The Sun Belt's Hot Housing Market
The Sun Belt covers the southern continental United States, stretching from Florida in the Southeast to California in the Southwest. As this region lies along roughly the same longitude, the Sun Belt enjoys mild climates and relatively warm winters. Historically, the Sun Belt has enjoyed steady economic growth in addition its sunny weather. Following the growth of the oil and defense industries during the Cold War in the 1950s, the Sun Belt currently boasts robust economic growth that is concentrated in the tech and service sectors. In addition, many tourist and vacation destinations are located in the Sun Belt, including Miami and Las Vegas. It’s no surprise, then, that Americans have been flocking to these areas. The 2015 US Census reports that cities within the Sun Belt such as Houston, Atlanta, and Phoenix are home to some of the fastest growing populations.
"High demand has outpaced supply in some of these areas, causing drastic rises in housing prices."
Following the economic slowdown following the 2008 mortgage crisis, such growth and development in this part of the United States should be cause for celebration. However, the population shift in these hotspots have created a housing boom. High demand has outpaced supply in some of these areas, causing drastic rises in housing prices. Even though many of these cities are not sprawling metropolises such as those found on the heavily urbanized East Coast, the concentration of businesses in certain areas has led to people congregating there to secure stable employment.
What is more unsettling is the fact that housing prices serve as underlying indicators of inflation in a certain area, and can drive up the entire cost of living, squeezing out those who can no longer afford to live there. In the Midwest, such as Indiana where median home prices are around $150,000, gas prices have hovered around $2.30 per gallon. In California, median home prices were $393,000 while gas was $3.10 per gallon. When housing prices rise due to a rise in population, the basket of consumer goods rises together in response to the increased demand. When people live in an area, they are not simply staying home after work; they are driving around, eating food, buying new clothing, and going to the movies.
Places outside of the Sun Belt with more affordable housing such as Buffalo, New York, or Pittsburgh, Pennsylvania, offer attractive alternatives to competitive housing markets. A dose of common sense would dictate that university graduates, newlyweds, and anybody else looking for a place to put roots down should choose these areas instead. They might make less money living in these areas, but they would enjoy a higher quality of living without the stress of high housing prices. Unfortunately, the job market and the housing market are not in perfect synchronization in the United States. In places like Buffalo and Pittsburgh, where housing is affordable, prospective home buyers may find that employment opportunities are non-existent. No matter how affordable housing may be, people will not move to a place if they expect their income to be zero. Faced with the option of unemployment versus high housing prices, Americans have chosen to continue flocking to these Sun Belt hotspots.
As a whole, home ownership has continued to rise in the United States, rising from 55% in the 1950s to 65% in 2010. However, renters have actually increased in areas such as Los Angeles and Houston, where more than half of the residents rented their homes. Renting may seem logical in areas with high housing prices, as many residents are unable to afford the expensive mortgages required to finance the purchase of a home. However, a home has traditionally been an asset that appreciates in value over time, while rent is a monthly expense that provides no financial returns. For many baby boomers who were able to purchase their homes cheaply in the 1960s and 70s, their homes have become investment vehicles that will help finance their eventual retirement. For the younger generations who currently struggle to even make rent every month, this type of planning for the future is out of reach.
If price trends in home prices continue upwards, more and more people may find themselves in dire straits, either from taking out mortgages on homes they cannot afford or from paying a greater and greater portion of their paycheck towards rent. Either way, the housing market may collapse once again under the weight of soaring prices if consumers are unable to keep pace. Having narrowly escaped total meltdown during the 2008 financial crisis, the United States may not be able to solve the next market collapse by pumping trillions of dollars into the economy.