When the pandemic, at last, retreated, I traveled to Traverse City, Michigan to hike, cycle, and kayak on the trails and waterways bordering Lake Michigan and Grand Traverse Bay.
I met a friend who lives there. “The city is booming,” I said, remarking on bayside condo developments and the high prices for modest homes close to the city’s bustling downtown.
He nodded. “It’s a lot of fire people from California.”
He wasn’t referring to a conflagratory cult from the Golden State or to refugees from the wildfires and mudslides that have devastated Napa Valley and Santa Barbara in the past decade. He meant Californians who bought homes before prices surged and then sold to finance early retirement in a cheaper geography.
They weren’t fire people. They were “F.I.R.E.” people—financial independence, retire early.
Geographical arbitrage
In September 2023, according to the National Association of Realtors, the median home price in Los Angeles approached $800,000. The San Francisco median was $1,300,000. Traverse City? $477,000. A Frisco homeowner might be able to sell, relocate to the “cherry capital of the world,” and pocket a cool $858,800 to finance life after labor.
Vanguard research suggests that this kind of geographical arbitrage can be an important source of retirement funding. “About 60% of migrating retirees,” the authors note, have used a “retire and relocate” strategy to extract roughly $100,000 in home equity.
This strategy presumes that the destination is cheaper than the point of departure. That can’t be true for all homeowners, of course. This chart displays median home prices in the five most and least expensive states in 2023.
Source: Bankrate.com
To a California homeowner, the rest of the United States looks like a flea market. To an Iowan, it looks like Tiffany’s. (The national median is $378,000.)
Old and new arbitrage opportunities
The strategy also depends on luck—the difference in price appreciation between the real estate market where we live while working and the market where we hope to retire. Our property deed is a ticket in the geographic lottery.
In the early 2000s, I walked into a deli in Ft. Lauderdale, Florida. On the cash register was a sign written in black marker, all caps: “I DON’T CARE HOW THEY DO IT IN NEW YORK!”
It was (maybe) a humorous response to the many New Yorkers who had retired to South Florida to criticize the local coffee, bagels, and pizza. At the time, the median home price in New York was $225,000. In Miami, the figure was $127,000. That $98,000 difference was a significant supplement to whatever retirement savings the grumpy New Yorkers had accumulated.
Sources: National Association of Realtors and St. Louis Federal Reserve Bank
Since then, however, Miami prices have surged, boosted by migration during the pandemic. Today, the median Miami home price of $605,000 approaches the New York median of $619,000. The New York housing dollar has lost much of its Miami purchasing power.
But as in the financial markets, the closing of one arbitrage opportunity usually means the opening of another. Longtime Miami homeowners, enriched by the Sunshine State’s booming prices, might consider early retirement on the banks of the Mississippi River in Davenport, Iowa.
–A. Clarke