Trend surged at height of COVID-19 pandemic
It was a trend that gathered pace as the COVID-19 pandemic ramped into gear across the US: the gravitation of homebuyers away from pricier markets and into more affordable areas outside major cities.
The rise of remote-working arrangements helped spur that phenomenon, with Americans suddenly finding themselves able to work from anywhere as offices shuttered and stay-at-home orders came into effect.
That trend saw over 1.2 million Americans leave the nation’s large urban counties in the period between July 2020 and July 2021, according to an Economic Innovation Group report.
While a semblance of normality has been restored to work arrangements since the height of the pandemic, the swing towards smaller and less pricy markets shows little sign of slowing – especially with affordability challenges continuing to grow.
Odeta Kushi (pictured top), deputy chief economist at First American Financial Corporation, told Mortgage Professional America that rising prices, especially in the country’s hottest markets, were seeing prospective buyers increasingly turn their attention elsewhere.
“The untethering from the office has certainly contributed to folks feeling like they can maybe move from a more expensive market to a more affordable market,” she said. “And we’ve been seeing that for some time when we look at the migration statistics of young people. You see out migrations from traditionally more expensive markets like LA and New York to traditionally more – or relatively more – affordable markets in the Sunbelt.
“And of course I say relatively because those markets themselves have experienced a reduction in affordability. But I generally expect if you can move from a more expensive market to a more affordable one, especially in this new work-from-home or hybrid environment, we’ll see some of that.”
Among millennials, the suburbs and exurbs are also becoming increasingly popular as that cohort of buyers enters its prime purchasing years – a trend that Kushi expects to continue looking ahead.
A new report from Redfin found that 91% of adult Gen Zers consider housing affordability an important factor when deciding who to vote for in the presidential race.https://t.co/vdjvWDawZr
— Mortgage Professional America Magazine (@MPAMagazineUS) June 4, 2024
What will happen when baby boomers begin to age out of their homes?
When it comes to the longer-term outlook, Kushi said a trend First American is closely monitoring only the supply and demand side is what could happen when baby boomers begin to age out of homeownership.
That’s likely to pick up speed in the early 2030s – “and so that will unlock quite a bit of supply in the market in largely desirable areas,” she said. “And so we’ve started to think a lot about what the supply and demand dynamic to the longer-term horizon will look like.”
As homeownership among the baby boomer demographic begins to diminish – and with many of the millennial cohort likely to be on or around their second home by that stage – that dynamic could see a marked shift in the housing market landscape, according to Kushi.
“The question is: will there be enough demand to absorb all of that baby boomer supply? When that happens, it’s something we’ve been giving a lot of thought to,” she said.
Particularly in markets with a high concentration of baby boomers who own homes, that could have a profound impact on home prices, with a possible uptick in remodeling and renovations also in the cards.
“I think interestingly, a lot of these homes will need a ton of work. And so what does that really mean for the remodeling sector when that time comes? Because sure – they’re desirable areas, but they haven’t been upgraded,” she said.
“And sometimes they’ll need to do that to be desirable for a potential buyer. And so just thinking of a long-term horizon, I think we’ll start to see those trends play out starting in the late 2020s but to really pick up speed in the 2030s as the bulk of the baby boomers age into their eighties.”
Affordability woes remain pronounced for many Americans
For now, there seems little end in sight to the affordability issues that have been challenging Americans. A recent Redfin analysis showed an average of $114,000 is needed to afford a typical home in the US – an amount that’s 35% more than the average household makes.
Still, some cause for optimism: that figure has actually declined in recent months, down from $121,000 in October (51% more than the US’s median household income).
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