Housing Demographics with John Burns’ Eric Finnigan

Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly real estate market data video series with the top of mind podcast, we seek to add context to the discussion about what's happening in the market from leaders in the industry Every week, of course, Altos research tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data. And we make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the market right now. And so if you need to communicate about the housing market to others, investors, buyers and sellers, you should join us at altos. Go to altos research.com and book a free consult with our team. Let's review your local market and teach you how to communicate with market data in your business.

(00:57)
Alright, let's get to the show. So today we're talking housing demographics and immigration with Eric Finnegan. Eric leads demographics research at John Burns real estate consulting. Eric has covered the housing market as a researcher since 2007, and Eric is an older millennial. So along with his peers, he has hit some adult milestones a little later than his parents. So including getting married in his late thirties and recently buying his first home at 40. So the demographic makeup in the country, including the immigration trends, drive so much of the assumptions about the future of this markets. Do we have enough houses? How many do we need to build? Who's going to build them? Where are we going to build them? So I ask Eric to join me so we can learn all that we need to know about demographics in this country and immigration and what's next. And I'm going to test some of my assumptions today. So Eric, welcome to the show.

Thanks, Mike. Really glad to be here.

Okay, so let's start with your background, your role at John Burns, but how does one get into be a demographics researcher? Tell me about all that.

Sure. Yeah. So I'll start with today and I'll sort of work my way back from the past. So yeah, today I lead demographics research at John Burns research. What that means is I am helping our clients in the housing industry and real estate in general and adjacent industries understand the underlying demand story of housing and real estate. So we think of demand as sort of a pyramid and the lowest level, the most fundamental is demographics. It's people, the choices they make, the ages, they are the size and the nature of the population as a whole. So where you track the market on a week to week basis, demographics can look out five, 10 years I think with some pretty accurate, some pretty high confidence calls because demographics is somewhat predictable over time, people make fairly predictable life choices. There's some variance around when that happens and how many people are a certain age, but I like to see, say demographics is a little bit like looking into a crystal ball.

(03:31)
So I like to see the future, I like to think about the future. I like to understand what's going on in the present. So that's one of the reasons I would say that I'm sort of drawn to the demographics research. And this all kind of started, I would say was I remember back in early, might've been 20 13, 20 14, so about 10 years ago now, I was working with a company who was a capital allocator. So they were buying and selling and managing real estate investments for institutional investors, endowment funds, pension funds, sovereign wealth, and the firm had made a big, big overweight bet in their portfolio to urban apartments and urban office buildings and just the urbanization trend that was going on around that time. And I remember our CIO at the time came to me and I was working on the strategic investments and investment strategy research and he said, Eric, we've been riding this wave of millennials and urbanization for the last five, six years.

(04:41)
When is that going to change? So I just dove deep into the demographics and how old is the population? What do people tend to do when they reach ages of first time home ownership, when they get married for the first time, what do they do with their housing choices? And that was sort of the kickoff of, I would say a call I made back then, which is that at some point there's going to be a wave of millennials moving out of the cities into the south southeast where homes are more affordable, where there's yards or they can grow as a family or they can't necessarily do that in tiny apartments in Brooklyn, for instance. So yeah, I've been covering the housing market since about 2007 around the industry back then. 2007 was a crazy time. It was just as the subprime bubble was imploding. I remember my first day on the job or first week, there's this epic moment on CNBC where Jim Cramer was freaking out that Ben Bernanke didn't know anything. He was so disconnected as an academic federal reserve chairman and all the banks were panicking and hedge funds and all these investors were seeing the writing on the wall and seeing the blood in the water, I guess, I'm not sure which analogy you use there, but Ben Bernanke was sort like, ah, everything's fine, subprimes contained. And yeah, the next 18 months was a roller coaster. So I got a very quick education in financial markets, real estate, housing, economics, and so the rest is history, I'd say.

Okay, so it was a trial by fire into housing and then you moved into demographics, but now you've spent 15 years focusing on demographics. So this is going to be terrific. As you were talking, you remember my first introduction to demographics was when I was a kid. So you're elder millennial, I'm squarely Gen X, and my mother was an entrepreneur. She built a corporate HR consulting firm in the seventies and she introduced me to the tree, the population tree for the country. And she was looking at how my Gen X generation was going to be following the boomers and she was worried about things. She had worries about what are my job opportunities going to be? She was thinking about these things in the seventies and there were all kinds, it turns out there were indeed all kinds of demographic implications of following the boomers.

(07:24)
I'm not sure she picked the right ones to worry about. I'm not, maybe we can never can, but it was really fascinating that she, I've been attuned to that for a long time. Most of my life I liked, we talk about weekly data here, and so we're going to talk five to 10 years in the future a lot today. I'm very much interested in that. Where are we placing our bets over the next five to 10 years? And I also wanted to restate your concept. The fundamental concept here is that demographics is the underlying demand for housing. It's the fundamental thing we're talking about. So we can measure the ebbs and flows at the surface of the market, but ultimately the tides are driven by the demographics. Okay, awesome. Let's go to the big themes that make up the American people today. What are the demographic themes that we should know that we should watch for? What are the big themes right now for the country?

