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Higher “hidden” homeownership costs have brought a halt to many buyers’ plans to move out of their current neighborhoods, according to a report released last week by Bank of America.
Households have deferred moving not just because of high home prices and interest rates, but partially due to high “hidden” homeownership costs such as property taxes, insurance and the economic impacts of climate change.
Gen Zers and lower-income families, however, are bucking the trend in search of affordable housing.
Data suggests that Gen Zers make up 13 percent of those moving to another city, up from 8 percent in June 2020, while households earning less than $50,000 annually make up 18 percent of this group, up from 12 percent in 2020.
Analysts attribute the rise in inter-city relocation for these groups to “moving more out of necessity” as costs of homeownership in some areas, along with declining housing affordability, leave homeowners “with less disposable income to fund a move.”
According to Census Bureau data, the homeownership rate is 35 percent for 25- to 30-year-olds compared to 66 percent across all ages, and metropolitan statistical areas (MSAs) with relatively affordable rent have seen the fastest population growth in the second quarter of 2024.
‘Hidden’ costs can be quantified by evaluating mortgage payment growth for non-movers
According to the Federal Reserve Bank of St. Louis, it is estimated that 92 percent of all mortgages in the U.S. are fixed-rate loans. Non-movers are unlikely to have seen a change in base mortgage (interest and principal repayments) over the last year.
On the other hand, they are likely paying more to live in their home as a result of rising property taxes and insurance premiums, which are often tied to mortgage payments.
According to Bank of America data, non-movers have seen positive median mortgage payment growth YoY for the past three years, sitting at 3 percent YoY, compared to 5 percent YoY across all customers, including movers.
Populations significantly declined in northern and western MSAs in the second quarter of the year, a pattern that has remained consistent since the COVID-19 pandemic.
In the Northeast, New York and Boston saw large net population outflows while in the West, San Francisco, Los Angeles, Seattle and Portland, Oregon, saw significant YoY declines.
The South shows a mixed trend with Austin, Texas; San Antonio; and Tampa, Florida, seeing large inflows, while Miami, Orlando, Florida; and Washington, D.C. have seen declines in population. In the Midwest, Columbus, Ohio, has consistently seen large gains.
‘Hidden’ costs associated with climate change can be quantified by comparing household location with utility payments
A recent Treasury Department report stated that over half of U.S. counties face heightened exposure to climate hazard, whether it’s flooding, wildfire or extreme heat. As climate conditions change, households face financial strain.
For example, households exposed to heat waves are more likely to utilize air conditioning, which could increase energy consumption and utility payments. A recent Residential Energy Consumption survey indicated that 88 percent of U.S. households currently use air conditioning.
In March, the average utility payment per customer was nearly $300, a 23 percent increase since 2019 on a three-month rolling basis.
Lower-income customers and customers in the Northeast and West have been feeling the financial pressure, with average utility payments that were 38 percent higher in March than the 2019 average. For the two-week period ending March 21, 2024, 38 percent of households with incomes lower than $50,000 were unable to pay their energy bill or were unable to pay the full amount at least once over the last year.
The Northeast and the West have experienced the highest average urban price of electricity, resulting in the fastest growth in average utility payments since 2022.
In the second quarter of 2024, moves from one MSA to another fell 4 percent year-over-year (YoY) following a 15 percent YoY decrease in Q2 2023. This is a significant change from the second quarter measurement in June 2021, when pandemic-era relocations yielded a 32 percent YoY increase as more employees worked from home and further from their offices.
