The Quest for Affordable Housing
Phoenix ranks second in Freddie Mac’s top 10 destination metros for homebuyers, fourth in net migration
The COVID-19 pandemic not only challenged the fabric of public health but also precipitated a profound reevaluation of how individuals perceive and pursue the concept of "home." Over the past century, metropolitan areas have magnetically drawn people with promises of opportunities, cultural vibrancy, and convenience. Meanwhile, suburban life was often synonymous with tranquility and space. However, the pandemic acted as a catalyst; as remote work became more common, the significance of one's physical proximity to the workplace diminished. This shift in the labor landscape prompted a profound reconsideration of the merits of urban density and suburban sprawl, leading to a change in the migration patterns across the country.
Traditionally, migration data in the United States have been primarily sourced from the U.S. Census Bureau's American Community Survey (ACS) and Current Population Survey (CPS), which provide valuable insights into population movements. In an article published in 2022 by Freddie MAC, researchers exploited a different source of information: Freddie Mac's automated underwriting system, Loan Product Advisor® (LPA). LPA was originally designed to streamline the loan application process and serve as a database management system for the vast number of transactions that flow through Freddie Mac. Remarkably, LPA offers a real-time view of the residential mobility of American homebuyers.
Using these data, Freddie Mac came up with three primary findings. First, homebuyer migration patterns using Freddie Mac LPA data show a population in pursuit of affordable housing. Second, the pandemic amplified existing urban deconcentration threefold, from large, expensive metro areas to smaller, more affordable destinations. Third, in fast-growing metro areas, the continued shortage of housing and high house-price-to-income ratios eventually lead to increased out-migration as homebuyers seek more affordable destinations.
According to the U.S. Census Bureau, in 2021 the share of people moving reached its lowest level since the origin of the data series in 1948. However, despite declining migration, the percentage of people moving to a new metro area or leaving metro areas increased by 3.8 percentage points from 2017 to 27.1% in 2021. Using LPA data, Freddie Mac generated a topology for homebuyer net migration trends based on metropolitan population size, shown in Exhibit 1. This exhibit shows an acceleration of migration flows out of large metros and into midsize metros or less densely populated areas.
The map in Exhibit 2 serves to further break down the migration trends of the previous exhibit, revealing that net migration losses have primarily occurred in high-cost, inelastic markets located in coastal areas. On the other hand, net migration gains have occurred inland and to the South. Note that both the Phoenix and Tucson metropolitan areas show green in this exhibit, indicating positive net migration.
Between March 2020 and February 2022, the leading destinations for out-of-metro homebuyers (Exhibit 3A) predominantly featured affordable interior markets and sought-after Southern beach destinations. Remarkably, these top ten destinations boasted an average median home price on loan applications submitted in February 2022 that was approximately $128,000 lower than the median home price in the originating metro areas, with Phoenix emerging as one of the top gainers in the destination category.
Conversely, during the same two-year period, the top ten metro areas witnessing the largest outflow of homebuyers to other metros (Exhibit 3B) included some of the nation's largest and most expensive markets. On average, the median home prices in these originating metro areas exceeded the median home prices in their destination metros by approximately $144,000.
Exhibit 4 provides a list of the leading metropolitan areas based on the net migration of homebuyers during the two years from March 2020 to February 2022. The data for the corresponding two-year period before the onset of the pandemic is presented in the columns to the right. Notably, Phoenix secured the fourth position among the top-gaining metro areas in terms of homebuyer net migration during the 2020-2022 period.
Freddie Mac, or the Federal Home Loan Mortgage Corporation, is a government-sponsored entity that plays a critical role in the U.S. housing finance system. Established to promote homeownership and stability in the housing market, Freddie Mac operates as a key player in the mortgage industry, facilitating access to affordable home financing for countless Americans. Through their LPA, Freddie Mac has not only streamlined the loan application process but also generated a wealth of data that sheds light on the residential mobility of homebuyers. This unique perspective, combined with their commitment to housing market stability, makes Freddie Mac a valuable source of insights for understanding the changing landscape of migration trends and the broader implications for housing and economic policy.