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Real Estate Investment: Don't Overlook State Net Migration

This article will talk about net migration at the state level in the United States. While international migration is also a trend to pay attention to, I don't want to go outside of the scope of domestic migration in this blog post. I will show you where to find migration data and how to interpret it.

Net Domestic Migration

If you are a real estate investor, the states you choose to invest in are affected by population changes. If you think about it, it’s a giant competition between states when it comes to attracting residents, business, and investment. Enticing new residents from other states can be a huge boon for the local economy and make the investment outlook much brighter than a state that is losing people annually.

Domestic Migration Motivations

People move to different states for a wide variety of reasons.

Jobs

Throughout history, workers have followed employment opportunities. A college graduate studying finance in the Midwest could have more success finding a job in a financial hub such as Manhattan, New York, or Chicago, Illinois. A recently minted computer programmer from Vermont may have more success in San Jose, California, or upcoming tech cities such as Raleigh, North Carolina, Austin, Texas, or Denver, Colorado. Or generally, if unemployment is high in a certain region, skilled labor force participants may seek greener pastures elsewhere in the county.

Taxes

Businesses have motivations to settle in more tax-friendly states. A business headquartered in Massachusetts looking to expand to multiple locations may choose Nevada over Arizona because Nevada doesn't have state income tax while Arizona does.

Lifestyle & Demographic Shifts

A retired couple in Pennsylvania may decide to relocate to Florida because of Florida’s favorable climate and no state income tax obligation on their monthly pension payments. It's no mystery why so many residents in the Northeast flock to Florida during their golden years.

Affordability

A dollar is not equal in every state. A house in Atlanta, Georgia, will be cheaper on average than a similar home in Seattle, Washington. A gallon of gasoline in Honolulu, Hawaii, will be more costly than a gallon in Nashville, Tennessee. Cost-of-living information is accessible to anyone with an internet connection. Affordability is arguably more prevalent than ever before as more employers are open to 100% remote work due to the Covid-19 pandemic.

People who were once geographically tied to jobs have more flexibility to cherry-pick a state of residence based on where their salary will go the furthest.

Tracking State Migration Flows

All things being equal if you could choose to invest in either:

State A: Has a net positive in-migration trend (more people are moving there than leaving there)

State B: Has a net positive out-migration trend (more people are leaving there than moving there)

You'd choose State A.

Population growth is an opportunity for a real estate investor to capitalize on increasing demand for homes, rentals, office space, warehouses, storage, etc. This is a big reason why net domestic migration is a metric we track in our submarket comparison analysis.

I track state-to-state population migration patterns using data from the U.S. Census Bureau (www.census.gov). Specifically, I want to see historical state net domestic migration statistics.

You can download an Excel workbook for whatever year you are interested in. The way the information lays out within the Excel spreadsheet is confusing. I want to spend some time explaining this document as I couldn't find any literature out there that does so.

Comprehending the Migration Data

The latest data in this format compares migration from the period between 2019 and 2018.

Firstly, think about this Excel spreadsheet as being broken up into two pieces.

1. Population Inflows

2. Population Outflows

Population Inflows

Columns "A" - "I" describe the population inflow data.

The first few columns are different variations of population estimates. The data set includes all 50 states plus the District of Columbia and Puerto Rico. The key information in this selection is located in column "H." here you’ll see the total domestic population inflow over the last one-year period for each state (each state’s estimated total will add up to the United States estimate of 7,398,337).

Note: "MOE" is the acronym "margin of error." Census data is based on American Community Surveys (ACS), used to estimate population trends. The number of people in the state is not going to be 100% accurate. That's ok, as we're just trying to gauge bigger-picture trends.

If we look at the District of Columbia, in 2019, 58,879 residents moved to Washington D.C. from out of state. That statistic alone doesn't exactly give use to the entire migration picture.

Population Outflows

Starting in column "J," the dataset begins to explain the population outflows. Each state is listed from left to right in row "7."

If we scroll over to the District of Columbia, population outflows for the year are summarized in row "10."

52,084 residents moved out of Washington D.C. to reside in another state. Also in column "AB"," you can see which states resident moved to from D.C. If you tally up all the individual states people moved to from D.C., each state total will equal 52,084.

In summary:

Washington D.C. Population Inflow: 58,879

Washington D.C. Population Outflow: 52,084

Total Population Inflow = +6,795

Washington, D.C. has experienced positive domestic migration in 2019, which is an excellent trend for savvy real estate investors.

If you have the document open and scroll down, you’ see that the vast majority of residents are moving to Virginia and Maryland (9,540 and 17,718 respectively). I'd venture a guess that as business professionals get established in their careers, they move outside of the D.C. urban core and set their roots in the surrounding states' suburbs.

Another Example

Let's take a look at Wisconsin. Wisconsin is an interesting state that is slightly positive in domestic migration.

In 2019 they gained 107,973 out-of-state residents.

In 2019 they lost 101,668

The net gain of residents was just over +6,000.

When you look at where residents were moving to, it was overwhelmingly Minnesota and Illinois. Approximately 30% of domestic migrant movers went to these two states. This makes a lot of sense if you think about it. Both Chicago and the Twin Cities offer far more job opportunities than the major urban centers in Wisconsin, such as Milwaukee, Madison, Green Bay, or Eau Claire.

2021 Domestic Migration Ranking by State

I thought it would be helpful to do a final ranking of all states and their net migration numbers. Unfortunately, the data set showcased above is outdated (2019). I love the detail it provides not only showing who is leaving the state, but also where residents are going. I will keep an eye out for when this is updated.

For the most recent state ranking, I am going to use the 2021 Census Domestic migration data. The Excel file with 2021 domestic migration data can be downloaded at the end of the article in the "Datasets" section. The information isn’t nearly as robust as the images depicted above, but still offers semi-recent data points.

To finalize the state ranking, I will focus on two columns in this data set:

0 . Population Estimate 2021 (Column "I")
1 . Domestic Migration 2021 (Column "U")

I will rank the states by who’s had a larger domestic migration as a percentage of population:

Ranking = 2021 Domestic Migration / 2021 Population Estimate

State rankings are as follows:

Net Domestic Migration Summary

Population trends changed drastically in the past years as our workplaces continue to evolve from the pandemic fallout. Domestic migration trends provided by the Census Bureau are essential to follow if you are a real estate investor. The states winning residents via domestic migration are poised for a bright economic outlook.

While this article's scope focuses on migration from state to state, it's also important to point out that international immigration statistics are important to follow as well. Some states may not attract domestic residents as successfully as international residents. While a boon of international workers is a good thing, many are only in the U.S. temporarily and don't settle permanently in their state of employment.

If you are looking for a tool to help you with your high-level submarket analysis, be sure to check out our Interactive Labor Statistics Dashboard.