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The big migration story of the pandemic was the emptying out of major US cities. As more employees return partly or fully to their offices, people have begun to talk about a rejuvenation. Don’t believe it.
The housing trend of the pandemic had people leaving big, expensive cities and moving to destinations that were some combination of cheaper, warmer or more scenic. People left Northeast cities such as New York for Florida and Texas, and they left the West Coast for Montana, Idaho and Arizona.
That migration slowed down in 2022 as companies called workers back to the office and, importantly, as the housing market began to sputter.
We can expect to see a further slowing in the 2023 population numbers from the Census Bureau, due in December, in line with what’s showing up in the change-of-address data from the US Postal Service. This doesn’t mean the coastal-city exodus that we saw during the pandemic is over, just that elevated mortgage rates and the sluggish resale housing market are holding back moves that people will make once activity picks up again.
Interstate migration and the level of existing home sales go hand in hand. Transactions in existing homes rose from an annualized rate of around 5.25 million a year prior to the pandemic to 6.5 million in late 2020 and early 2021 at the height of the migration boom, the fastest in 15 years.
Now, homes aren’t selling so homeowners aren’t moving. Since the pandemic boom, existing home sales have collapsed by 40% as of last month.
We have some confirming data courtesy of the USPS, which began publishing monthly change-of-address statistics at the ZIP code level during the pandemic so researchers could track migration trends.
The USPS has complete monthly data through May 2023, which covers most of the period we’ll get population numbers for in December. The data show, for instance, that requests for change of address to the popular destinations of Florida, Idaho and Texas fell by 9.5%, 13.9% and 10.9% respectively — matched by slowdowns in moves away from California and New York — in the first five months of 2023, compared with the first five months of 2022. Existing home sales have fallen even more since May, suggesting even less interstate migration in the second half of the year.
Civic leaders in big cities like New York, Chicago and San Francisco that saw a lot of outmigration during the pandemic shouldn’t be lulled into a false sense of security by the slowing of these outflows. While the peak of pandemic migration may have been unsustainable and due for some giveback, current low levels of migration and existing home sales aren’t a new normal as much as a temporary friction while the market adjusts to higher interest rates.
Even before the pandemic hit, the 2020s were destined to be a period of higher migration as the two biggest generations — baby boomers and millennials — both found reasons to move. Baby boomers were retiring, following a long-established pattern of retirees moving to places like Florida. Millennials were entering their family-formation ages, which historically has meant moving from cities to suburbs and from the north to the south. The dispersion of knowledge jobs and the rise of remote and hybrid work make mid-career moves even more attractive than they were five years ago.
There’s history of a surge in interest rates and slump in home sales temporarily slowing population migration. In the 1980s, Nevada had the fastest population growth of any state in the US and was the most popular destination for domestic migration. The growth was interrupted by a slump in the housing market in the early 1980s in response to high mortgage rates. Nevada’s population growth fell from over 6% a year in 1978 and 1979 to just 2.3% in 1983 before rebounding to more than 5% by the end of the 1980s.
I am not convinced by all the pessimism around how long home sales will be depressed because of elevated mortgage rates. John Burns Research & Consulting’s survey of real estate agents nationally shows buyers still outnumber sellers, signaling lack of inventory is a bigger constraint on transactions than the impact from high rates on affordability. It is why home prices have remained so resilient.
Yet, as I’ve noted, inventories are now rising at a time of the year when they typically don’t, suggesting 2024 could be a year of more inventory, more transactions and a pick-up in interstate migration.
History suggests that rising interest rates aren’t enough to permanently impair housing transactions. Rising mortgage rates in the late 1970s and early 1980s temporarily slowed housing activity, but the market found its footing once inflation settled down and interest rates stabilized. Housing activity and Americans being on the move may be on pause for now, but don’t bet on it lasting.More From Bloomberg Opinion:
• Millennials Are Right to Complain About Housing: Justin Fox
• The US Housing Market Is Now Completely Broken: Conor Sen
• Maine Is the New Florida for Climate Migrants: Conor Sen
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Conor Sen is a Bloomberg Opinion columnist. He is founder of Peachtree Creek Investments.
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