The amount of first time buyers in the California housing market has fallen to levels not seen since 2006, when prices were at an all-time high. Since the recession, sales and home price appreciation in the Golden State has been driven primarily by foreign investment, preventing a generation of young, would-be homebuyers from entering the market.

Prospective buyers looking for their first home in California have been all but squeezed out of the market by foreign investors and rising prices, according to state and national real estate reports.

The 2014 profile of International Home Buying Activity by the National Association of Realtors showed that total international sales have been estimated at $92.2 billion from April 2013 through March 2014, an increase from the previous period's level of $68.2 billion. California was the second-highest locale for international investment in 2013, at 17 percent of all transactions, behind Florida's leading 23 percent.

Concordantly, a year-end study by the California Association of Realtors (CAR) found that 82 percent of investors that bought in 2013 had the intention of turning the home into a rental. The other 18 percent planned to "flip" the homes and bring them back to market.

The primary effects on the housing market are twofold. First, inventories remain low, because investors buy distressed homes from banks and immediately put them back on the market for rent. Second, prices for the remaining homes – which are often in undesirable locations or short on square footage – are driven upward, out of the reach of new buyers.

According to analysis by real estate blogger Dr. Housing Bubble, an 4.5 percent mortgage rate in California, the typical rate at the end of 2013, would require a household income of $86,538 for a median priced home selling for $415,770. Since the report was published, the median price based on CAR data for California is now up to $457,160, and if rates move up modestly to 6 percent, a new homeowner would need a $100,000 household income for a median-priced home in the Golden State. Put mildly, a six-figure income is not common for first time homebuyers.

The lack of first time homebuyers in California, while exaggerated compared to the national market, augurs trouble for a housing recovery that has never quite taken off since the financial collapse and recession of 2008-2009. Economists have argued that pent up demand from young buyers would push housing upward dramatically – at some point. In reality, first time buyers are at levels last seen in 2006 when prices were at their peak, and remain absent because they can't afford to buy in California. As investors are pulling back from 2013 levels, home price appreciation has slowed, but so have other market metrics like new home sales and
housing starts.