Eric is a real estate investor and founder of MartelTurnkey. MartelTurnkey sells rental properties to investors looking for passive income.
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It’s undeniable that Covid-19 has had a massive impact on the world, not to mention thousands of industries. One of the most notable affected has been real estate, as people across the world struggle to get their finances in order and/or recover from job loss. It makes sense that there has been a plethora of articles describing the pandemic’s effect on the real estate market. However, most of these articles suggest that there has been a mass migration out of big cities directly in response to Covid-19.
A Redfin article from October 2020 surveyed people in order to determine the reason for moving to another city — if they were to move. They reinforced their thesis with search data showing users in large cities looking for homes elsewhere. However, it’s important to ask ourselves whether or not this measures the intention to move or just curiosity. Other articles point to a dramatic reduction in San Francisco rental rates and hint that the cause might be the mass exodus of tech workers out of the city. Taking the current state of the country and the drastic effects that Covid-19 has had on us, these statistics seem to make sense. However, before we jump to any conclusions, it’s important to question whether or not the decrease in rent is truly being caused by migration out of these cities.
Additionally, there has been what feels like an influx of social media pundits, such as Graham Stephan, Joe Rogan and others, who have publicly announced their departure from California alongside reasons for doing so. Then we have the anecdotal articles, that share stories of people who have moved out of big cities because of the impact of the pandemic. What they fail to provide is more far-reaching evidence of this trend in migration. I wanted to look deeper at this potential trend by analyzing an unusual dataset.
Where Is The Evidence?
As mentioned above, the data surrounding this supposed migration is hard to come by, and the trends that we see do not clearly establish the causal link to the migration. It’s therefore important to look for data that will show us when someone has moved from one city to another. One-way truck rental trends are a good start.
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When people move out of a city, they tend to do so with a truck — using a one-way rental. If the demand for one-way rentals originating in one city is similar to one-way rentals originating in other cities, then the truck inventory is closer to being balanced since the truck is likely to be moving between cities. If we have a mass exodus out of a city, then we would expect a significant number of truck rentals out of one particular city and much fewer rentals entering the same city. U-Haul saw this problem and implemented dynamic pricing to optimize prices while balancing the local supply and demand.
In June 2018, Jabus Tyerman leveraged this dynamic pricing model in order to capture the one-way rental prices of 10′ trucks — since a 10′ truck is typically used for a one-bedroom apartment — across 100 cities. Once he captured this data, he calculated the ratio of the outbound prices over the inbound prices for a focal city to measure whether the net migration was positive or negative for each city. For example, focusing on San Jose, CA, the outbound rate to Tucson, AZ was $1,271 in 2018 and the inbound rate from Tucson to San Jose was $161. The outbound/inbound is $1,271/161 = 7.9. He then took the log of this ratio to make it symmetrical, which is 2.06. This positive number indicates a significant trend out of San Jose to Tucson. He calculated this ratio for every pair of cities and averaged the ratio for each focal city. The U-Haul Migration Index (UMI) for San Jose in 2018 was 0.69.
I thought it would be interesting to perform the same analysis this year and compare the results with the results from Jabus’s article. I asked Evan Hessler, a friend as well as developer and founder of a real estate company, to make a program that would extract the same data points from the U-Haul website.
The Results
The full list of UMI calculated this year — with the highest 2020 outbound migration at the top — provides one clue as to whether or not mass migrations from cities are occurring. I couldn’t get the actual 2018 UMI from Jabus but I estimated it based on the graph that was included in his article.
In my analysis, the data showed that the U.S. cities with the three highest UMI continue to be San Jose, San Francisco and Oakland. The UMI is slightly lower compared to 2018 which seems to indicate that the net migration is actually lower than a couple of years earlier. A massive exodus out of San Francisco would probably have shown a much higher UMI than in 2018.
The UMI also seems to suggest that the outbound migration from the Los Angeles area has significantly declined. We also see an increased outbound migration in smaller cities like Sacramento, Stockton, Santa Ana, San Bernardino and Riverside. On the east coast, we notice a significant increase in net outbound migration in New York, which is to be expected. Surprisingly, Newark witnessed an increase, instead of a reduction.
There is plenty of room for more types of data to support what my analysis finds. But in looking at this one measurement for the massive migration anecdotal news stories and search data purport, it appears that the thesis is not wholly correct. The data shows that the net migration out of San Francisco during the pandemic has remained the same compared to 2018 while in Los Angeles the net migration significantly decreased. In New York, the migration seems to be much higher than a couple of years ago. Like every anecdotal article or new survey, the UMI offers only a glimpse into the behaviors of a subset of the population. While there are people moving out of various cities, there are many who stay put — leaving room for more observations to complete the picture of migration in the midst of a pandemic.
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