The soaring housing prices in the United States have shown no signs of stopping. While some areas experienced a slight decrease after surging too much during the pandemic, overall housing prices in the US continue to trend upwards, albeit not as dramatically as during the pandemic. Why are housing prices still on the rise? Apart from limited housing supply on the market and a large number of millennials reaching homebuying age, the continuation of remote work arrangements is also driving the desire to purchase homes. However, there is another reason quietly pushing today’s housing prices higher.
In recent years, the United States has seen an influx of millions of legal and illegal immigrants. While illegal immigrants have brought challenges in areas such as healthcare, housing, public safety, and even crisis situations, legal immigrants have brought economic vitality to the US, boosting its resilience against inflation. Today, I will share with you the latest information on immigration in the US and how it is impacting the real estate market – whether positively or negatively.
John Burns Real Estate Consulting, a research company specializing in real estate, has been focusing on studying the impact of population movements in the US real estate industry. This population movement includes both international migration and domestic relocation, with significant implications. Therefore, in early April, John Burns released a population analysis report aimed at helping the real estate industry make informed decisions.
The US Census Bureau’s statistical experts stated, “Despite a decline in birth rates, a near 9% decrease in the death rate, along with a resurgence in immigration, has led to the largest population growth in the US since 2018.” The Census Bureau reported a national increase of 1.6 million people, with an annual growth rate of 0.5%, bringing the total US population to around 335 million.
The statistics on population growth presented by Burns are more than double the Census Bureau’s figures, likely due to including a significant number of undocumented immigrants. Nonetheless, the population increase in the US has indeed provided a boost to the housing market and the economy, supporting housing demand, increasing labor force strength, and helping to alleviate wage inflation, as native workers’ wages tend to be higher than those of new immigrants.
According to the Census Bureau, the southern region of the US experienced the highest population growth, accounting for 87% of the country’s expansion. This is because the South is the only region that maintained population growth during the pandemic and continued to see significant growth in the post-pandemic era. Other regions, such as the Midwest and West, also witnessed population increases of hundreds of thousands. In contrast, the Northeast was the only region where population decreased, with only New York and Pennsylvania experiencing declines, albeit less severe than in 2022.
These population dividends have been instrumental in supporting the US economy, contributing to the persistently high housing demand. With domestic demand coupled with international immigration, housing prices continue to rise due to limited supply.
In Burns’ population report, the second finding was that US residents born before 1970 hold a staggering $107 trillion in wealth. Despite rising mortgage rates, unprecedented wealth creation has been stimulating housing demand. Many baby boomers born in the 1950s and 1960s have seen their wealth double over the past decade, enabling more people to afford homes for themselves and their children or renovate existing properties.
The report also points out that the wealth growth curve for individuals born in the 1950s and 1960s is steeper than for those born in the 1940s and 1930s, possibly due to many individuals from those earlier decades being deceased.
These elderly individuals have accumulated significant wealth in real estate over the years, emphasizing the importance of investing in real estate early on while household incomes are still growing, as this can yield substantial returns over the long term.
The third key point in the report indicates that the proportion of individuals working from home is four times higher than in 2019. Remote work has become normalized, with remote work hours accounting for around 30% of the total workday. While this trend is expected to gradually decline post-pandemic, it has created demand for more affordable housing in the US, enabling developers and rental investors to explore housing opportunities in more remote areas more easily.
The fourth key point from the report reveals that the housing inventory of baby boomer generation individuals is not experiencing the so-called “Silver Tsunami” phenomenon as expected. Previous assumptions of a housing market surge from baby boomers either downsizing or passing down their homes to the next generation are not as significant as thought. By 2033, it is estimated that the deaths of baby boomer generation individuals will lead to approximately 772,000 homes being listed for sale annually – a substantial number but less than 1% of all owner-occupied homes. Many homes may instead transition into rental units.
It is expected that listings of properties from these older homeowners have increased since the start of the pandemic but not dramatically. Additionally, over the next decade, it is projected that listings will only gradually increase to nearly 800,000 homes per year. In other words, anticipating a “Silver Tsunami” to flood the housing market may be too optimistic. Rather, developers will need to continue building more homes; some blue states may need to relax construction and environmental policies to expedite construction. Otherwise, the US real estate market may find itself flooded by the ‘immigrant wave’ before the anticipated ‘Silver Tsunami,’ with demand outstripping supply and prices continuing to rise.
Furthermore, whether focusing on international immigration or domestic migration within the US, Burns has identified three significant impacts on the real estate market in 2024. Understanding these shifts proves beneficial for developers, builders, institutional and individual investors alike, providing insight into population movements in different regions and cities – as population forms the basis of all economic activity, with different age groups exhibiting varying economic models and consumption habits. Regularly updating population statistics provides insight into regional population changes.
The first impact of immigrant populations on the 2024 housing market is the basic end of the relocation trend seen since the pandemic. The period from 2020 to 2021 marked a significant migration wave in the US, with a steep decline observed starting in 2022 to 11 million people (compared to 12.9 million in 2021), with orange indicating movements within the same metropolitan area and blue representing relocations between metropolitan areas. By 2023, the number dropped further to 9.7 million people, returning to pre-pandemic levels.
Moreover, the proportion of relocations within the same metropolitan area has surged once again, reaching nearly 68.5% in 2023 after a sharp decline in 2022. Even the proportion of moves to suburban areas within the same metropolitan area has rapidly decreased, from a peak of nearly 8% in 2021 to 7.4% in 2023.
The second impact is that major, higher-priced metropolitan areas are witnessing a growing popularity of smaller cities in their proximity, as these areas offer more affordable housing compared to the primary cities. Due to high housing and interest rates in major cities, many people are choosing to reside in more remote areas. Cities like Austin, Texas; Orlando, Florida; and Denver, Colorado, along with smaller surrounding towns, are attracting population inflows due to median home prices being around $100,000 lower than in major cities, despite longer commute times.
The third impact is evident in significant changes in relocation activities post and pre-pandemic. Cities that were favored during the pandemic may no longer hold the same appeal, with some transitioning from population outflows to inflows. The analysis categorizes 35 major cities into seven movement types:
The first type remains highly popular, maintaining its attractiveness during and after the pandemic – Myrtle Beach in South Carolina and Raleigh-Durham in North Carolina fall into this fortunate category. The second type comprises cities that were previously favored but are now experiencing declining popularity, including Atlanta, Dallas, Nashville, and Houston.
The third type includes cities that were previously popular but are now seeing minimal to no population growth – Austin, Phoenix, Las Vegas, and Tampa fall into this category. The situation for cities in the fourth type is more critical, as they were once favored but are now experiencing negative population growth, such as Orlando and the southwestern region of Florida.
The fifth type consists of cities that experienced slight population losses previously but are now seeing minor growth – Minneapolis, Riverside, and Sacramento belong to this category. The sixth type includes cities that had minor population declines initially but are now seeing further decreases – areas like the East Bay area of San Francisco, San Jose, Salt Lake City, San Diego, Philadelphia, and Portland, Oregon.
The seventh type is somewhat stable, as cities that experienced sizable population outflows are now offsetting losses with international immigration – these are mostly major US metropolitan cities including New York, San Francisco, Boston, Miami, Los Angeles, Seattle, Chicago, and Washington D.C. This phenomenon is understandable as during the pandemic, these densely populated cities saw a significant outward migration to suburbs or more distant cities, which post-pandemic are being replenished by international immigrants.
Understanding these population movements enables investors to make informed decisions, developers to identify where to purchase land, what type of housing or commercial buildings to develop, and real estate agents to know where properties are in high demand.