Americans are giving up on the West (of America)

Note in from Bank of America: the West is in decline.

Specifically, the American West is in decline. For the first time since the Second World War, the share of Americans living in the western census region has fallen.

Economist David Tinsley writes:

• […] We find the populations of San Francisco, Los Angeles and other western cities continued on their downward trend as of 2023 Q4. There is better news for several of the southwestern cities, with our data showing a rise in populations in both Phoenix and Las Vegas.

• Relative housing costs still appear to be influencing much of the domestic migration story. Our data shows MSAs (metropolitan statistical areas) in the Pacific West having relatively high median mortgage payments relative to the overall US. We also find that a relatively high share of those leaving western MSAs are from higher-income households.

If we ignore the WW2 blip, this would represent a remarkable break historically speaking: the Western states’ rise in importance and power — economically, politically and demographically — is arguably the story of modern America.

BofA’s data, built on a fixed sample of “aggregated and anonymised” customer account data, is an unlovely/lovely (delete as appropriate) reading for San Francisco and Los Angeles, depending on whether you think either city is currently overcrowded:

Over several years, the stats are even uglier for San Francisco:

Obviously, to be massively glib, the vibes are not very with San Francisco at the moment — and, speaking practically, the mass of tech lay-offs last year may have had a meaningful impact.

So, is it over for the West Coast? Ehh, probably not. For starters, the people quitting San Francisco and LA are overwhelmingly single-person households, according to BofA’s data, suggesting that many will be mobile workers who could return in the future:

And overall, the problem is less existential than practical: it’s about housing costs, BofA reckons. Here’s a chart:

Tinsley writes:

Where an MSA has a relatively high median mortgage payment, its population growth has usually been negative or at best weakly positive, in terms of YoY growth.

Looking at the MSAs in the Pacific states in the West (red squares in the exhibit), they all tend to have higher-than-average mortgage payments relative to the US. By contrast, in the southern Mountain states (yellow squares), mortgage payments are lower than the US average, so outward migration is potentially a reaction to housing costs.

Applying the simple logic of supply and demand, he concludes that the effect might be to pull those red squares back into the pack:

Over time, we would expect these domestic migration flows across the US to lead to some ironing-out in relative housing costs. MSAs that are losing residents would likely see reduced pressure on house prices and rents, eventually meaning cheaper housing costs compared to areas gaining newcomers.

If we dare say, this almost sounds healthy. ¯\_(ツ)_/¯