Will We Ever Build Housing Like We Used To?

The US has been building far fewer single family homes in this economic cycle than we did from the 1960s to the early 2000s. Part of this is blamed on the Great Recession and its impact on millennial buyers. But there are signs that this is about to change.

Recently, Brookings published a study – one they routinely update – on where millennials are moving (see here https://www.brookings.edu/research/how-migration-of-millennials-and-seniors-has-shifted-since-the-great-recession/ ). Migration patterns show some surprising statistics. Both California and New York are experiencing net out-migration; Illinois, New Jersey and Massachusetts are on that list too. Inside the numbers, Sacramento and San Francisco are still drawing the young educated crowd, but overall numbers are down for the Golden State. Portland is a big draw, ranking number seven on the city list. But Minneapolis, Kansas City, and Columbus OH rank 14th, 20th and 12th on the list so it’s not all about coastal cities.

The big winner by a long shot is Texas, with millennials moving to Austin, Houston and Dallas in droves. Houston ranks first in the city list, and Texas ranks number one in the state list with Washington (Seattle) a very distant second. Too, the top winners this time around are nearly the same as just after the Great Recession, but their gains are accelerating.

A common theme among many, though not all, of the destinations for young people is cheap housing. Millennials have been slow to marry, and slow to have children, but that’s starting to change. At the same time, this cohort – one of the largest population bulges the US has ever seen – has a lot of student debt and a lasting impression of what can happen when housing goes bad. If you’re young, just married and not terribly wealthy, what do you do if you want a house? The answer lies in where millennials are moving – and we think it indicates that housing is about to gear upward on a long term basis. Beneficiaries of this move might be housing stocks, but looking at housing related bonds, wood and other building products, and furnishings might be a worthwhile exercise in the next couple of years.