers, a housing demographer at the University of Southern California, in Los Angeles. If the situation doesn’t improve, the lack of housing “will stifle employment growth and undercut the economy,” he says.

The quality of life could deteriorate enough to spur more folks to leave and deter others from moving in, he says.

Wealthier tech workers can still afford to drop nearly $1.2 million on a median-priced home in Silicon Valley’s San Jose metropolitan area, according to realtor.com’s August list prices.

But many others realize they can pay a fraction of that to live in other hip cities with growing tech hubs, like Austin, TX, with a median list price of roughly $400,000; Salt Lake City, at $490,000; and Nashville, TN, at $396,000. Even other West Coast tech hubs like Seattle and Denver are significantly cheaper, with median prices of $625,000 and almost $540,000, respectively.

Departing residents are “much more of a threat than a fire or an earthquake” to the state, says Myers. Although it attracts well-educated, high-earning millennials from other states as well as foreigners, California might see these higher-earning transplants leaving after a few years.

“They feel like they can’t possibly live where they want to live and buy a house,” says Myers. “California could hold more of the recruits if it had cheaper housing.”

George Washington University’s Leinberger blames NIMBY (“not in my backyard”) attitudes, which have stymied the creation of new housing throughout the state. While many residents support new construction, they don’t want it in their own communities. They worry that creating more dense housing, such as apartment, condo, and townhome complexes as well as smaller homes, could lower their own property values. They also say it would tax the existing infrastructure, like schools and local services, and exacerbate traffic issues.

Even well-meaning local regulations can drive up building costs and lead to long delays that can stretch over a decade between an application being submitted and a shovel going into the dirt.

“This is a self-inflicted wound,” says Leinberger of the housing shortage.

Could the pandemic prompt more people to leave California?

Although there has been a steady stream of Californians leaving their home state for years, the pandemic could accelerate that trend.

With more white-collar workers able to work remotely, some are heeding the siren song of more affordable homes, lower taxes, and a cheaper cost of living outside California’s borders. Others are remaining in state, but forsaking the expensive cities and moving into less-expensive areas.

“In the short term, California is going to see more people leaving due to the high cost of living combined with the ability to work remotely,” predicts realtor.com Senior Economist George Ratiu.

“People are willing to pay a premium to live there,” says Ratiu. “Perhaps that premium is being reevaluated by a lot of younger people.”

California could see winning and losing real estate markets

While some of California’s housing markets may be forced to slow down, others will likely keep accelerating.

“California’s a big place. You’re going to have winners and losers within the state,” says Mark Zandi, chief economist of Moody’s Analytics. “The housing markets in those urban cores are struggling. That will continue throughout the pandemic.”

In the Bay Area, sales for single-family homes in San Francisco and larger residences in the more suburban counties have been brisk while condo sales within the city limits have dropped off as a result of the pandemic, says Bay Area analyst Carlisle. That’s driven by wealthy, white-collar workers who are able to work remotely.

In addition to the surge in interest in expensive, sprawling homes north of San Francisco, in Marin County and  Napa and Sonoma, buyers with means are trading their rentals and smaller homes in high-priced, urban areas for larger homes in more affordable, inland communities in California. Some are leaving the state altogether for hip cities with strong job markets.

However, many more are staying put. Southern California, including Los Angeles and San Diego, could fare better than Northern California’s Bay Area as it’s a little less expensive, says Matthew Gardner, chief economist of Windermere Real Estate. Residents who work in the entertainment and other Southern California industries may be less able to work from home as the Bay Area tech workers.

“We’re not talking about cities being abandoned,” says Carlisle. “Shifts in markets are shifts in degrees. Except for something like the housing bust of 2008, [markets] slow down.”

And no matter what trials it’s currently going through, California is still, well, California.

“It’s hard to envision a large exodus,” says Appleton Young. “We are [still] the tech hub, we’re the entertainment hub, we’re rich in natural resources and natural beauty.”