Article from Zero Hedge by Tyler Durden
Until now, Bank of America would periodically publish a snapshot of consumer spending and retail sales that was based on real-time debt and credit card data, that provided a far more accurate economic picture months ahead the Census Bureau’s distorted, seasonally adjusted (frequently for political reasons) data. Now, it has expanded into geo-tracking, and in a time when we are seeing unprecedented migration patterns across the continental US, the bank has started using internal data on checking, savings, credit and/or other investment accounts to construct near real-time estimates of domestic migration flows, giving the bank and its clients an almost one year of extra insight over and ahead of Census Bureau data.
Cutting straight to the punchline, BofA finds pandemic migration trends are not reversing and America continues to see faster population inflow into sunbelt cities like Austin and Tampa. But, in a curious twist, BofA also finds that house prices are weakening even in cities with growing populations. Why? In addition to high mortgage rates that are dampening demand in the near term, demographic composition also matters. For example, the data shows that population inflows into Austin skew younger, which might be putting more upward pressure on rents instead of on home prices.
Looking through the current housing downturn, local housing markets with more Millennial and Baby Boomer residents could see strength as the former enter prime home-buying age and the latter downsize their houses or move after retirement. Bank of America data suggests Baby Boomers are relocating to Las Vegas and Tampa while Millennials prefer Austin. Both groups are leaving the larger cities of San Francisco and New York.
Let’s dig into the data.
A key theme that shaped the housing market during the pandemic was domestic migration (i.e., people moving within the US). While data from the Census Bureau is broken down by metropolitan statistical areas (MSAs), it is only updated annually and can be outdated for real time analysis.
Utilizing aggregated and anonymized Bank of America customer data, the bank has constructed near real-time estimates of domestic migration flows and found that pandemic migration trends are not reversing. Data as of 1Q 2023 suggests that cities that saw a large influx of people during the pandemic have still been growing faster than other cities in recent quarters. As Exhibit 1 shows, among the major MSAs, Austin saw the largest net inflow of population both during 2020-2021 and over the past four quarters.
Also high on the list are Tampa and Orlando, both with a net increase of customers of +0.8% between 1Q 2022 and 1Q 2023. Interestingly, while Phoenix and Las Vegas saw strong increases in population during the first two years of the pandemic, the pace of growth has slowed noticeably in recent quarters, up just 0.3% and 0.2% year-over-year (YoY), respectively, in 1Q 2023.
On the flip side, cities such as San Jose, San Francisco and New York saw the biggest outflow of people during the early years of the pandemic and the rate of decline in 2023 continues to be the highest among major MSAs.
Note that the analysis is based on the group of Bank of America customers who had an open consumer checking, savings, credit and/or other investment accounts for every quarter between 4Q 2018 and 1Q 2023. Migration pattern is then extracted based on customer home addresses. This methodology yields a fixed sample size and allows for granularity by demographic breakdowns.
Macro conditions outweigh population growth in the near term
Large population inflows usually increase both home and rental prices. However, home prices are slowing rapidly, according to data from Freddie Mac, even in cities with growing populations, including Austin. In Bank of America’s view, many variables are at play in the near term.
In 2020 and 2021, when both housing inventory and mortgage rates were low, cities with the most inward migration such as Austin and Tampa also witnessed the biggest increase in home prices (Exhibit 2). But, as Fed rate hikes pushed up borrowing costs for these homes, demand dampened despite continued population growth in these popular cities, which has led to a correction in home price appreciation.
In contrast to home prices, rental prices remain strong in cities with positive inflow of residents. In addition to the fact that population increases lead to higher demand for rental units, low affordability in the home purchasing market has likely also pushed some prospective buyers into the rental market, leading to even more upward pressure on rent levels.
Exhibit 3 shows that MSAs with large population increases continue to see very strong rent increases. In April 2023, median rent payments for Bank of America customers in Austin, Orlando and Tampa were up 11%, 14% and 14% YoY, respectively. This compares to the national average of 8% and just 3% for San Francisco.