Magazine article Mortgage Banking

Go West, Young Man?

Magazine article Mortgage Banking

Go West, Young Man?

Article excerpt

Where are the growing mortgage markets of the future? Migration patterns provide a clue.

Mortgage markets in the United States grow or stagnate as economic prosperity, new jobs and new homeowners flow in and out of them. Longer-term trends in the economy toward less home building and less refinancing make population shifts a more important factor in the health of local mortgage markets in the future.

This article looks at the magnitude of population movements and lists the mortgage markets that are likely to be growing most rapidly in the next five years. Go west and south, young man, but not all the way, and only to selected markets, many of which are still relatively small (see Figure 1).

A fluid population

Americans are a restless lot, ready to move at the drop of a hat, always looking for the job, house or town that is one step up the ladder. In many parts of Europe a family's descendents can live in the same house for hundreds of years, but in America very few people live in the house of their birth.

This willingness to light out for greener pastures has kept mortgage bankers busy and prosperous for many years, as the average 30-year mortgage turns over every five to seven years. The mobility of the population will be an even more important source of income for mortgage bankers in the next five years, because new home construction and refinancing are receding as origination sources.

Figure 2 shows that home building in the United States, while at a cyclical high today, is steadily declining relative to the population: New home building levels are only half of what they were 20 years ago. Figure 3 shows the ebb and flow of the big refinancing boom, which will continue to recede because mortgage rates have been less than 8 percent since 1994.

In the 1990s, 16 percent of the U.S. population moves every year - more than 40 million people. Most of these stay in the same town, but 14 million move to a different county and 7 million move to a different state. Back in the 1950s, the mobility of the population was more than 20 percent a year; by the 1970s, it was down to 18 percent. The percentage that move to a different state has stayed fairly constant, about 3 percent a year.

As some people move out of an area, others move in. And even without population flows, homes sell. The simple turnover of homes accounts for most of the mortgage volume in most markets - local annual turnover rates vary from 2 percent to as much as 12 percent - but the long-term health of a market depends on whether more people are moving in than are moving out.

The variation in the net flow of population migration among states in the United States - the excess of inflows over outflows, or vice versa - can be seen in Figure 4. States with net outflows lost almost a million people in 1994.

Big bang from small potatoes

In most cities and states, population migration is fairly small compared with the total population, usually no more than a few percent per year. But this small shift in the population can herald big effects in local real estate and mortgage markets.

Figure 5 shows net migration into and out of Utah since 1980. Population inflows in the late 1970s, because of new mining jobs, were followed by a period of outflow that lasted until 1990, when the big economic recession in California sent emigrants in large numbers to the Mountain states. Since then, in-migration to Utah has been brisk.

In the peak year of in-migration to the state, 1993, a net of 20,000 people moved into Utah, not a very big number compared with the total statewide population of almost 2 million, but with big consequences - for two reasons. First, migrants within the United States are very likely to be homebuyers, unlike international immigrants who are more likely to rent or to move in with other family members. Second, net migration to an area is an indicator of economic growth and increased home turnover in that area. …

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