Sure. So just from an overall, if you just take a snapshot in time today about, if you look at how many people are in each age group, if we can split it up into big buckets, and I could say about 30% of the population is under 25 today. So pretty young 40% are between 25 and 54. These are the sort of prime working ages, prime household formation years, prime homeownership years. Another 30% are 55 plus. And if you take another look at that, so what population is sort of native born versus foreign born and roughly about a quarter of the population is either first generation immigrants, meaning they came to the country after they were born in a different country, or they are children of first generation immigrants. So a very diverse population, very spread out between all different age groups and ethnicities and backgrounds.

(09:43)
So I would say that's just a really quick snapshot. I would say another thing to keep in mind is that yes, the baby boom was a transformative period in our country and the baby boomers have transformed housing and disrupted housing and basically everything that they've done all through their whole life cycle. So when they started forming their first apartment, it's their first households in the seventies saw massive boom in apartment construction, and they're going to just keep disrupting housing all the way through until they're out. So the older age population group is growing like gangbusters. A rising share of our population is 70 plus 85 plus just we've never seen it before in our country's history. However, I think about baby boom and then Gen X and the millennial and Gen Z. So Gen X gets a sort of a reputation I think gets overlooked a little bit.

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Right, true. I think Gen X does get overlooked. It's just the natural effect I guess, of coming after the boomers, but they're not that much smaller than the boomers in general. It's not that much smaller of a generation. So you can track this through births over time, and there was a decline in births from I think the mid sixties through the late seventies, and then the millennial baby boom came in. But we had in general rising births from the late seventies through the 2010s. So there's I think a lot of news stories around in the last few months around declining birth rates and what that means for the future of the population. But we have a period of time right now where about 4 million people were born every year between 1990 and 2010, and they're coming of age and they'll be coming of age for the next basically two decades. So a really strong wave of young people coming into the workforce, their prime income earning years, their prime spending years, their prime household formation years. It's a big wave of the population coming through

And that's actually kind of optimistic for housing. So while we are looking at a world where the 70 plus 85 plus is rising quickly, we also have a third of the population is under 25. And so when we're talking housing, that's two decades of demand for housing,

Pretty solid demand. I mean, the number of people turning 35 every day is over 13,000 today, and it's going to just gradually rise. You can do the math on this, how many people were born 35 years ago, how many people have passed away since then? And how many people have immigrated that of that birth year? You can have a pretty strong forecast for the number of 35 year olds, which again is a really key age group to think about housing demand.

Yeah, I think it's funny, we started off talking about the 2007 period, 2007, 2008, and it seems to me, while as you point out, it depends on how widely you define the Gen X spectrum, where it starts and ends, it seems like the tails of that are growing from where it used to be. But one of the things I think is interesting about that moment is that's when Gen X turned 35 and what happened, there's fewer Gen X and suddenly the demand, the things shift dramatically in that moment. Do you think it was coincidental or was there something demographic driving the 2007 2008 change as well?

Yeah, I think that's a big part of it. There's the demand story, but then above the demographics on the housing sort of demand pyramid is affordability and mortgage lending and financing conditions. And just through the late nineties into the mid two thousands gradually deterioration of mortgage lending and underwriting standards. And I think what that did is if you look back, it sort of glossed over or sort of increased demand for housing at a time when demographic demand was actually declining or softening. So at some point the demographics catch up and there's no more 35 year olds that can go into the housing market anymore. So you kind of exhausted that. Well, and it's sort of this moment, you kind of like the why coyote and road runner, you went way out over the cliff and you find out you're, oh shoot.

Yeah. Or all three of those waves hit at exactly the same time, the demographic one. And sometimes right now we're in affordability cycle, but we happen to have demographic strength underneath it. So maybe that's one of the things holding the market together in this moment.

Oh, definitely. I would say that's definitely true.

Okay, cool. Alright. So one of the things I like best about the study of demographics is for some reason demographers are really good with labels and giving us labels of Gen X and helps us really think about the world. Are there trend labels that you are using now that we can refer to?

Yeah, so I mean we can look at the typical generation labels, again, the Gen X, baby Boomers, millennials, gen Zs, and then I think Gen Alpha is the one that comes after Gen Z. We've generally found that the age ranges of those generations are a little too wide to come up with I think really accurate descriptions of demand for those ages. So back, I think today we call part of Gen Z is still in high school. Some of them are just graduating college, so you can't really talk about Gen Z as a whole and what their decisions they're making around housing because half the population is still five years or more away from making any adult decisions about their housing. So we break it up into decades born. We think at John, we come up with these decade born labels and the whole idea behind coming up with generation names is a way to just talk about people that have common life experiences and common formative life experiences where, so someone in my age, I was born in the early eighties, I was in high school when nine 11 happened.

