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What Happens in SoCal Stays in Texas: Regional Migration and Housing Affordability in Dallas

By Aaron Terrazas on 18 Apr 2016

• Over the past two decades, the so-called “Texas Triangle” metros of Houston, Austin and San Antonio typically accounted for 14 percent to 16 percent of households moving to the Dallas-Fort Worth area.
• But during periods of deteriorating housing affordability in Southern California – such as during the early 1990s and mid-2000s – Los Angeles and other Southern California metros emerged as major origin points for households moving to Dallas-Fort Worth.
• Migration from Southern California to the Dallas area tends to increase when Southern California housing is very expensive relative to the Dallas area.

Real estate may be local, but housing markets are regional. The connections between sometimes far-flung parts of the country mean that what happens to home values in glitzy Santa Monica, California, can have significant implications for heartland homeowners in Plano, Texas.

Over the past two decades, the so-called “Texas Triangle” metros of Houston, Austin and San Antonio typically accounted for 14 percent to 16 percent of households moving to the Dallas-Fort Worth area. With the exception of 2005-2006, when movers from New Orleans flocked to the Dallas area in the wake of Hurricane Katrina, Houston has consistently been the top metro of origin for households moving to Dallas-Fort Worth.

But during periods of economic hardship, particularly in the early 1990s and mid-2000s, Los Angeles and other Southern California metros emerged as major origin points for households moving to Dallas-Fort Worth (figure 1).

And migration from Southern California to the Dallas area tends to increase when Southern California housing is very expensive relative to the Dallas area.

Figure 2 shows the relationship between relative home values in Southern California and Dallas, and migration from Southern California to Dallas. The line in green (plotted against the left axis) shows the ratio of home values in Southern California (the average of median home value in the Los Angeles, Riverside, and San Diego metro areas) to home values in the Dallas-Fort Worth area. For example, a ratio of 2 means that Southern California home values are two times higher than home values in the Dallas-Fort Worth area. The right axis, in blue, shows the share of all households who moved to the Dallas-Fort Worth area from Southern California. The correlation between these two variables is very strong, particularly with a two-year lag.[1]

Migration data are only currently available through 2014, but looking into the future, the ratio of home values in Southern California and Dallas has trended downward to 2.54 after peaking at 2.83 in 2013 (although still well above where it stood in 2000, around 1.84). This is because home values have been growing very quickly in the Dallas area – more quickly than in Southern California. Does this imply that migration from Southern California to Dallas could slow in the years ahead? Not necessarily.

Push/Pull

Despite recent gains, homes in Dallas remain much more affordable than homes in Southern California, which may act as a natural draw for those Southern Californians willing and able to move and looking to reduce housing costs. The median home value in the Dallas-Fort Worth metro was $177,600 at the end of 2015, compared to an average of $451,300 across Southern California.

Additionally, a number of large companies recently announced plans to relocate or expand corporate offices in the Dallas-Fort Worth area, which is also likely to bring new residents from farther-flung and potentially more expensive markets, including Southern California. Car manufacturing giant Toyota moved its North American corporate headquarters from Torrance, California (just outside of Los Angeles), to Plano, Texas (northeast of Dallas), in 2014. Liberty Mutual Insurance, State Farm Insurance and Facebook are also among the larger corporate names to expand in the Dallas area in recent years.

Population growth has mixed effects on the local housing market. Rising home values may both delight and worry longtime Dallas residents who are simultaneously optimistic about their financial windfall if they sell their home, but concerned over their ability to afford a new home – potentially pushing some away from the area or to more outlying communities. For many newcomers accustomed to much less affordable places such as Southern California, Dallas remains very much a Mecca of housing affordability, serving to pull new residents in.

Methodology

Migration data are from the Internal Revenue Service’s Statistics of Income, County-to-County Migration Data, covering taxpayers who filed taxes in two consecutive years and who changed their county of residence over that period. Years referenced in the text and charts above correspond to the second year, after the move occurred. The Zillow data are median home values by county in December of the reference year.

[1] The contemporaneous correlation is 0.62, the one-year lagged correlation is 0.89, and the two-year lagged correlation is 0.93.