In housing, the two most basic factors to consider are location and employment. A long-standing rule of thumb is to “follow the jobs” by assessing housing markets with strong job growth and using that information to find opportunities.
The labor market has been on a roll since the April 2020 low. Businesses across all sectors are in growth mode trying to keep up with high levels of consumer demand. The unemployment rate is back in the 3% range after 22 straight months of job growth.
The housing market benefited from the strength of the economy and the labor market. Many working people have saved money over the past few years and used those funds for a down payment on a house.
However, the housing market is changing due to rising borrowing costs, high house prices and a slowing economy. Zonda expects housing market difficulties to persist in the near term despite a currently healthy job market. We expect the housing market to remain weaker in 2023 and unemployment trends to increase.
While these risks persist, we also believe that tracking labor market movements over the past 10+ years is useful to make sense of longer-term market resilience. To assess the performance of metropolitan areas, we looked at:
- Total employment growth
- High-income job growth (these sectors are financial, information, and professional and business services as defined by the Bureau of Labor Statistics)
- The share of high-income jobs in total metro employment
For our analysis, we only considered metropolitan areas with 750,000 or more inhabitants. We also used 2021 because it captures the most recent full year available. The table below presents the results of the three categories:
- In terms of total job growth from 2010 to 2021, Austin, Texas; Nashville, TN; and Riverside/San Bernardino in California were the top three markets.
- When it comes to high-income job growth, the same two markets top the list: Austin and Nashville. Austin posted a 96% increase from 2010 to 2021, followed by Nashville with a 67% increase in high-income areas, and San Jose, California with a 61% expansion.
- In terms of high-income jobs as a share of total employment in 2021, San Jose led with 35%. San Francisco had 33% of jobs in high-income sectors, followed by Washington, DC, with 32%.
- We also thought it was important to look at the top three job growth metros from 2019 to 2021 to give a shorter-term, pandemic-influenced analysis. Unsurprisingly, Austin again came in first, followed by Raleigh, North Carolina and Salt Lake City.
- In terms of 2019-21 high-income job growth, Austin again leads the way with 14% growth, followed by McAllen, Texas (10%) and Raleigh (6%).
- Tampa, Florida stood out as a market that ranks 12th in total job growth but 6th in high-income job growth. Many of the high-income employers are in technology, financial services and healthcare. In addition, the local economy has held up well thanks to the changes brought about by the pandemic. Tampa was recently ranked as the third best metro area for remote work with a relatively affordable price and warm climate.
- Riverside/San Bernardino’s trends stand in direct contrast to Tampa’s outperformance in the high income sector relative to total growth. Riverside lands third in total job growth from 2010 to 2021. For high income growth, however, Riverside ranks 24th. Employment growth in Riverside is concentrated in the more moderate income sectors of transportation, warehousing and administration. services.
- San Jose and San Francisco have been traditional hubs for the tech sector, seeing solid growth in high-income jobs over the years. These markets, along with any technology-driven ones elsewhere in the country (e.g., Austin and Salt Lake City), are being tested right now, however, for several reasons. First, the tech sector has been one of the fastest to slow throughout 2022 with increasingly frequent layoff announcements, lower levels of capital spending and fragile stock prices. Additionally, employment statistics in places like San Jose may exaggerate the actual local job growth due to working from home; typically, jobs are coded to where the business is located relative to where the employee lives.
- Austin had the strongest growth in total employment from 2010 to 2021 and from 2019 to 2021. Austin also had the strongest growth in high-income employment during both periods. Also, the market ranked 4th in terms of total share of high-income jobs to total employment. Austin has consistently been ranked as one of the best, if not the best, metropolitan areas in the United States for job and housing growth. The tech sector has been a big contributor to Austin’s success with relocations and expansions from companies like Oracle, Meta, Apple, Tesla and Samsung. In fact, data from the Austin Chamber of Commerce highlights that tech industry jobs make up 16.7% of the market in Austin versus 9.2% nationally.
Despite the fantastic employment trends, Austin’s housing market has been one of the fastest to slow in 2022. The market is in what we call a growth paradox, where the labor market is strong , but the housing market is faltering. In fact, many of the markets that have seen the strongest job growth have also become some of the fastest slowing markets this year, as housing demand outpaced supply and home prices surged above limits of what is supported by income in many markets.
Case Study: Austin
We wanted to highlight this trend a little closer by looking specifically at Austin. Austin could be called the “worst-kept secret” in the national real estate markets. Bryan Glasshagel, Zonda’s senior vice president and Austin regional expert, notes that the capital was one of the first markets emerging from the COVID era to eclipse total housing starts levels from the mid-2000s. , and levels have only increased since .
The growth was justified by the evolution of the population. Austin has historically been a top market for net domestic migration, with more people entering than leaving. In fact, much of the market growth came from movers competing with investors and locals for the growing, but still limited, inventory of homes.
According to Redfin, the top three original metros for people moving to Austin were the Bay Area, Los Angeles and Seattle. We can compare the prices in these subways to those in Austin before the pandemic to capture the incentive to move. In Austin, the average median closing price for new homes in 2020 was $334,267. For comparison, San Francisco’s was $936,400, Los Angeles/Orange County’s was $825,308, and Seattle’s was $618,308. For workers looking to relocate during the pandemic and continue working remotely, Austin had obvious appeal.
This drove up prices in Austin significantly. Growth was generally strong until this year, when three notable trends changed the market: the relocation boom slowed, mortgage rates doubled, and the economy began to show cracks, particularly in technology. . Zonda’s new home market update showed Austin saw sales decline 52.3% year-over-year in October 2022. The market downturn could be further exacerbated by a recession and subsequent job losses in 2023.
To bring affordability back to more accessible levels and help get the market back on track, Glasshagel points out that a combination of price cuts, lower interest rates, cheaper land and lower inflation will likely be needed to restore balance to Austin’s real estate market, not to mention restoring consumer confidence. 2023 is shaping up to be a tough year as these issues persist.
When you look at employment trends, they won’t save the market from short-term slowdown and volatility. However, Glasshagel states that “Austin’s long-term trends remain strong due to the level of job growth.” Businesses that have moved into the market haven’t done so in a single cycle – businesses will be there on the other side of the market downturn, and our Zonda team is working on what all of this means for the resilience of the market and longer-term housing demand.
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