(16:59)
I was just graduated college when the financial crisis happened again, my first job was out of school, was at the epicenter as everything was crashing. That shaped a lot of my decisions around housing and the economy and what jobs I wanted and choices I made. So that's sort of the idea is that we call out different generations that have common formative years in life experiences. So I think there's a balance to be the Gen X, gen Z, baby boomer and millennial. Those are a little easier to remember, but we break it up into the more decade born groups.

Are there anything, so we talked about the coming decade that well those that are in that 25 to 35 range now, so that'd be born in the nineties I guess is what we're looking at, right?

Right.

What are key points about those born in the nineties?

Okay, so in the 1990, they were in their teen years in the mid two thousands, some of them up through the mid-teens. I think those are the first wave of young people, adolescents and teenagers that grew up sort of in a native social media world and social media and smartphones were just everywhere. And they don't know high school in a high school experience without cell phones and social media. So for some people like us, that would be, I think it'd be wild to imagine what would it be like to have a very powerful computer in your hand and be able to connect with anyone in the world while someone's talking about sentence structure and English grammar? How do you keep your attention on what's going on? So anyway, I think that has a big impact. So smartphones, social media has I think a big impact there.

Yeah. Okay. So the nineties babies are the ones we keep our eye on in this moment. So when we talk about data and when I want to understand the demographics or changing demographics, are there data series that I should watch? What should I be tracking demographics wise?

Yeah, so I'd say just the size sort of the markets. I think when you think about market sizing, when we talk about housing, the market size for the US is the population. So there's a few, the components of population growth are births, deaths and immigration. So immigration isn't nationally, but then if you look at more smaller geographies at the states or metro areas, we also have domestic net migration. So people moving from different states between states or between metro areas. Those are the four big, big ones I would say. And there's really interesting stuff going on with each of those. But then a couple of others I would say would be something called the headship rate, which is the number or the share of adults that identify as a head of household. So it's a little bit of a wonky concept, but it's a way to track choices around housing, how many 35 year olds or how many 25 to 29 year olds are living on their own versus how many are living with roommates versus how many are living with parents. You can really discern a lot about the health of demand and the health of the economy, even just by looking at headship rates. So that's a big one. I would say that's maybe,

Yeah, the household formation is in some ways it's the manifestation of what the demographics sort of predicts. It is like, okay, yes, there's a lot more people and if they're forming households, then they are buying houses, they're also renting, so they're driving both of those at the same time. Is there a data series that gets updated on headship that we can follow?

So there's a few different ways of tracking it. You have to look at the age 18 plus population, so basically the adult population, and then that's the denominator. And then the numerator is the number of households, so the number of occupied year-round occupied homes in the country.

(21:53)
This is where things get a little bit wonky, different ways of measuring this. The census has three or four different surveys that count households and some of them are measuring different concepts and they don't quite agree on what a household is or how many households were formed. So it's a little bit like looking through the fog, how many households are forming every quarter, every year. And that's what makes I think buy life pretty interesting is I get to look at a lot of data and triangulate a lot of things. This is something we update for our clients quite a bit. We look at it on an annual basis by different age groups. So the census, I'd say is the best source.

So what do we know right now about headship rate, like the household formation, the headship rate in the country? Okay, it's mid, late August, 2024, expecting recession for two years. We've had interest rates up for more than two years now. What do we know about headship rate and household formation in the second half of 2024?

So headship rate in the second half of 2024, it has reversed a pretty steady long-term decline. So it declined pretty dramatically from the late two thousands, so right during the financial crisis through about 2021. So that was a coincided with a pretty concern about young people graduating college and moving back in with parents. They didn't have a job or couldn't afford an apartment. Actually seen quite a reversal of that in the last couple of years. And it really stemmed from number one, a very, very tight, strong job market where anyone that wanted a job exaggerating a little bit, but jobs were very easy to come by, raises were being given out and signing bonuses, and it was very good time to be a worker in those years. And naturally with higher income and also a lot more people working at home, people decided, Hey, I don't want to live with a roommate anymore.

(24:12)
I want to move on my own. I can actually afford a two bedroom apartment on my own, or I can afford a studio on my own where maybe I couldn't before. So if you look at a chart of the headship rate over time it was declining and then right around 21 it spiked up, and it's still not to where it was at the peak, which is back in around 2000, 2001. But we're actually, I think seeing it still increase in 2024. And the reason I say that is because if you look at the number of apartments that are getting supplied to the market, so there's a massive supply wave in the rental market right now, and we're not seeing a similar increase in ancy rates. So occupancies are staying pretty flat this year and even rising in some metro areas, which tells me that a lot of those new apartments are getting rented out and filled up.

