Earlier this week, Inman and Redfin reported on a new study that found rising home prices are driving residents to trade coastal New York and California for more affordable new hometowns inland. In recent years, there have been iterations of similar reports and the findings are particularly jarring where Millennials are concerned. From 2010-2015, while the Millennial population in Memphis, TN grew by 9.5%, the same in New York City grew by only 2.5%.
In the latest ValueInsured Modern Homebuyer Survey, majority of Americans and Millennials believe more people will relocate to less expensive housing areas if home prices in their hometown continue to go up:
- 65% Americans and 66% Millennials expect to see more people they know relocate in search of more affordable homes to buy
- In urban areas, nearly 3 in 4, or 72% believe the same
- In California, one of the states with highest home price growth, 68% believe more people will relocate citing high home prices
- In Washington state, another coastal state with scorching hot real estate increases, a stunning 82% believe more people will be willing to leave their hometown in search of more affordable homes to buy
Geographical distance is not the only great length Americans are willing to go to own a home. Another recent study that caught our eyes found in some of the highest home-price areas in California, single prospective homebuyers need to save for nearly three decades or more for a down payment to buy a home – on average an estimated 26.8 years in Los Angeles, 27.8 years in San Francisco, 22.2 years in San Diego, and 30.7 years in San Jose.
The same study estimates in Las Vegas, it takes 11.4 years for a single homeowner hopeful to save for a down payment; in Miami, 13.9 years; in Washington D.C., 12.4 years. It begs the question: what happens if after saving, and presumably sacrificing and waiting for so long, the new homeowner’s local market goes through a downturn and loses significant value? It’s hard to imagine these highly in-demand housing markets – where home prices have been going nowhere lately but up, up, up – losing value in a downturn. But as we all know, it has happened before.
Just 10 years ago, American homeowners collectively lost $11 trillion in home value with many markets significantly losing value (i.e. 36.5% for LA, 54.7% for Miami, 62% for Las Vegas). We also know that housing prices cycle historically every 10 years. So, increased questions of value and risk are growing in the backs of homebuyers' minds. The good news is that American Confidence is alive and well and the dream of homeownership is still strong. They do, however, need to address the elephant in the room. Otherwise, their innate fight or flee reflex will kick in and they will search for other alternatives.