Real Estate Migration Patterns and Inflation | Which State Will Burst The Housing Bubble First?

May 25, 2022

Real Estate Migration Patterns and Inflation | Which State Will Burst The Housing Bubble First?

“Well, first let’s all be honest about this: The only time anybody really knows if you’re in a housing bubble is after it bursts. So no matter how smart any of us think we are, we’re all kind of speculating, " says Rick Sharga, Executive Vice President of Market Intelligence at Attom, regarding the housing bubble in 2022.

I want to start with this because you hear speculation from both stances surrounding the issue. Personally, I’m more in the middle, leaning towards this not being a housing bubble. I’ve been sharing the data I’ve been seeing with you so that you can make informed decisions and speculations about real estate.

So, let’s talk about migration patterns and inflation.

There are correlation studies between those two, which we will talk about here.

And, yes. In some areas of the US, housing is softening a little bit—it’s not dropping, there are still offers. It’s just dampening or evening out a little bit. Let’s dive deeper into this.

Let’s talk about Texas

This article by Fortune magazine caught my attention. It is titled “The Last Housing Bubble Missed Texas." Now the Lone Star State is home to the second most ‘overvalued’ housing market in the country, " and while I was reading it, I was like, “Oh,yeah.. Texas was kind of left out of the whole 2007 to 2008 debacle.”

According to Fortune, “Back in the early 2000s, housing speculators were suckered into believing that a shortage of supply would continue to propel U.S. home prices skyward, at a double-digit pace.[…] places like Las Vegas and Miami got crushed even harder when what turned out to be a housing bubble ultimately burst and spurred the 2008 financial crisis. The Sunbelt housing meltdown had one big exception: Texas.”

However, from Florida Atlantic University’s recent research measuring the regional housing market prices, “Austin is the second most overvalued housing market in the nation. The median home in Austin is worth $589,600. That's 66% above the $354,600 limit that the Florida Atlantic University researchers say this is supported by underlying economic fundamentals. Only Boise, Idaho, was overvalued by more, at 75%.”

And the first thing I noticed was that everybody I knew that was moving out of LA or California was either moving to Boise, Idaho or they were moving to Austin, Texas. And here we see that the most migrated places have home prices pushed a little higher.

Even big companies are moving to Texas in general from the state of California.

Other places that are ‘overvalued’ in Texas are “Dallas [which] is overvalued by 46%, ranking it No. 18 in the nation. Not too far behind are San Antonio (overvalued by 30%) and Houston (overvalued by 28%).”

According to Fortune, “The Lone Star State has greatly benefited from pandemic-spurred work-from-home migration. […] Hewlett Packard Enterprise, Oracle, and Tesla relocated their headquarters from the Golden State to the Lone Star State during the pandemic, too, perhaps drawn by Texas's favorable tax rates.”

If you check out the article, there’s also an interactive map showing “the degree to which regional home prices are overvalued or undervalued, according to Florida Atlantic University.”

You’ve got places in California, like Riverside, where everybody moved to during the advent of work-from-home because of the pandemic. A lot of people were relocating to this area because of lower prices and because it was outside of the big city. Then, there are places like Stockton, where people from San Francisco are still moving there.

Aside from Boise, Austin, and Dallas (overpriced by 75%, 66%, and 45%, respectively), areas like Tennessee (46%), Knoxville (39%), and Chattanooga (37%) are considered overvalued too.

What’s the relationship between migration and inflation?

Here’s the thing you have to watch out for, though. Redfin released some correlation data between migration towards areas with homes that are significantly less valued and how migration has been driving up prices in those areas.

We are seeing a disparity in inflation in these areas because upon moving, people who sold their homes and were able to buy a house for less have excess cash to buy things left and right. They’re driving prices up dramatically.

According to Redfin, “The relationship between migration and inflation has strengthened significantly as more people relocate from expensive coastal cities to more affordable metro areas. More than half of the variation in inflation rates between metro areas in 2021 can be explained by domestic migration. But in the preceding decade, from 2010 to 2020, a much smaller share–around 24%–of the variation could be explained by migration.”

They show a graph titled “Metros with higher rates of net migration tend to have higher inflation.”

And the markets at the top are Atlanta, Tampa, Phoenix, St. Louis, Riverside, Dallas, and Houston. Again, all areas saw an influx of people moving in within a short period of time.

Those are the things we have to watch out for. Because interest rates are going up, some areas that have seen higher inflation are now going to see some areas of lower inflation.

We’re already seeing it. Atlanta is slowing down a little bit. Parts of DC and Maryland now do not have as many multiple offers. Some parts of Southern California are still hot, and Miami is still an absolutely hot market right now.

These other areas may not necessarily slow down. If we do start seeing a bigger dip in the housing market, it could be in these higher-inflated areas and not everyone.

Let’s talk about affordability

Here’s another article by Redfin titled “Here Are Eight U.S. Migration Hotspots Where Homes Are Still Relatively Affordable.” 

This means we could start seeing other areas go up in value as well. Even through this whole process of people saying we are in a down market, it might not necessarily be the case.

This is an excerpt from Redfin’s article: “The typical home in Virginia Beach, the 15th-most popular destination for buyers moving to a different metro, sold for $315,0000 in April. That’s well below the national median of $424,400 and the lowest median sale price of the top 20 migration destinations in the U.S. Home prices are below the national median in eight of the top 20 destinations, providing options for relocating buyers. 

“Next come a pair of Texas metros that rank 9th and 10th on the list of most popular destinations: San Antonio, where the typical home sells for $330,000, and Houston ($340,000). Jacksonville, FL (13th, $357,000) and Bakersfield, CA (20th most popular destination, $365,000) round out the top five. The others are Tampa, FL (3rd, $370,000), Atlanta (12th, $383,000) and Cape Coral, FL (6th, $419,000). ”

These are the areas you should pay attention to over the next few months. People will still be moving into these affordable areas, which could mean we could see multiple offers.

In Conclusion

It just depends on two things: affordability and inventory. If the inventory remains low, the demand will remain high as long as people are still purchasing. And guess what—the rate is at 5.5%, but a lot of people consider that still a significantly low rate.

If the rate starts going up towards 7% or 8%, then we start worrying. But we’re not there yet, and I don’t know what’s going to happen over the next couple of months.

Pay attention to all this data.