(25:07)
And by definition, one occupied home equals one household. So if the number of occupied homes is rising, households are forming, and we can really see that in a pretty strong way in many areas of the country. Another thing is that during the last decade or prior to Covid, people were doubling up or living with parents again, driving that headship rate down. But now when there's so many apartments available or so many homes available, they're actually saying, okay, I can get a good deal on an apartment in the downtown and get maybe two months free rent where I couldn't afford that before it's actually going out on their own and forming households.

Okay, so that's great. That's really insightful. So we know that there was a long-term decline. We had post-financial crisis, we had credit standards tightening, so it was harder to get a mortgage. We had people who went through foreclosure and stuff, and so there was a lot of mess there that we took a decade of headship, household formation, decline. We had a big spike during the pandemic, still not quite back to where it used to be in the old days, but a big spike. And so then what you're looking at is this year it feels like it's continuing. We won't really know because it's a backward looking census. We don't really know about the census data until probably the first quarter we'll know about now. Right, right. Okay. But you're looking at, we know there's a lot of apartments coming online like a ton, and you guys also do a good job of measuring you guys at John Burns do also do a good job of measuring things like vacancy and occupancy rates, and because those aren't rising, you're watching people form households and fill those spaces.

That's right.

Fascinating. Okay, so that trend second half of 2024 where you see household formation still happening, headship rate, still climbing post pandemic, what does that tell you about the macro economy and housing in general for however far out in the future? You can see it feels like it's leading and what does it tell us?

Yeah, so I think it's consistent with a solid demographic underlying demand. So there's the population of adults in the US is growing. We see it growing steadily over the next 10 plus years. That means more people just need places to live. And when we see mortgage rates or rents wobble around, if we see mortgage rates double in the span of a few months we did a couple of years ago, or rents going up 10, 15% a year, that's going to, I think disrupt the demand story a little bit. But now we're seeing mortgage rates have actually come down a little bit over the last few months by about a point since may. I believe rents have been relatively stable and even coming down in some markets. And I think that stability just again, brings to the fore just the underlying demographic demand. So if you can look out over the next five or 10 years, I would say if we know how different segments of the population will grow or decline, we can make some pretty educated assumptions and estimates about what housing demand is going to be over that next 10 years.

(28:48)
And essentially we see pretty strong growth for populations over 25. Again, there's people that are forming households, people that want places to live. The biggest pockets of growth are 25 to 54, so those are renters to early first time buyers to just move up buyers. And then 70 plus, so these are the retirees, empty nesters, active adults, people that have a lot of home equity have some kids that they want to help their kids pay for houses and help out with down payments and monthly rent. So yeah, pretty strong population growth in those two groups.

Okay. Fascinating. That's a pretty bullish take over the next five to 10 years for housing.

It is on the demand side, there's a lot of stuff that could get in the way and disrupt it. If we don't actually get a supply to meet that demand, then prices are going to go just continually up and it's going to be still optimal, I guess is a neutral way to say that for everyone. Right? Yeah, for sure. Could be. Like if immigration was to basically slow down to zero or there'd be a recession or just something geopolitically that we can't really predict, then the demand story can wobble from year to year. But again, looking at that five 10 year window just based on the demographics, it's very strong.

That's okay. That's really fascinating. And it's actually a good segue because I want to spend a lot of time today talking about immigration and migration, net migration across states, but let's start with immigration. And so I like to say I am an immigration maximalist. I feel like the data shows immigrants create wealth, more immigrants, more wealth. That's my worldview. And I am also though, looking at a world where there is a big anti-immigration sentiment. Anytime I talk about immigration on Twitter, I get just stacks of people who are furious about immigration. And some of 'em have reasonable arguments, some of them are out of their minds, but so first I'd like to, I've asked several of my guests this question as what is your take as a demographer and someone who looks at housing, but generally in the economic sense? What's your take on immigration maximalism?

Yes. Yeah, so I mean, I always try to be politically neutral. I mean, I do have personal thoughts and ideas,

Opinions on, I've been less careful about being politically neutral,

Right? So I mean, I could say that at one point in my life, I remember I was living in San Francisco, it was 2008 and I had a roommate that I didn't really know very well, and he was studying immigration, global immigration. And we got in a conversation and I found out he was Maximus like you. And my first reaction was, wait, but if we open borders to everyone, how are we going to pay for them? It doesn't make sense. How would we pay for that? And since then, there's a lot of research on this, and I've come around to the more fact-based, I would say conclusion is that immigrants in general increase wealth and increase economic outcomes for the countries as a whole. So the congressional budget office just came out with a long-term projection of what is the impact of this immigration surge we just went through, what's the impact on the federal budget?

