The pandemic may have accelerated migration out of high-cost cities, but millennials sparked this trend even before “coronavirus” became an everyday word.
An analysis of 2019 U.S. Census data by Freddie Mac shows that millennial homebuyers — now the largest homebuying demographic — were already following jobs and affordable housing to the nation’s interior.
This migration was set off by a decades-long decline in available starter homes. COVID concerns, work from home, and surging home prices only accelerated the push, and will likely continue to do so until inventory rebounds.
The supply of starter homes — new houses under 1,400 square feet — has been on a steady decline since the 1970’s, according to Freddie Mac.
Starter homes were being built at an average rate of 418,000 units per year in the late 1970’s. But that rate has declined in each decade since and in 2010’s just 55,000 starter homes were constructed per year.
New single-family home size has also increased in recent decades. According to the National Association of Home Builders, the average size of new single-family homes increased from just over 2,200 square feet to nearly 2,700 square feet from 1999 to 2016.
So even before the pandemic intensified inventory shortages, millennials were entering the homebuying market to a supply of starter homes that has been declining for nearly 50 years. And these homebuyers aren’t just competing against themselves for smaller homes. Boomers – the second largest generation – are retiring, downsizing, and coming into the market with more purchasing power than millennials.
Facing these hurdles, first-time homebuyer millennials began looking for affordable housing outside of major metro areas before the pandemic.
Pre-pandemic millennial homeownership
According to the 2021 Freddie Mac “Millennials and Housing” playbook, millennials were gaining ground in more affordable states and regions even before the pandemic.
The rate of millennial homeownership in 2019 paints a good picture of where these homebuyers were finding a foothold.
According to the 2019 U.S. Census-Current Population Survey, 90% of millennials lived in metro areas and 40% lived in New York, Los Angeles, Houston, Dallas, and Chicago alone. Meanwhile, the top five states for millennial homeownership rate were:
- Utah – 59%
- South Dakota – 58%
- Oklahoma – 57%
- Mississippi – 57%
- New Hampshire – 57%
And the bottom five states were:
- California – 30%
- New York – 30%
- Texas – 39%
- North Carolina – 39%
- Georgia – 41%
The share of mortgages issued to millennials in 2019 follows a similar trend with North Dakota, Utah, and Kansas topping the list.
Even before COVID concerns, work-from-home, and surging home prices, millennials were gaining ground in interior states away from expensive coastal metro areas.
Following the pandemic, millennials have more reasons than ever to continue migrating inland away from the most expensive and competitive housing markets.
Although inventory is picking up, especially in outer suburbs and small metros, the average new home size is still above 2,400 square feet and the NAHB predicts new home size will increase due to demand for work-from-home spaces.
With little relief coming from the cities, the millennial migration to more affordable regions is likely to continue, if not accelerate well beyond the pandemic push.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.