by Zain Jaffer
According to a late July 2023 report from real estate giant Redfin, a full quarter (25.5%) of their home buyers want to move elsewhere where houses are cheaper. That figure is 19% higher than before the pandemic and shows a significant increase. Las Vegas, Phoenix, and Tampa top the list of areas where home buyers want to relocate from more expensive areas.
An equivalent house in Las Vegas is roughly half that of a house in San Francisco, Los Angeles, or Seattle, where Redfin says majority of the current home buyers are coming from. Redfin also reported that San Francisco, Los Angeles, and New York show the highest increases of buyers who want to move elsewhere.
There are several major factors that contribute to this. The sudden increase of the Fed overnight lending rate from almost zero to 5.5% (and possibly higher) has pushed home mortgages to the 7-8% range. That compared to a roughly 3% mortgage prior to the rate hikes. Right now, even if a seller can sell a house on the market, if they need to take out an added mortgage at a higher rate to augment the selling price of their current house, they would be stuck with a higher rate. Thus many just prefer to sit tight where they are until rates become more reasonable.
Thus buyers who want to buy even with high mortgage rates won’t find many homes on the market, at least the houses they want. Banks are also hesitant to just give anyone they don’t trust a multiyear mortgage, as their bond assets bought prior to the hikes are underwater if marked to market, and they may also be in possession of more foreclosed properties than they can handle.
For the buyers coming from larger cities like San Francisco, New York, Chicago, and Los Angeles, the increased crime rate due to lack of willpower to enforce the law has convinced many to throw in the towel and look for homes elsewhere. After all, who wants to live in extremely high priced homes if the surroundings are full of street crimes, drug addicts, homeless, and other signs of decay.As the City Councils of these large cities pursue lax and woke policies on crimes like shoplifting and car break-ins, they just lay the groundwork for more serious crimes as these criminals become emboldened by the lack of police enforcement. There have been serious police abuses in many cities in the past that were systemic, but now the pendulum has swung in the other direction and showed that it is just as bad to have no police presence.
As a real estate investor I can simply take advantage of this trend and make investments that allow me to profit from it. However as a San Francisco Bay Area resident in particular, it saddens me that the decay of the City is happening before my eyes. Union Square for example was a beautiful tourist area in the past. Now a lot of the retail spaces there are vacant, and the ones that remain in operation have to deal with shoplifters who do so with fearless impunity.
It can be prevented, if City Councils stop pandering to woke interests and realize that at some point they have to take control of their cities back from these street criminals, drug addicts, homeless people, and the like.
They should remember that people have their breaking point, and they stand to lose the kind of people that make a city great. The combination of poor quality of life brought about by street crimes, high real estate prices, high mortgage rates is already convincing many to move elsewhere where the quality of life is better and the houses are less expensive.
SOURCES