August 17, 2020
Superficial reasoning may lead one to conclude that this pandemic can only force a housing market slowdown, but the facts suggest otherwise. Recent changes in prices for single family homes indicate the development of two broad themes: general house price recovery, with actual price changes varying significantly according to whether a location is seen as good, or bad, in a future of extensive remote working. It is still too early to say whether either of these trends will last, but the early evidence should not be ignored.
For the second quarter of 2020, 96% of the US’s 181 metropolitan areas (as reported by the National Association of Realtors) showed price increases, with the average being 4.2%. Moreover, in the four weeks ending August 9th, contract signings were up 18% from one year ago, and new listings reached the level of the equivalent period in 2019.
The increases have not been uniform. 15 metropolitan areas increased by double digits including such places as Huntsville (Alabama), Boise, and Phoenix. California and Hawaii continue their notoriety as the most expensive places to buy. The top five most costly areas to buy a house in the US are San Jose, urban Honolulu, San Francisco, Anaheim, and San Diego. However, these five locations have experienced price increases below the national average recently, with San Francisco seeing no price increase at all.
Factors behind the price increase include strong demand, low supply of homes for sale, and historically low mortgage rates. The 30-year fixed mortgage was as low as 2.88% in the week of August 7th. The explanation of the variability across metropolitan areas is more speculative. The informed conjecture is that working from home is enabling people to choose where they live. So, people are escaping higher priced urban areas and moving to places to enjoy more space and a better quality of life. Such areas often provide access to recreation supplied by nature, from mountains to lakes to the sea.
There is also speculation that COVID-19 has simply accelerated what was beginning to happen anyway. The WSJ speculates that “Silicon Valley…. may never be the same.” Certainly, Google employees know that, given for at least the next 12 months they do not need to worry about living close to Company HQ. Mark Zuckerberg said back in May that 40% of Facebook employees were interested in working remotely on a permanent basis, and 75% of this group said they may relocate. This information has been backed up by other more broadly-based surveys in California. A July survey in the Bay Area found that 15% of the 3,300 respondents had moved out of the area since the pandemic began, and 59% of those left behind would consider relocating if allowed.
While it is still too early to know whether these short-term trends will continue, they bear watching closely. Not only will they affect the housing market, but they could have a major impact on the finances and future of states that are losing high earners.