Affordability continues to drive homebuyer migration
With interest rates pushing up mortgage payments, buyers are looking for more affordable housing options — and will relocate to find them.
Key points:
- Smaller to mid-size markets that used to be under the radar are generating more interest from buyers who have the option of living anywhere in the U.S.
- The trend is expected to continue as interest rates remain elevated, hurting affordability.
- In-demand markets include mid-sized cities within a two-hour commute of major employment centers.
With higher interest rates and low inventory generating headlines this fall, buyers searching across the country for a home will have affordability on their minds more than ever.
That trend is likely to continue, particularly given the current market climate, said Realtor.com Senior Economist George Ratiu.
"Housing affordability has been a major driver of relocations over the past few years," Ratiu said in an email. "Whether it is retirees looking for a less expensive home in a warmer climate, or a young family with children looking for a good public school district with affordable properties, the search for affordability has been front-and-center."
Smaller or more affordable cities attracting buyer interest
In Realtor.com's Cross-Market Demand Report for the second quarter, relatively less expensive cities like Burlington, Vermont; El Paso, Texas; and Warner Robins, Georgia, topped the list of markets that had the biggest year-over-year jumps in out-of-market viewership. Interest in Burlington came primarily from buyers in more expensive Northeast metros like New York, Boston and Washington, D.C. Similarly, El Paso was favored by those in pricier Southeast metros including Phoenix, Dallas and Las Vegas.
Realtor.com's most in-demand markets in August were mid-sized cities within a two-hour commute distance of a major employment center, Ratiu said.
While home sales have slowed across the country, the share of relocating buyers has hit its highest levels since at least 2017, according to Redfin's August housing migration trends report.
"The overall slowdown and the popularity of relocating are both due to high home prices and mortgage rates that have doubled since last year," said Redfin Deputy Chief Economist Taylor Marr in the report. "Six percent mortgage rates are exacerbating already-high home prices and motivating homebuyers — especially remote workers — to leave expensive areas for more affordable ones."
That has resulted in more people leaving expensive coastal areas than a year ago, according to the report. Warmer, more affordable areas remained popular, with Miami, Sacramento and San Diego topping the list of net migration increases for July and August.
The return of the suburbs
Ratiu noted that the suburbs have regained a great deal of popularity in recent years, particularly during the pandemic and with the big jump in remote workers. Along with being relatively more affordable, the suburbs have also changed in ways that have increased their popularity.
"The development of higher density, mixed-use centers — combining office, residential, experiential retail and green spaces with transit lines and walk/bike corridors — has changed the face of suburbs and made millennials' transition from urban cores to suburban downtowns almost seamless," Ratiu said. "These developments can be seen in communities across the country and they have elevated the profile of many locations which may have flown under the radar in prior cycles."
The current state of challenging home affordability comes at a time of big demographic shifts.
"We can expect homebuyers to continue seeking affordability and quality of life, especially as baby boomers move into retirement and millennials shift into middle age," Ratiu said.