Sunday, October 30, 2011

Sun Belt Migration Bust

I'll take one last swing at the latest domestic migration numbers. William Frey from Brookings is well quoted concerning the great slowdown in geographic mobility. You can find the more formal analysis here. The narrative rehashes what is showing up in the press. The only graphic associated with the Brookings article is worth discussing:

Migration map

The migration spotlight is on the 25-34 cohort, the after college relocation and the war for talent. Riverside, Phoenix, Atlanta, and Charlotte drop off the map post-Great Reset. Their top gainers replacements are the usual suspects (i.e. DC, Denver, Seattle, and Austin). No surprise there. The migration boom towns are yielding to brain magnets.

The young and well educated were able to move during the economic downturn. They clustered in the cities already awash in the young and well educated. Talent attracts more talent. As the economy improves, other migrants should become hungrier for risk. I doubt Riverside, Phoenix, Atlanta, and Charlotte get back on the map.

I predict Pittsburgh will absorb a good chunk of that slack. We'll see more Buffalo-to-Steel City instead of Buffalo-to-Charlotte. Detroit-to-Pittsburgh is a flow to watch. As for return migration, Charlotte-to-Pittsburgh is already a trend (anecdotally speaking).

Thanks in part to the shale gas revolution, the stars have aligned for Pittsburgh. The positive press is now credible. Forget eds and meds. Pittsburgh is town and gown. Town and gown means plenty of tech and talent. There's no longer a black hole between NYC and Chicago.


Brian W. said...

Hi Jim,
I hope you don't mind, but I'd like to ask you to be our real estate advisor as it relates to Sun Belt migration. My wife's received an inheritance in a trust (about $55k) that must remain in a savings account for the next 25 years, unless it's used for to pay for a home deeded only to her. So our current mortage won't satisfy the trust.

We are considering buying a cheap investment property in cash, or with a very small mortgage, rather than letting that money sit in a savings account for 2+ decades.

Given this data though, do you think owning two rental properties in Scottsdale/Phoenix would be a bad idea?

An alternative would be to let the money sit for 5 years until she gets her PhD, and then use it to purchase a home wherever she cuts her teeth as an associate professor.

Jim Russell said...

Hi Brian,

Domestic migration uses a much larger scale of knowledge. A good real estate market varies from neighborhood to neighborhood. It can even vary wildly within a neighborhood. The migration data don't bode ill for real estate investment in Scottsdale/Phoenix. I think your main concern is finding reliable tenants who won't trash the place. A price stable neighborhood can help on that front.

Regardless, if you are going to use a property management company for your current home, then two properties in the same market makes sense.

Also, your wife could buy a home where she gets her PhD. The market there might be relatively robust and 5 years should make a world of difference for the overall economy.