Renters Flocked To These Cities Last Year—And Left The Big Ones
The average renter’s income is stretched thin from inflation, and more than 40% of renters are considered cost-burdened because they’re spending 30% of their income or more on housing costs. People are looking to trim their budgets in any way they can—even if it means moving in with roommates, family, or to more affordable areas out-of-state. The newest Rent.com migration report shows growing interest in the South and Midwest as many renters look to leave the West and Northeast.
Researchers at Rent.com analyzed data from July, August, and September to determine a lead delta for each region, state, and metro. A lead is a potential renter who contacts a property manager or landlord to express interest in a property. The lead delta is the numerical difference between outbound and inbound leads as a share of all leads in the area. It’s important to note that these figures do not represent actual migration but give a good insight into areas with high demand and interest, which correlates with actual migration patterns.
People move for a variety of reasons, which aren’t measured by the report. They may move to be closer to family or to start new jobs. The trends suggest that high rents are pricing some renters out of certain urban areas, and they’re seeking rental homes in more affordable nearby metros and states, as well as desirable areas in the South and Midwest. Investors can look to popular areas with positive lead deltas to find sweet spots where the demand for rentals is high, and the price-to-rent ratio is low.
Where Are Renters Moving From?
The following metro areas had the highest outbound lead deltas:
- Chicago, Illinois (-46.00%)
- Traverse City-Cadillac, Michigan (-43.32%)
- Atlanta, Georgia (-30.91%)
- New York City (-26.49%)
- Charlotte, North Carolina (-26.23%)
Outbound Leads By Metro – Rent.com
Chicago rose to the top of the list this quarter. The city’s bleak winters could drive residents elsewhere, as could its reputation for crime. But high rents are another problem—Chicago is the most expensive city in the Midwest. It’s much more affordable than New York, where rent prices increased nearly 25% year-over-year, but it’s relatively expensive compared to surrounding areas in Illinois and the Midwest. In Atlanta, rents are up almost 14% year-over-year, which could be causing residents to seek homes elsewhere.
The following states had the highest outbound lead deltas:
- Illinois (-46.41%)
- New York (-44.04%)
- Maine (-17.91%)
- Georgia (-17.14%)
- Colorado (-16.43%)
Where Are Renters Looking to Move?
People tend to inquire about nearby areas and states when they’re considering moving, but Southern states are attracting interest from further away. For example, Chicago renters inquired about Midwestern metros like Milwaukee, Minneapolis-St. Paul, and Indianapolis, but showed equal interest in Dallas-Ft. Worth and Nashville. New York City renters primarily looked at other Northeastern metros, but also expressed interest in Georgia communities.
The following metro areas had the highest inbound lead deltas:
- Biloxi-Gulfport, Mississippi (51.15%)
- Huntsville-Decatur (Florence), Alabama (48.41%)
- Madison, Wisconsin (42.32%)
- Waco-Temple-Bryan, Texas (41.55%)
- Springfield, Missouri (40.88%)
Inbound Leads By Metro – Rent.com
Chicago residents inquired about all five of these cities and were especially interested in Biloxi-Gulfport. The other metros drew residents from neighboring areas, but renters from notoriously expensive areas expressed interest in Southern and Midwestern metro areas as well.
For example, residents of Atlanta, New York, and Chicago all inquired about Huntsville-Decatur. Huntsville was named the best place to live by U.S. News, and Madison made the top 20 as well. Madison drew interest from Los Angeles, New York, Denver, Milwaukee, and Chicago. Waco-Temple-Bryan also brought inquiries from Chicago and New York, but most came from within the state. Leads for Springfield came from St. Louis and Kansas City, but also Chicago, Denver, and Dallas-Ft. Worth.
