If he likes the current job and the company

I'd say relocate. The houses in CA are much cheaper too, so your loss is selling the house is somewhat offset by the less price you have to pay in CA.

Cost of living is about the same between CA and NJ in general so it's fine that the company kept the pay the same.

Have you been to CA? If you relocate this time of the year, you'd know you made the right decision the first morning you wake up :)

See if you guys can get a bit more reloc assistance. Doesn't have to be cash to you, could be company-paid real estate agent, mortgage loan points etc. Also could try to negotiate a bigger severance if the company lays him off within a year of reloc.