Where the people go, the inflation seems to follow.
That’s according to a new Redfin poll that found the nation’s hottest spots for inbound migration—Phoenix, Tampa, and Atlanta—also happen to be the nation’s hotbeds for inflation rates.
Nationwide, inflationary concerns remain an issue as prices were up 8.5% year-over-year in March, the highest rate in 40 years. Policymakers consider 2% an acceptable level of inflation.
“Not everyone in the country is experiencing inflation the same way,” said Redfin Deputy Chief Economist Taylor Marr. “It’s having an especially big impact in places like Tampa and Phoenix, which are attracting the most new residents and seeing double-digit increases in prices overall and even bigger increases in housing costs. We need to build more new homes in these Sun Belt hot spots to ease some of the competition for local homebuyers. That’s especially important as everyday costs like paying rent and buying food become more burdensome. In Atlanta, for instance, wages are up about 7% from a year ago but inflation is up 10% and asking rents are up 22%. That means it’s becoming more difficult to save for a down payment and break into homeownership even before you factor in sky-high home prices and rising mortgage rates.”
In Phoenix, the price of goods and services rose 10.9% year-over-year in Q1 on average, the highest inflation rate of the metros polled by Redfin. Phoenix was also the second-most popular destination for homebuyers looking to move from one metro to another in Q1, second to Miami.
Atlanta, the 10th-most popular migration destination, had the second-highest inflation rate at 10.6%, while Tampa, with a 9.9% increase in prices, stood at number three for both inflation and migration.
San Francisco, New York, and Washington, D.C. followed the opposite trend, as San Francisco, which topped the list of metros that homebuyers moved away from in Q1, recorded a 5.2% inflation rate, the lowest in the country, and roughly half that of Phoenix, Tampa, and Atlanta. New York, which boasted the second-lowest inflation rate at 5.4%, was the number-three place that homebuyers left.
More than half of the variation in inflation rates between metro areas in 2021 can be explained by domestic migration. But in the preceding decade, from 2010 to 2020, a much smaller share—around 24%—of the variation could be explained by migration.
Home prices in Phoenix rose 27% year-over-year to $470,000 in March, and were up 29% to $364,000 in Tampa, and 22% to $368,000 in Atlanta—compared with a 17% nationwide increase. Home-price increases were comparatively small in the places people were leaving, up 11% year-over-year to $1,580,000 in San Francisco, 8% to $678,000 in New York, and 9% to $525,000 in Washington, D.C.
“The good news is that because most families own their home, they’re building wealth from rising home values, even if they are paying more for everything else,” Marr said. “There’s also a bright spot for prospective buyers: I expect competition to slow down in the coming months as mortgage rates rise and some buyers back out of the market, and wage gains are likely to continue increasing.”
Amid a market where rising rates and affordability concerns continue, Sun Belt metros like Phoenix, Tampa, and Atlanta will remain attractive to out-of-town homebuyers, as pandemic-fueled remote work is here to stay, and people will continue to sell homes in pricey coastal job centers like San Francisco and Seattle in favor of comparatively affordable, warmer metros.