Red-hot housing market lifts even struggling metros

A massive demand for housing is fueling a spike in home prices across the country as those cooped up by the coronavirus pandemic and with access to cheap money search for more space.

The boom is benefiting both the mega metropolitan areas that have seen so much success over the last decade and the mid-level metro areas that have struggled to catch up.

The result, real estate analysts, economists and agents say, has been an unprecedented seller’s market that is only likely to drive housing prices up in the coming months.

“Demand for homes remains really strong, and competition is elevated,” said Matt Speakman, an economist for the real estate company Zillow. “That competition is helping keep inventory quite low.”

The consequences of high demand and low supply are showing up in sales figures: The Case-Shiller U.S. National Home Price Index showed home prices rising 10.4 percent over the last year, a trend that began in June. It is one of the fastest year-over-year growth rates the Case-Shiller index has measured over its 30-year history.

Economists said a sustained period of record-low interest rates spurred people to start looking for new homes, and the coronavirus pandemic is playing a leading role in the market’s strength. Apartment owners may be looking for a home with an outdoor space. Homeowners in urban cores may be looking for more space, even if that means moving to suburban or exurban communities — something suddenly possible without adding a commute because of the rise of telework.

“There has been a greater demand for larger-sized homes out in the second ring suburbs or even into smaller towns,” said Lawrence Yun, chief economist at the National Association of Realtors. “This is a new world and people need larger space or want larger space, an extra bedroom to turn it into an office.”

Zillow’s Home Value Index has risen 9.1 percent in the last year, its fastest increase since 2005. The typical home value is now $269,039, up more than $100,000 since the nadir of the post-financial crisis housing crash in February 2012.

The company projects 7 million home sales in 2021, the most of any year since 2005.

“I have never seen a market like this,” said Khalil El-Ghoul, principal broker at Glass House Real Estate, who sells homes in Washington, D.C., Maryland and Virginia. “The only reason a home is on the market more than a couple of days is because we insist on allowing enough time for full market exposure. If it were up to buyers, homes would never go active.”

Home prices have risen rapidly in cities like Boston, Charlotte, Seattle and Washington — all mega-metropolitan areas that have experienced tremendous growth in the post-recession decade. But prices are also rising quickly in cities like Cleveland, which has been bleeding population for decades, and Phoenix, where home prices cratered during the Great Recession.

Zillow’s index shows prices rising rapidly in cities like Cincinnati, Colorado Springs and Tucson, Ariz., all of which suffered during the 2007-2009 downturn.

Some of those struggling metropolitan areas are now seeing larger increases in the typical home’s cost than are their nearby mega-metros: Baltimore recorded a higher year-over-year growth rate than did Washington; Riverside and Sacramento, Calif., saw home prices rise faster than those in San Francisco or Los Angeles; and Milwaukee and St. Louis home prices grew faster than those in Chicago.

“We’ve seen that some of these smaller metro areas that aren’t your headline blockbuster coastal markets that often get most of the attention have seen a lot of demand and prices ticking up as well,” Speakman said. “People are reevaluating what they need for their home, what home means to them. That could mean space, certain amenities, certain features and also just location.”

There are signs that the housing boom is benefiting suburban communities more than metro areas. In a paper published earlier this month, Stephan Whitaker, an economist at the Federal Reserve Bank of Cleveland, found more Americans are moving out of urban neighborhoods than were moving into those cores.

In fact, Whitaker found, the number of people who moved into urban areas dropped substantially between March and September 2020, during the pandemic, than over comparable spans in previous years.

The increase in housing prices comes even as fewer Americans than ever say they have moved in the last year. Census Bureau figures from March, before the pandemic fully took hold, estimated that just 9.7 percent of Americans changed homes over the preceding 12 months, the lowest level the Bureau has ever recorded and about half the mobility rate of the 1980s and 1990s.

The last time housing prices experienced such a spike, a market bust soon followed. Realtors and economists are less worried about a downturn this time, they said, because of what buyers today are bringing to an offer and because of the mortgage terms that banks are offering.

“Twelve years ago, [the housing boom] led to a bad outcome with a foreclosure crisis. But that was due to funny mortgages that went to everyone without income documentation,” Yun said. “This time around, all the mortgages are soundly underwritten.”

In a note to clients earlier this year, El-Ghoul said the homes he puts on the market are routinely netting dozens of strong offers, most over a home’s asking price.

“Most of the buyers and contracts are coming from well-qualified buyers with lots of cash, big down payments, and seemingly can afford the home fairly easily. In 2005, the buyers were not qualified,” El-Ghoul told The Hill on Wednesday. “That is not the case this year.”