In Today’s Housing Market, Renters Have More Financial Incentive to Migrate to More Affordable Metros than Homeowners
Domestic migration out of large and expensive metro areas has increased since the start of the pandemic. For example, in 2021, 27.1% of all movers migrated out of the metro they were living in, an increase of 3.8 percentage points from 2017. This increase in migration occurred during a historic low-mortgage-rate environment. But, in 2022, interest rates more than doubled. This begs the question: Is migration to more affordable areas still worth it?
The answer depends on if you need to sell a home with a below-market mortgage rate or not. For renters looking to buy, the incentive remains large and actually increased with higher mortgage rates. However, for existing homeowners who would need to sell a home with a below-market mortgage rate, the incentive is far smaller and may have even flipped to a large disincentive.
Mortgage Savings When Moving to More Affordable Destinations
To understand the incentive to migrate from high-cost to more affordable destinations, Freddie Mac researchers sought to answer two related questions:
- How did a renter’s financial incentive to move and buy in a more affordable metro change as interest rates increased?
- How did a homeowner’s financial incentive to move to a more affordable metro change as interest rates increased if moving requires them to give up a below-market mortgage rate by selling their existing home?
Our researchers began by comparing estimates of the monthly mortgage payments if a renter bought a typically priced home in the metro they live in now compared to the most popular affordable outmigration destination for their metro.
They found that, for renters, buying in a more affordable destination rather than in their current metro could net them thousands in savings per year, ranging from $1,200 to $12,000. If you consider the top five metros for out-migration, the expected mortgage savings is nearly $12,000 per year. The following table provides more details on the monthly mortgage costs for the largest markets by outmigration.
Metros in Order of Outflows, Their Top Affordable Destinations, and Estimated Average Monthly Mortgage Payments*
| Metros with Highest Rates of Outflow to Affordable Metros | Estimated Mortgage Payment of Metros in Column 1 | Top Affordable Metro Destination from Outflowing Metro | Estimated Mortgage Payment of Metros in Column 3 | Monthly Saving |
|---|---|---|---|---|
| New York, NY | $2,900 | Philadelphia, PA | $1,900 | $1,000 |
| Los Angeles, CA | $3,800 | Riverside, CA | $2,900 | $900 |
| Washington, DC | $2,700 | Baltimore, MD | $1,900 | $800 |
| San Francisco, CA | $4,200 | Sacramento, CA | $3,000 | $1,200 |
| Boston, MA | $3,000 | Worcester, MA | $2,100 | $900 |
| Miami, FL | $2,200 | Port St. Lucie, FL | $2,000 | $200 |
| Seattle, WA | $3,400 | Phoenix, AZ | $2,400 | $1,000 |
| Denver, CO | $2,900 | Greeley, CO | $2,600 | $300 |
| Dallas, TX | $2,300 | Houston, TX | $1,900 | $400 |
| Atlanta, GA | $2,100 | Gainesville, GA | $2,000 | $100 |
| Phoenix, AZ | $2,400 | Prescott Valley, AZ | $2,200 | $200 |
| San Jose, CA | $4,700 | San Francisco, CA | $4,200 | $500 |
| San Diego, CA | $3,800 | Riverside, CA | $2,900 | $900 |
| Orlando, FL | $2,100 | Lakeland, FL | $1,700 | $400 |
| Austin, TX | $2,600 | San Antonio, TX | $1,700 | $900 |
| Tampa, FL | $2,000 | Lakeland, FL | $1,700 | $300 |
| Detroit, MI | $1,500 | Flint, MI | $1,000 | $500 |
| Portland, OR | $2,700 | Salem, OR | $2,300 | $400 |
| Sacramento, CA | $3,000 | Yuba City, CA | $2,400 | $600 |
| Charlotte, NC | $2,100 | Hickory, NC | $1,300 | $800 |
| The weighted average of median home prices in the top 20 metros. | $3,000 | The weighted average of median home prices in 20 inflowing destinations.
| $2,400 | $600 |
*Monthly mortgage payments do not include property tax and insurance and assume: the median home price for that metro from Freddie Mac loan applications over the past year, a 15% down payment, and a 30-year fixed-rate mortgage rate of 6%. All numbers are rounded to the nearest $100.
Source: Freddie Mac Economics and Housing Research calculations based on the 6.0% mortgage rate.
The above table assumes a 6% mortgage rate, that the choice is between buying a typically priced home in either metro and only includes estimated principal and interest payments. To determine how the incentive to migrate to more affordable areas changed over the past year, we ran the same experiment—changing only the assumed interest rate, to the 3.1% seen before the run-up in rates experienced during 2022.
Annual Mortgage Savings when Migrating — Dec. 2021 v. Now
| Monthly Mortgage if | Savings from Migrating | |||
|---|---|---|---|---|
| 30-Year Fixed Rate Mortgage Rate | Stay | Migrate | Monthly | Annual |
| 3.1% (Dec 2021) | $2,118 | $1,726 | $392 | $4,705 |
| 6.0% (Jan 2023) | $2,969 | $2,420 | $549 | $6,588 |
Source: Freddie Mac Economics and Housing Research calculations based on the 6.0% mortgage rate as of January 2023 and the 3.1% mortgage rate as of late December 2021.
In short, for renters looking to buy, our researchers estimate that the typical annual mortgage payment savings from moving from these metros to their top affordable destination increased 40% between December 2021 and January 2023, or nearly $1,900.
What About Current Homeowners?
Higher mortgage rates give renters far more incentive to migrate to lower-cost areas. However, for current homeowners who purchased their homes when rates were low, the math no longer works in their favor. Assuming the same median home price and a 15% down payment, borrowers who sell their current home to buy their next, and thus swap out a 3.1% interest rate for a 6% rate, would see their annual savings from migrating flip to a loss despite moving to a more affordable location — from positive $4,700 when mortgage rates were near 3% to a loss of $3,600 as of January this year. The disincentive would be an even more dramatic, a loss of $6,600 a year, at a 7% mortgage rate.
The bottom line is that the financial incentive of migrating to a more affordable housing market changed dramatically over the past year in favor of renters looking to buy and against most homeowners. These incentives depend on the difference in home prices, interest rates, and whether you need to give up a mortgage with a below-market mortgage rate.
One implication is that we can expect fewer existing homeowners to migrate now, while migration from renters looking to buy could increase. Another implication is that fewer migrating homeowners coming in with high accumulated home equity could help cool the excessive home price growth seen in popular destinations for domestic migration.
For more insights from Freddie Mac’s research team, visit Research Insights, Notes & Briefs.