State-level trends were similar. Many Illinois renters looked to stay in Illinois or neighboring Indiana, but some also expressed interest in Texas and Tennessee. Many New York and Maine renters looked to stay in their respective states or move to New Jersey, while some also sought homes in Florida, Pennsylvania, and Ohio. Georgia renters inquired about properties in the South, while Colorado renters looked at properties in neighboring Utah as well as the Midwest. Missouri, Wisconsin, and Michigan were all popular sources for outbound leads from Colorado.
The following states had the highest inbound lead deltas:
- North Dakota (38.7%)
- New Jersey (36.35%)
- Louisiana (35.71%)
- New Hampshire (31.30%)
- Mississippi (29.80%)
People are looking to move to North Dakota from all over the country. Over a quarter of leads came from far away states like Illinois, New York, California, and Texas. New Jersey mostly brought leads from within the state or from New York or Pennsylvania, but some Southern renters expressed interest in New Jersey as well.
Louisiana brought the most leads from Texas. Other leads came from within the state, but almost 10% of inquiries came from the Midwest. The majority of people seeking homes in New Hampshire lived in-state or in Massachusetts or New York, but some renters from Southern states expressed interest as well. Renters from Louisiana, Georgia, and Alabama also looked at properties in Mississippi, but the second largest source of leads in the state, besides Mississippi itself, was Illinois.
How Migration Impacts Housing Prices
Analysts at many firms expect home prices to fall across the nation in 2023, but how hard each area is hit will depend partly on the demand for homes. The demand for housing tends to increase when more people are moving into an area than out of it. If there aren’t enough homes to accommodate everyone moving into an area, that lack of supply relative to demand can act as a floor that prevents housing prices from decreasing in an economic downturn. In fact, some Southeastern markets that are drawing higher-income homebuyers away from expensive areas like the West Coast and Northeast are still appreciating rapidly while price growth slows in other overvalued markets, CoreLogic reports.
Common Migration Trends
When a city grows in popularity due to factors like incentives for businesses, a booming job market with high-paying jobs in a variety of industries, and a vibrant culture with growing entertainment options—rent prices rise. They can stay elevated for some time, even as people get priced out because demand from higher-income renters remains high. But eventually, price increases often become unsustainable. As people begin to move out of an area where prices have skyrocketed, demand for properties decreases and prices can drop.
This trend is even more relevant now because remote work has become so prominent. In 2019, only about 5.7% of Americans primarily worked from home. By 2021, that figure more than tripled to 17.9%. With the freedom to live and work anywhere, more people are migrating to nearby areas—or different states altogether—to catch a price break. That’s illustrated by higher inbound and outbound lead deltas this quarter than last.
This shift to cooling prices is already happening in Austin, which was overheated through the pandemic—rent decreases there are exceeding the national average. In the Denver area, you can see the shift in action. While rent prices are still up year-over-year in the city, price growth has slowed in Denver more than any other city in the metro. In the more affordable surrounding suburbs, meanwhile, rent prices are skyrocketing. Will Denver begin to mirror Austin? Or will the market stay competitive? Denver metro’s lead delta of -23.75% suggests demand may wane.
How Investors Can Use Migration Data
When home price growth exceeds the norm, prices tend to come back down, following the principle of mean reversion—but investors can maximize their returns by buying when prices are low and selling when prices are high. One way to achieve this is to try to stay ahead of migration trends. If you can find the next locale that’s likely to draw residents from other areas due to more affordable pricing relative to nearby cities and a thriving economy, you may be able to capture those skyrocketing rents and realize appreciation.
Huntsville is an excellent example of a desirable place where housing demand is increasing, but prices are low. But perhaps the best strategy is to look two steps ahead in your planning. Where will people go if Huntsville overheats?
Since investors can’t predict the future, there are always risks, and migration trends should not be the only data affecting decision-making. But the more information you can get when investing in a new market, the better. Following migration trends is a strategy that can help investors stay focused on the future and avoid jumping in head-first to hot markets that will soon decline.
Click here to view the methodology used in Rent.com’s report.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.