Unpacking Jacksonville's Real Estate Paradox: The Inverse Relationship Between Population Growth and Home Ownership

“So, as we move forward, vacancy rates, which have increased a little bit because of the new units being delivered, could increase another percentage point or two. But once that gets absorbed, there’s not much coming behind it. So, that pendulum is going to swing back, putting further upward pressure on rents.”

- John Sebree, Senior Vice President, National Director of Multifamily at Marcus & Millichap

Hi Nuvo Community,

_{Jacksonville has witnessed consistent population growth over the years. This has far-reaching implications, including a robust demand for housing—both owned and rented. We found that population growth is negatively correlated with homeownership rates, notably with a two-year lag. This isn't merely a statistical artifact; it reflects underlying dynamics in the housing market that affect both homeownership and rental trends. The report delves into the data, methodology, and possible reasons behind this significant correlation.}

_Methodology

_{The data for this analysis was sourced from the Federal Reserve of St Louis economic data (FRED). Time-series analysis and lagged correlation are utilized to illustrate how population growth impacts homeownership rates in the future. In the chart below, you can see the Year over Year (YoY) percentage change in Homeownership (orange) and Population (blue) since 2010. Sometimes they move in opposite directions, and sometimes they move together. There’s not really a strong correlation.}

_{Population & Home Ownership}

_{However, a strong negative correlation does exist between population growth and homeownership rates, with a 2-year lag. This implies that a rise in population could be a precursor to a decline in homeownership rates, resulting in increased rental demand. Now see what happens when we lag population growth by two years. Meaning, that population growth is an early indicator of homeownership rates. Homeownership (orange) and Population (blue) very clearly move in opposite directions (see chart below). This means they have a negative correlation. More specifically, it means that a rise in population now suggests there will be a fall in homeownership (and therefore a rise in rental demand) two years from now.}

_{In the chart below, you can see the breakdown of when population growth is a good predictor of homeownership in the future. The red bar represents the correlation two years in the future (-.64). Years 3, 4, and 5 still have a decent negative correlation, but year 2 is clearly the strongest.}

_{This suggests it takes time for changes in population to impact the percentage of homeowners. Supply and demand dynamics are most likely the key. As more people move to the area, competition for homeownership increases. And since sellers aren’t in a rush to sell their homes today, there is less supply. Demand is up, but Supply is down. This leaves renting as the only viable option for the growing population.}

_Conclusion

_{It’s no surprise that population growth is good for the local economy and multifamily real estate in general. The key takeaway from our findings is that population growth today may be a fantastic indicator of where the demand for renting will be two years from now. And in Jacksonville, FL the population is still growing.}

Implications

For real estate investors-know the market you are investing in, or at least make sure your operating partner does. Does the submarket already have a high percentage of burdened households? A high debt service ratio? These are just 2 of the more than 100 data points Nuvo Capital Partners collects and analyzes before investing in a market.

Happy Real Estate!

All the best,

Yuri - Your Real Estate Investigator

Credit: Brian Underdahl, Chief Analytics Officer of Nuvo Capital Partners

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