(32:50)
Does it increase the deficit or does it not? Right? And their take home was that immigrants are working, they're producing economic value, so they're producing goods, they're producing services, they're getting paid for that, but when they get paid for that, they're also paying taxes. So they're actually producing output for the economy, they're earning income from themselves that they go and spend and further the economy, but they're also paying taxes. So the net impact on federal budget, how much they're paying in versus how much in benefits they're receiving is not even close. It's a massive imbalance of they're actually paying way more in taxes than they're receiving in benefits. And not only just themselves, but if you think of lower skill immigrants that maybe are working in service industries or manufacturing or just jobs where there's less skill required, I would say that when they fill those jobs, that frees up people to actually native born people to be more productive, that they're getting paid more than they would earn back home in say, Mexico. But also they're increasing the, increasing the income and productivity of those existing workers. So again, it's like a rising tide that lifts all boats. That's my sort of mental framework for it. There's some idiosyncrasies with housing specifically, but yeah, I think there's,

Let's talk about those specifically the idiosyncrasies. So one of the questions that comes up is, okay, but if we let all these people in, where are they going to live? And isn't that causing, isn't that exacerbating the affordability challenge, more demand for housing? On the other hand, a lot of labor immigration are home builders and we have labor shortages among the home builders. So immigrants are building our homes. What's your take on some of those idiosyncrasies in housing with immigration?

So I think with certain markets, so there's a few sort of central top tier immigration markets that's, say Southern California is one bay area, Houston is another. And then the sort of tri-state area in New York, if you go into those markets, you will find examples of people born outside the US that are able to outbid the existing residents. So there's an argument to say that immigrants that come in and have the means to buy homes, they are keeping prices supporting the price level where it is today or even raising it. But that's, I think, a really narrow view on it. I'm going to kind of take a broader view that, so on the supply side, I think it's prices, a supply demand. So on the supply side, if you look at the skilled trades that go into building a home, all the different skilled trades, there's like you can look at 15 or 20 categories, and of those categories, the share of those workers that tend to be foreign born are between 35 and 68%. So let's say just roughly half of home building residential construction workers are foreign born. Meaning if you were to reduce immigration or you to deport existing foreign-born population, you would decimate the workforce available to home builders and that would reduce the supply of housing, increase the price.

(36:53)
And I think in a world where there's zero immigration or there's negative net migration out of the country, that's going to have unforeseen negative economic consequences, let's say employers won't be able to fill jobs as easily agricultural workers, a lot of people that come through the border end up working in agriculture. If we're not able to produce the food to feed the country, then food prices go haywire and people go hungry. So there's a way that if we didn't have immigration, the whole structure and function of the economy and our way of life would be severely disrupted and that might actually bring house prices down. So in the way that immigrants being here, if

So, we could do mass deportation, we could crash the economy and therefore we'd get cheaper houses.

Right? One way to say it. Yeah, exactly.

Okay, we could do that.

Okay.

I hadn't thought about that side. Okay. One way to bring housing affordability down is to make everybody suffer. Okay. So that's an interesting take.

I mean, the only time we see house prices falling is when there's severe economic recession, 2007, 2008, 2009, the early nineties, especially in Southern California. Other periods, you need a really soft demand in the economy, a really declining economy to get lower house prices.

Right, right. Okay, well that's an interesting take. Alright, so I appreciate that and I think it's really valuable for us. The stat that I'll reiterate here is 35 to 68% of the home builder labor is foreign born. So in a world where that part of the political momentum shuts off or deports foreign-born workers, we are decimating the home builders. And that construction is really slow in a time where demographically we have rising, we have a big birth segment, so there's broadly rising demand. If over the next say decade we gradually restrict immigration, we does that change the long-term sort? We were talking about how you were kind of optimistic about the long-term demand. If we, let's say we don't do mass deportation or something else crazy, but we turn down the knob and we are less welcoming. What does that look like to its births minus deaths plus immigration? What does it look like to the equation there?

Yeah, so if we reduce immigration, what we do is the working age population. So this is the change in the labor supply. So think of labor supply as 20 year olds to 65 year olds. And if we're not sort of adding to that via immigration, that population is slowly declining over time, which means there's labor shortages, which means inflation, which means employers find it harder to fill their job openings. Really suboptimal outcome generally I would say.

Alright, that's useful. Thank you for helping me frame. I'm always interested in validating my hypothesis on that

Topic. Yeah, me too.

Okay, so that's immigration from outside the country we also have the net migration in the country, big trends, especially post pandemic or during the pandemic and onward, the big California exodus is the story. What are the big migration trends and how does that impact the whole equation for us?

Yeah, so I would say migration trends are in general, this is from a macro view, but also even down to sub regionally, we would see migration consistent with people moving from high cost areas to lower cost areas. So if we think about California very desirable place to live, the economy is very productive and you all have a problem with really high house prices in apartment rents. So when someone like myself, if I was living in the Bay Area and I wanted to buy a house, I would have to either get a lot of help from my parents who don't have the means to do that or I would've to move somewhere else. I have to move to maybe Sacramento for instance, which there's a differential there. So actually see that in California as a whole, the domestic migration. So there's more people moving out of California to other states than people moving into California from other states. But if you look at California just by itself, there's areas of California that actually seeing positive net migration and it's just not the Bay area. And it's not like San Diego and Orange County, it's places like Sacramento. It's the inland empire where there's more homes available and house prices are generally lower. So people are moving from the Bay Area to Sacramento to capture that sort of price discount.

