A commentary by EXIT Realty Premier Partner, Freddie Mac.

A Population Shift Is Driving Regional Growth Opportunity for Lenders

Americans are moving from coastal states in search of affordable housing. Companies are helping it happen by creating tens of thousands of jobs in the country’s inland states. Lenders in these markets stand to profit from this wave of new borrowers, especially millennials who are today’s biggest homebuyers nationwide.

Macroeconomic changes such as job growth, rising income levels, and an abundance of affordable homes, are drawing people away from East and West Coast metro areas into the South, Southwest, Midwest, and Rocky Mountain states.

Technology Sector Treks Inward

As part of this trend, Apple Inc. announced last December that it plans to build a new campus in Austin, TX, where it will hire 5,000 new employees and up to 15,000 within several years. In February, Google signed a new lease on an office tower in Austin to grow its workforce there.

Although Austin’s housing prices have jumped in the last decade, they are still much lower than Silicon Valley, home to Google, Apple, and the highest-priced housing in the country. In addition to Austin, Apple is fanning out jobs between the coasts in places like Maiden, NC,  Waukee, IA, Sparks, NV, Mesa, AZ, Nashville, TN, and Pittsburgh, PA.

Amazon is also hiring in the South and Midwest. For example, it’s bringing on 5,000 new workers to staff a new operations center in Nashville. Nashville—and similar cities like Louisville, KY—credit job gains to business-friendly regulation, skilled workers, and an affordable cost of living—the biggest part of which is tied to reasonably priced housing.

Beyond the tech giants, manufacturing and energy companies have created thousands of new jobs in cities, such as Indianapolis, IN, Boise, ID, Des Moines, IA, Louisville, KY, Kansas City, MO, Columbus, OH and Salt Lake City, UT.

Lower Home Prices as a Major Driver

A recent study showed the sharp contrast in regional homebuying affordability. It estimated it would take 32 years on average for millennials to save for a 20% down payment ($85,637) for a median-priced home in Oxnard-Thousand Oaks-Ventura, CA, about an hour from L.A. This assumes the buyer could save 15% of their annual rent. On the flip side, millennials could afford a 20% down payment ($31,478) on a home in Des Moines in 7.5 years.

Millennials Accelerating the Trend

Despite the inward migration, home prices in inland states are expected to remain markedly lower than in megacities like San Francisco, Seattle, New York, Boston, and Los Angeles. A big part of this trend is that older millennials are moving to cities where buying a home is feasible for middle-income and working-class families. This relocation movement is expected to accelerate as younger millennials form millions of new households and age into the prime homebuying bracket of 32 to 38 years.

Lenders Stand to Gain from Influx of New Homebuyers

Inland migration, job growth, and a favorable ratio of income-to-home prices are presenting growth opportunities for lenders in newly burgeoning metro areas. In an era of higher interest rates and acute affordable housing shortages in the biggest, most affluent U.S. cities, affordable housing markets outside of the coastal states should be on the mortgage industry’s radar.

This Freddie Mac Single-Family All For HomeSM Insight is part of our approach to expand perceptions and opportunities within affordable housing. We’re building the future of home through insights, education, mortgage products, and business solutions because we believe that issues can only be solved through contributions and perspectives from all parties within the housing ecosystem.

 

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