Housing Bust Curtails Moves, Alters U.S. Migration Patterns

It's no surprise that 2010 census data show most of last decade's population growth occurred in the South and West. That was the general pattern in prior decades, too.

Residents of the Northeast and industrial Midwest continue to flock to warmer and often less expensive Sun Belt spots, while many new immigrants end up there as well. But housing woes have become a big factor in whether and where people move and buy. Short term, the location of cheap housing could trump the usual demographic trends.

Census Bureau data show populations in the South and West grew 14.3% and 13.8%, respectively, from 2000 to 2010. The Northeast and Midwest grew just 3.2% and 3.9% .

All of this movement is not lost on homebuilders and real estate agents, who tend to go where the people go. It's no coincidence that many of last decade's hottest housing markets were in states with rapid population growth, including Nevada (35.1% growth), Arizona (24.6%) and Florida (17.6%).

It's also no coincidence that after soaring prices and overbuilding, many of those markets got pummeled as the housing bubble burst.

Hard-hit cities like Las Vegas, Phoenix and Orlando still struggle with foreclosures and deflated prices even as new residents flow in.

Short-Term Changes

The severity of the housing bust is one reason real estate analysts say demographic trends may not play a big role near-term in where people buy homes. They reckon other factors, including reaction to the housing bust, will have a bigger impact.

An example is Texas. New residents continue to pour in thanks to its moderate climate, affordable homes and comparatively stable economy. But that doesn't necessarily mean that in the short term its home sales will greatly outpace sales in other parts of the country.

"What's really driving the housing market is reaction to the boom and bust, and how the economy recovers in the near term," said Robert Denk, a senior economist at the National Association of Home Builders. "Demographic factors will provide more of a longer-term push."

Near-term, he expects a lot of housing activity in distressed Michigan, Ohio, Nevada and Florida.

"Many of these markets overcorrected during the bust, so now the prices are coming closer to normal," Denk said. "In Michigan the home prices dipped too low as the auto industry collapsed. Now the auto industry is getting back."

Paul Bishop, vice president for research at the National Association of Realtors, expects much of the near-term housing activity to be heavily concentrated on the low and high ends of the market.

Investors and buyers will swoop in to gobble up heavily discounted homes, Bishop says. That should be the case in growing Sun Belt cities as well as shrinking Rust Belt burgs.

He has also seen an increase in sales of expensive homes.

"The stock market has been doing pretty well, which benefits the wealthy," Bishop said. "And the wealthy can withstand bad economic times better than others."

As for the broad middle market: Many analysts expect little movement over the near term, even as the economy and job market improve.

"We believe the big house-price declines are mostly behind us, but sales will still be sluggish," Denk said. "We expect 2011 to be fairly flat. In 2012 we should return to modest growth, maybe 1% to 2%."

One metric he'll keep an eye on is housing starts. The magic number, Denk says, is 1.4 million. That's how many starts took place in 2003, the year before the housing boom. Starts peaked above 1.7 million in 2006 and cratered below 400,000 three years later. In 2010 there were just over 500,000 housing starts.

"It will take a long, multiyear recovery to get back to 1.4 million housing starts," Denk said. "That's the number to keep an eye on."

For now, uncertainty over the economy and jobs should keep overall housing growth at a snail's pace for much of the country.

"Traditionally, if you saw economic weakness in one area of the country, people there would move to other parts of the country with stronger economies," Bishop said. "But we're seeing a low level of mobility."

That's partly because high unemployment has hit so many sectors. "Due to the weak job market, people just haven't been moving according to traditional patterns. They either see no reason to move, or they can't sell their homes," Bishop said.

Where Is It Better?

Denk sees a few areas where housing should beat the U.S. as a whole.

"When oil is over $100 a barrel, Texas and Oklahoma should do well," he said. "High oil prices also mean coal will do well, which should benefit West Virginia and Pennsylvania. We're also seeing markets in the Carolinas coming back."

Bishop looks for decent sales in the nation's center, from the upper Midwest south to Texas. "Home prices are not too high in these regions, and they've been less susceptible to subprime loans," he said.

He also eyes near-term strength around Washington, D.C. "Home prices there are holding up well based on solid income growth, stable jobs, and the fact that the economy is picking up better there than in other parts of country," Bishop said.