Well, one of the ways I've described it recently is we used to build houses where people want to live now people want to live where we build houses. Does that, so we talked about data series for headship rates, is there a net migration data series? So is there something we can go and say, yes, in August or in the second quarter Bay area out migration, flattened or climbed any way? Is there data we can keep our eyes on there?

So there's a few different ways of looking at that. There's more like publicly available census data is maybe the gold standard of it, but it comes out with a really long lag. So we're not going to find out what's happening today until 18 months from now. So there's other ways to track it. So there's companies out there that track it via change of address forms. So we actually track this internally with a proprietary data provider who we roll everything up basically all the address changes in the country and we can see when the household moves from county A to county B or from county B to county A or from C to B, basically you can set it up to see where people are moving in what volume, and we get that data about a month or two after the month closes. So we think it's the most up-to-date migration dataset outside of maybe the postal service who has their change of address forms. I think they sell a product that's very, very expensive. So this is different. You can also look at it through IRS forms or IRS data, but again, very lag. We only have data from 2022 at this point.

So what is the current data? So you are watching change of address forms right now. So what are the trends again, as recently as you can see it? So maybe June or July or whatever for migration this year. Is the Bay area collapsing, which my critics on Twitter always like to tell me it is. Or what are other big moves? We know, for example, that the Austin housing market has really slowed, are people moving out of Austin or we know Western Florida was the really slowest housing market for most of the year. What about is that migration down? Tell me about those trends.

Yeah, so something like Austin, massive wave of migration that started well before Covid peaked during covid and has slowed way down basically to zero at this point. So at a time when a ton of supply is coming, they're inflow of new home buyers and new apartment renters has slowed to pretty dramatically.

That's a California to Austin or is that an anybody to Austin?

Just anybody to Austin.

Inbound to Austin is slowed to basically zero right now.

Wow. Something like the Bay area still negative flows, outflows. So negative net flows out. There's a couple of extra words in there, but people are, in general, more people are moving out than moving. In terms of the domestic population in Sacramento, it's different. So there's more people moving into Sacramento than moving out. We can see where they come from actually. And it's where you might expect, they're from San Francisco, they're from the East Bay, they're from Silicon Valley, somewhere from down south in LA and Orange County. People that are looking for homes to buy with yards essentially.

(47:09)
And some of the markets in the southeast. So in North Carolina, South Carolina, Atlanta, there's still a ton of people moving in relative to the amount of people moving out. There's a really strong migration markets in terms of South Florida, in Southwest in particular, we saw really strong in migration during the pandemic and before. And then I think it was Hurricane Ian was a really big turning point for that market where a lot of people started moving out or they were relocated temporarily and they've changed their address and they have not moved back. They received really large outflows of the population from places like Fort Myers for instance. Then there's some of the gateway cities of the country. So think of New York City or Miami, la, San Francisco, the existing population, domestic migration is negative, so existing population is more moving out than moving in. But what's happening in those markets is that there's a really strong component of international migration that is actually offsetting the outflows of people.

(48:26)
And one interesting stat I thought was pretty interesting is that there's hundreds of thousands of people moving out of California relative to people moving in that's negative domestic migration. But with the immigration surge that just happened and so many people moving into California from elsewhere outside the country, California population we think actually grew. Last year we estimated a little bit differently than the census. The census says that population declined, but they also I think missed a lot of the immigration surge. So we've adjusted their estimates and we see actually a pretty minor uptick in California's total population.

That's interesting. I saw something from the governor's office that said confirmed your assessment.

Oh great.

Recently. So yeah, I was like, wow, I didn't realize that. So that's really fascinating. Okay, so Austin inbound, close to zero southwest Florida, outflow net outflow. And when you're a net outflow city but you don't have international migration, that's pretty catastrophic for real estate.

It can be. Yeah. So one of the other things, so back to the households conversation from earlier, is that one strange thing that we saw in 21 and 2022 is that a place like New York City was losing hundreds of thousands of people a year on an annualized basis, but their apartment rent in a housing market actually strengthened. So what happened there is that all the housing units left behind by the people that moved out, they were filled up by roommates splitting up and apartment renters were getting continually bid up. So I think there's look at population, but we also need to take into account again the headship rate. I'm going to come back to that term that the headship rate spike, that's the headship spike in places like New York, dc, places like that.

So during the pandemic we had, San Francisco is famously big outbound and there in some parts of the San Francisco housing market, like downtown condos maybe haven't even found a floor on their pricing yet. But do you assume or were you able to measure a headship increase in the Bay Area even with outbound population in that time?

That's a good question. I haven't looked at the San Francisco numbers exactly, but it wouldn't surprise me if headship rate increased a lot.

