The cities in the Sunbelt region that benefited from the “Great Migration” caused by the COVID-19 pandemic are still witnessing an influx of people. However, this influx is no longer accompanied by a surge in home prices. Bank of America Corp. conducted an analysis using anonymized customer transaction data, providing insights into the movement of Americans up to the first quarter of 2023. Although the growth has slowed, people are still on the move, according to a recent report in the Playbook.
In the first quarter of 2023, Austin experienced a 1.5 percent increase in net inflow compared to the first quarter of 2022 and a 5 percent net inflow compared to the first quarter of 2020. Similarly, Tampa, Orlando, Dallas, Charlotte, Houston, Phoenix, Las Vegas, and Cleveland all observed net inflows of people. Conversely, cities like San Francisco, San Jose, New York, and Boston, which faced migration challenges during the pandemic, continued to experience people leaving over the past year, as indicated by Bank of America’s data.
Typically, large inflows of residents lead to increases in home and rental prices. However, data from Freddie Mac, cited by Bank of America, revealed that even in cities with growing populations, the gains in home prices are slowing down rapidly while rental prices continue to rise. Anna Zhou, an economist for Bank of America Institute, emphasized that domestic migration remains a significant factor influencing the housing market. Although rising interest rates are currently dampening home-buying demand, cities attracting millennials and baby boomers could witness long-term strength as millennials reach prime home-buying age and baby boomers downsize their houses.
Austin experienced one of the most substantial drops in home prices, transitioning from a 33 percent increase between 2021 and 2022 to nearly a 10 percent decrease in the first quarter of 2023, which was comparable to the decline observed in San Francisco and other major metropolitan areas. Similarly, other growth markets also experienced significant declines in home prices. However, the rental market remains strong in these growth markets. In April 2023, median rent payments for Bank of America customers in Austin, Orlando, and Tampa increased by 11 percent, 14 percent, and 14 percent, respectively, compared to the previous year. This contrasts with the national average of 8 percent and only 3 percent in San Francisco.
Bank of America suggests that the reasons for this phenomenon extend beyond higher mortgage interest rates. The report states that population inflows into Austin are skewed towards younger individuals, which could exert more upward pressure on rents rather than on home prices.
This shuffling of residents coincides with baby boomers once again becoming the generation accounting for the highest number of home purchases. The report emphasizes various factors contributing to this trend, including higher generational wealth, downsizing or relocation due to retirement, and the desire to be closer to family and friends. According to a report by the National Association of Realtors, only 49 percent of older baby boomers (ages 68 to 76) financed their home purchases in 2022, compared to 93 percent of millennials (ages 33 to 42).
Interestingly, baby boomers are leaving Austin, which is attracting younger incoming residents, while they are choosing places like Las Vegas, Phoenix, Tampa, and Orlando. All generations are leaving cities such as San Francisco, New York, and Seattle. Another analysis conducted by Checkr, a background check and employee screening company, found that many of America’s “boom towns” are located in the South or the West, particularly in Utah, Idaho, Florida, and Texas. Factors such as population growth, GDP growth, and workforce growth were considered in identifying these “boom towns.” Provo, Utah, topped the list, followed by Boise, Idaho; Coeur D’Alene, Idaho; Bend, Oregon; and St. George, Utah. Austin also ranked highly on the list, along with several cities in Florida.
Sara Korolevich, the author of the Checkr report, highlighted that the pandemic caused unprecedented disruption, and although the report did not analyze the impact of remote work in enabling individuals to relocate, it cannot be ignored as a factor contributing to the growth of these boom towns. Remote work, which gained popularity during the pandemic, has transformed daily life for many and provided individuals across America with the opportunity to move to more suitable locations based on their lifestyles and budgets.
Korolevich mentioned that although workers are no longer commuting to busy and expensive hubs like Chicago, New York, and Los Angeles, the influx of workers into low-cost areas can drive up housing prices and other sectors. The elevated cost of housing in major cities across the country is one of the key factors motivating the move to less-expensive cities, facilitated by remote work, where residents seek better work-life balance and more affordable living.
In the housing market, cash continues to be the preferred method of payment for home sales. According to Attom Data Solutions LLC, nationwide, all-cash purchases accounted for approximately 36 percent of total home sales in 2022, the highest rate since 2013. In the years immediately following the Great Recession, cash sales accounted for 38.5 percent of sales in 2011 and 2012.
