Homes in Memphis, Tennessee.
House prices are rising across the country, but the Covid pandemic is turning usual geographic trends on their head.
Historically, house values have risen the most in large cities on the coast, where supply is leaner and demand is stronger. That is no longer the case.
Smaller metropolitan areas like Pittsburgh, Cleveland, Cincinnati, Indianapolis, Kansas City, Boise, Idaho, Austin, Texas and Memphis. Tennessee is currently experiencing some of the strongest price increases in the nation, according to the Federal Housing Finance Agency. Prices in these cities are now at least 10% higher than a year earlier.
These have all been historically cheaper markets and markets that generally have more properties for sale. The sudden strong price growth in the middle of the country is all the more striking.
Much of this is likely to be related to the new ability to work from anywhere due to the coronavirus. People are leaving bigger, more expensive markets in big cities and moving to cheaper markets where they can get more space and land for their money.
“While the full story of the impact of the pandemic on house prices has not yet been written, the data for the past few months is consistent with the view that Covid has encouraged potential buyers to move from urban apartments to suburban homes,” said Craig Lazzara. Managing Director at S&P Dow Jones Indices.
Henryk Sadura | Flickr | Getty Images
Nationwide, real estate prices rose by a remarkable 8.4% in October compared to the previous year in the S & P Case Shiller Index. This is an increase of 7% in the previous month and the largest one-month step in over a decade.
Traditionally, more affordable markets become less affordable as prices rise faster. At the end of 2020, the average price of residential properties in just over half of the country’s districts (55%) was considered less affordable for the average earner than in the past, according to Attom Data Solutions. That is a significantly larger proportion than a year ago – before the pandemic.
“These price increases fully offset the benefit of lower mortgage rates, and it takes even more to get a down payment that is big to the first-time buyer rather than others,” said Peter Boockvar, executive director of Bleakley Advisory Group. “Another unintended consequence of the Fed hurting those who can least afford it.”
Mortgage rates hit more than a dozen record lows in 2020, fueling demand for housing. They have also raised prices by giving buyers more purchasing power. Interest rates are not expected to rise significantly this year, but their benefits are already far less than if prices were to rise again.
“These factors are likely to persist in the short term and an gradually improving economy should encourage more buyers to enter the market,” said Matthew Speakman, an economist at Zillow. “Taken together, this rapid pace of real estate price appreciation seems poised to continue well into 2021.”