I have a friend who's a state senator and he was asking me, he is like they concerned about home prices and he said, why aren't home prices falling if the population's going? And I have some answers for 'em, but it could be really, really fascinating. We just had a lot of roommates before and now we have fewer.

Right, okay. And that big shift there is I think work from home, like remote work, I think it was always around in the Bay area, but it's virtually mass, it's accepted as much more socially acceptable and almost expected I think by some employers to let employees work from home a few days a week.

So that helps that work from home probably increases headship rate.

It definitely does. Yes. There's been research out there that shows headship rate goes up, the amount people are willing to pay for their home if they work from home is much higher. So again, I'm one of the upward supports on house prices and rents

On house prices.

(52:22)
That is fascinating. Alright, so this is terrific, really insightful. So let's talk about a policy and as we're getting closely end, I'm interested in what you think. So in housing we have, the big question is supply how much we build, right? Kamala just talked about a policy, introduced her policy to build, encourage to build 3 million more homes and a bunch of other policies in there. But for me the supply side of that argument was novel for a presidential candidate. So what's your take from a demographic point of view on housing policy over the next 10 years or whatever timeframe that you have visibility to? What's your take? What do you think is smart policy for the country, knowing what you know about the demographic trends?

Yeah, so I think on the demand side there's see here, so we've estimated how many more homes we need every year for the next 10 years just to meet demographic demand. And that number is around 1.8 million. So homes completed and delivered. Those are for sale rent for rent and mobile homes, manufactured homes. And we barely got there in the height of the post pandemic housing boom. So to me, and you can think about what happened at that time is supply chains basically crumbled under the volume and the weight of all those products and materials coming through supply chain and there are massive labor shortages which then stretched out build times.

(54:21)
So I think there's some restructuring of just the housing industry that would need to happen to meet the demand that will be there just based on the demographics. I don't think the way to, personally, I don't think there's a way to restructure that with demand side policies. There may be some in the short term like the $25,000 first time home buyer credit. I know. Why would you incentivize demand at a time when prices are rising? Right? But I think there's maybe some short term benefits to that, especially given the sort of disconnect between sellers and buyers right now that seems to be happening, which you talked about in your latest video. People withdraw their listings from the market because there's not buyers to meet them and they're not willing to come down in price. So maybe that 25 anyway, that's not demographics on the demographic side, the demand will be there. We don't need to incentivize the demand. It's more about how do we incentivize the industry and how do we remove barriers to the industry to actually just meet the demand that's there. And there's home builders that want to build homes. There's even lenders that want to lend to builders and apartment developers and it's really hard to do that right now given all the delays that happen at various municipalities given capital constraints on how expensive it's to buy and hold land for a few years.

(56:01)
And there's just a lot of unknowns. So the thing that was really promising for me to see in those policy platforms is I hadn't seen, and my memory might just be a little foggy going back 8, 10, 12, 20 years, but I don't remember ever seeing a national campaign around increasing the housing supply via removing barriers. That to me is, oh, that's interesting. That perks my attention up. I dunno how much of that will happen or get actually enacted, but it has my attention. And I think that's even from our surveys again, I'm going to talk about, we survey land brokers every quarter and they say the number one obstacle to increasing the supply of developed land, which builders need to build homes on that number one barrier is municipal jurisdictional delays and those kinds of things.

So maybe we have a policy at the federal level. Certainly it's happening at the national level where there is, and I know there's California state stuff underway, which is the number one obstacle to building more homes is municipal delays. And if we have a national policy to go build 3 million more homes, we have those, maybe we could start tearing down those delays. I think you said your estimate is that we need 1.8 million more homes per year to meet just to meet our demographic demand. And that says to me, we are still under building, we're getting shorter, our shortages increasing each year, getting worse each year. Right now, even though we are aware of it and we're aware how short we are, we're still in this moment under building.

That's right. There's some sort of regional things there. So like a place like Nashville or Charlotte or Rally where there's just a massive apartment supply wave coming, maybe there's some overbuilding there, especially in the rental side, but nationally it'd be really hard to make the case that we're adequately or oversupplied with housing right now. You have to jump through some pretty big logical hoops there.

And when you say Nashville, Charlotte in Raleigh you're talking about we built a lot of apartments and so affordability, headship rate can continue to grow. We can have inbound net migration there, but largely that's met by rental property, not by purchase. So we're probably still restricted on the purchase side. Fascinating, okay. That's really, really useful. And do you see it as those metros like Nashville, Charlotte and Raleigh are the big ones too that might be overbuilt?

Yeah, I'd say maybe look at Austin also, a lot of the markets where there was a ton of migration over the last few years, they just went hog wild with apartment development. So yeah, I would say temporary oversupply, but with the demographics, I think all that stuff is going to get absorbed in the next short period and it's not. So

You're not super pessimistic on that big supply that just came to market

Personally not,

No. Okay. In Austin we said, so we did a bunch of, the apartment construction is lagging for the migration boom that happened a couple years ago and you pointed out that net migration to Austin right now is zero is flat. Does that mean that we have, is that likely to cause more trouble there? Should we really keep our eye on that in Austin?

