While the Sun Belt has been the hottest target of the residential real estate community due to its rapid population growth during the pandemic, the dynamic is starting to shift to the Eastern Seaboard. According to the National Association of Realtors, more than half of the hottest markets in the U.S. are located on the East Coast – including the Northeast.
Cities such as Phoenix and Tucson topped several lists of the country’s hottest markets in 2020, with California doing the same the following year. However, rent growth skyrocketed in response to the population boom, peaking at an annual average of 16.6% year over year, compared to the nation’s 11.1% at the time.
This trend is causing people to begin pulling away from the West, and it is happening amid a market where the bar for “safe” investments has been raised to heights not seen in some time.
Per the 2022 United Van Lines’ annual national movers survey, the primary factors driving people eastward are relocation for work and the desire to be closer to family. These two categories have been the most cited reasons for moving since at least 2018, cited by 33.29% and 32.40% of movers respectively this year.
These trends are not restricted solely to the South; they are being reflected in the Northeast as well. In fact, a recent RentCafe report cited northern New Jersey as one of the country’s hottest markets, surpassing New York, with occupancy pushing 97%. This makes the area twice as competitive as Manhattan and puts it in league with Brooklyn, which has a 96% occupancy rate, the report indicates — and is having difficulty keeping up with demand.
Job availability also plays a key role in these geographic shifts.
Of the 95 metros in the country with labor forces of at least 300,000, Jacksonville has experienced the most annual job growth, with wage growth triple the national average. Vermont and New Hampshire are tied for the lowest unemployment rate in the country, and much of the record level of national multifamily construction taking place is in other high-performing eastern markets, including New York, Orlando, and Boston.
Additional reasons for moving east are less easily quantifiable, including shifting politics, extreme weather conditions, and social status.
Manhattan stands as proof of this last point. Though New York State remains more than 400,000 residents short of its 2020 population, Manhattan added 17,500 residents last year after losing almost 100,000 the year prior. This is the first time the borough has seen a net gain in domestic migration since 2000, and it’s occurring at a time of a particularly high cost of living and rent prices that would normally be discouraging.
The Sun Belt has been and remains a safe bet for multifamily investors, but the past year indicates an eastward trend within the flight south, which may be the harbinger of a further shift to the Northeast once new inventory potentially cools the market.
Combined with the diminished health risks of living in denser urban areas and the abundance of job opportunities, the time has come for agile investors to extend their gaze into the Northeast.
Marcia Kaufman is the CEO of Bayport Funding with over three decades of experience in the mortgage banking and real estate industry and expertise in identifying real estate opportunities, valuation, development, management, and exit strategy for assets.