The South's biggest economic draw is slowly coming back

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Here in Atlanta, as in much of the American South, the economic vibes have been bad this year. Not recessionary perhaps, it's felt more like we lost momentum and got stuck, something I haven't experienced since I moved here from San Francisco in 2010.

I'm not optimistic for the first half of next year, but one silver lining in the South's economic struggles is the grind back toward housing affordability, which should put the region on the path back to a more balanced expansion.

The economic model of many southern states relies on attracting people and jobs from pricey coastal regions and the Midwest. Relatively cheap housing draws the young, and the demand for residential and non-residential construction to service relocating families creates a virtuous cycle that's served the South well. This engine has been sputtering ever since the Federal Reserve ratcheted up interest rates in 2022, with conditions feeling particularly bleak right now.

From Maryland to Florida and Texas, companies have been hiring at a rate similar to the first few years following the 2008 financial crisis. The most recent Beige Book report, which provides qualitative information about the economy from the Fed's 12 regional districts, noted flat employment and growing stress among low-to-moderate-income consumers in the Atlanta district, which encompasses most of the Southeast, and weak economic activity and employment declines in the Dallas district, which covers all of Texas.

Consider Atlanta, where the general lack of interstate migration and housing turnover in recent years has led to less demand for both single-family homes and apartments. This has hit not just workers in the construction industry but also employees in allied fields from real estate and mortgage agents to those in the home improvement business.

It has hurt Home Depot Inc., which is headquartered in metro Atlanta and is a large employer in the region. The spillover effects from the goods economy - also grappling with President Donald Trump's tariffs - has hurt the business of another key employer headquartered in the region, United Parcel Service Inc., which cut 34,000 jobs this year. The surge in Black unemployment over the past several months is also weighing on the metro, whose population is one-third Black or African-American, according to the Metro Atlanta Chamber.

What Atlanta and other metros in states including Florida and Texas need is migration and residential construction to pick up again. But for that to happen, housing affordability needs to improve.

Fortunately, it has been. According to the S&P Cotality Case-Shiller Indices, in the 12 months ending in September, home prices were down 4.1% in Tampa, 2% in Phoenix, 1.3% in Dallas, and 0.2% in Atlanta. Over that same period, average hourly earnings in those metros have grown by 4% or more. With resale housing inventory above 2019 levels in all those cities, and rising, affordability should improve at a solid pace in 2026.

Housing transactions are already showing early signs of life, with mortgage purchase applications now in a clear uptrend. Single- and multi-family building starts will stay sluggish for some time, though the data-center boom has provided some respite, preventing a more pronounced downturn in construction employment.

Most importantly, relative affordability gaps are again growing between southern and northern metros, pointing to a pickup in interstate migration that should start to stabilize the southern economies in the latter part of next year. It will also help chip away at the north's affordability challenges.

Northern metros such as Hartford, Connecticut, and Chicago struggle to offer residents cheaper housing due to low supply. These places need to build more and remove regulatory obstacles to construction, but we should also be realistic in acknowledging that Hartford and Chicago will never build houses like the sprawling metros of the South, which have more undeveloped land as well as a robust residential construction ecosystem. On some level, fixing affordability in the North involves getting interstate migration back to its historical trend.

The chicken-and-egg dynamic of affordability drawing migration, which will pick up with greater affordability, means there's more economic pain to come in the South. The best we can hope for in 2026 is optimism on the horizon, even if we're probably in for another year of stagnation.

(COMMENT, BELOW)

Previously:
• 04/08/25 Where will consumers go?
• 09/17/24 U.S. 'Battery Belt' will be a new kind of job magnet
• 09/10/24 Americans have a new piggy bank to raid --- their houses
• 10/03/23 America's greatest public policy success is now in jeopardy
• 09/12/23 The housing market is tilting in favor of renters
• 08/18/23 RIP recession. Is it time to worry about
• 05/24/23 This Goldilocks economy has an end date
• 05/24/23 Bye-Bye, New York. Hello, Fayetteville
• 04/04/23 What makes this economic slowdown different from the others?
• 02/15/23 Higher mortgage rates is what the housing market needs now
• 01/06/23 The January inflation bump Americans should welcome
• 01/04/23 Why millennials are following boomers to the South
• 10/24/22 Two bright spots in a cooling housing market
• 08/18/22 Future remote workers need to network more --- in college
• 06/17/22 Housing market cooldown will only lead to more dysfunction
• 05/27/22 Welcome to our be-careful-what-you-wish-for economy
• 05/04/22 The Amazon economic indicator says inflation is easing
• 01/20/22 Don't call me on Friday. That's my 'me time'
• 01/06/22 2022 is the year to buy your first luxury electric car
• 06/03/21 The post-pandemic boom will have a sequel in 2022
• 05/31/21 Florida may lose some of its boomer shine
• 01/11/21 Colleges bet on football in their own K-shaped recovery
• 12/31/20 Just send the bigger bucks already
• 08/24/20 Young people can't buy homes until older owners . . . move on
• 08/18/20 Our pandemic love affair with e-commerce could soon sour
• 08/10/20 Booming 'zoom towns' should ease city housing costs
• 07/11/20 With a Biden economy, will America be condemned to relive the '70s?
• 07/14/20 Renting and homebuying swap roles in the covid-19 market
• 07/13/20 Markets may have a reason to rise along with covid-19 cases
• 04/27/20 U.S. economy may have hit the coronavirus bottom
• 11/12/19 The 2020 economy should feel a lot better: What to, realistically, expect
• 04/23/19: Gen Z is likely to temper aging socialist millennials
• 03/25/19: All signs point to a housing boom ahead
• 02/19/19: Trump's economic gamble might make sense
• 02/15/19: Scaring off Amazon will backfire for the Left
• 01/29/19: The 2020 election will shred the Obama coalition
• 11/15/18: Amazon proving the 'rich get richer'?
• 11/13/18: How gerrymandering can reduce the partisan divide
• 10/22/18: The politics of the next recession will be a disaster
• 08/02/18: The future of the US looks a lot like ...
• 05/05/18: Brick-and-mortar stores may start to make sense again
• 05/05/18: College admissions season is about to get much easier
• 05/03/18: Changing housing needs of millennials will change economic development
• 02/13/18: The big idea for Middle America is to think small
• 02/07/18: Dems are caught in a tax bill trap this year
• 10/25/17: Good times have come to Trump-leaning states

Sen is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.