I definitely say yeah, keep an eye on that. I would need to see migration trends turn back up within a year or so to think how quickly can they change? They can change, I mean pretty quick. We can see it go from, I would say every, not going to see big turning points in three months, but six months, definitely 12 months. Absolutely. Okay. And the idea is that, oh, Austin is a desirable place to live, so more people are going to keep moving there. And just this, what's happened in the last year with the sharp slowdown is just house prices and apartments got very, very expensive. Hiring by firms that are in Austin slowed way down. So fewer people are moving there. I'd need to see, okay, over the next 12 months does that net migration start inflecting back upward to validate to me that, okay, Austin is a place that people want to live long-term in larger numbers.

Fascinating. Fascinating insights. Real quick, tell me about then, we've talked about demographics as really describing the future and you're generally bullish because of the young population, the fairly large contingent of young population. Tell me about your vision of the housing market in say five to 10 years at the 2030 time. What are we looking at?

Right, I look at this, I guess on maybe I'm going to go to 2033, I think about it in sort of the 10 year window, but by 2033, the US population is going to be about 20 million bigger than it is today. We're going to need on top of that, again, 1.8 million new homes a year. So 18 million homes, we need 18 million more homes between now and then about two thirds of that being for sale homes. So 12 million for sale, 6 million rental is very rough estimate. There's nuances there. But you also think not just the larger population, but the population is going to be older, a larger percentage of them are going to be 70 plus also the population is going to be more diverse from more diverse backgrounds. I mentioned before about a quarter of the population today are either first generation immigrants or children of first generation immigrants. We're going to see a much more just ethnically diverse population in the next 10 years.

(01:03:00)
And I mean this is sort of thinking big picture and maybe a little bit, I dunno how to say this, but I sort of think, look at the direction of our culture and it's sort of more individualism. We want more individual expression, we want more customized solutions for us. So housing is going to need to fit, be more idiosyncratic to people's unique preferences. And there's a bit of a paradox there because individuals, but also there's going to be, I think we're seeing this already, that people want local community, they want in-person interaction. So there's going to be that sort of dichotomy of more unique, more choice around where and how people live, but also the ability to live around people that they enjoy and

Yeah. Alright, that's a really fascinating view and I love the precision there. So 18 million more houses by 2033. We have a lot of work to do. Not building that many right now. Alright, well

Hopefully the top 20 home builders will listen to this and say we actually, you're right, you're right Eric, I believe you. Yes,

That's right. And the right presidential candidates will hear it and go, aha, housing supply is really what we want to incentivize. 3 million is a nice start, but we need 18 million in the next 10 years. And that's just to keep up where we are. That's not to catch up from any backup from any undersupply or would that help catch us up?

That would help catch us up. So we're about 1.5, 1.4 million undersupply today. So we just split that out over 10 years. So it's a relatively small amount per year. So think of about 140,000 of that.

Okay, so you think we're only about one and a half million underbuilt now?

We estimate a few different ways. The most conservative estimate is 1.4, but if we look at it from different angles and using different assumptions that we can go into the double and triple that. But we like to sort of look at a really conservative,

And I had a guest on SE Firth from Mercatus who said he was working on saw research that said we're 20 million short right now and I haven't dived into that research, but there's a shortage there. And so 1.4 is sort of the bottom, and so your 1.8 per year would help get us past.

Yeah, it would bring us back into balance essentially, I would say.

Okay. Eric Finnegan, this has been tremendous. It was exactly what I wanted to get out of the conversation. I love having a guest that with such deep insight on what's going on in the world, I think it really helps our listeners understand I'm as guilty as anybody of spouting my opinions on social media. I get to get some data to back up my opinions to, so I got some real learning today. So I really appreciate you joining us. We're Twitter friends, so we follow you on Twitter. And is it Eric Finnegan Finnegan with an I?

Yes. Eric, just Eric Finnegan.

Eric Finnegan on Twitter. Any other place to connect with you?

Yes, the company I work with, John Burns research and Consulting. We send out newsletters every couple of times a week actually. So there's a way to get more sort of long form housing insights. If you go to our website, jb RE c.com and you can just sign up right there. I'm one of 150 people that generate a ton of insight for our clients and we like to sort of share a little bit of that with the public. So that's one way to do it.

Great. Excellent. Excellent. Yes, I highly recommend that work from the John Burns team we worked with as a company. We've worked with you guys for a long time. Alright everybody, that's the top of mind podcast, thanks for listening. As always. If you found value, found as much value as I did out of the conversation, I appreciate a five star review on your podcast apps, wherever you get your podcasts so that other people can find the discussion and get to hear from really insightful folks like Eric. So thanks everybody more soon.