The new hot spots: Where home values are rising now
Traditionally, the most expensive real estate markets in America have been on the coasts. From the postage-stamp-sized efficiencies in Manhattan to the ornate but bunched-together homes in San Francisco, we can picture where it’s expensive to live because it’s been that way for decades. And we know that it’s easy to avoid these crazy prices by moving inland.
But after a year of the pandemic, that’s not necessarily the case anymore. Among the many aspects of life in the U.S. that have been upended, home prices are now rising faster in the middle of the country than they are in the big cities on the coasts.
Home prices are up everywhere
Home prices are rising across the country, fueled in part by low mortgage rates and low inventory of homes. In February of 2021, the National Association of Realtors® (NAR) found that every metro area they track in their quarterly home price survey saw average home prices rise during the fourth quarter of 2020. In fact, 88% of metro areas saw double-digit price growth.
"The fourth quarter of 2020 presented circumstances ripe for home price increases," said Lawrence Yun, NAR chief economist.
"Mortgage rates reached record lows, thereby driving up the demand," he continued. "At the same time, inventory levels also reached record lows, leading to grim inventory conditions of insufficient supply in the fourth quarter."
In just this past year alone, the national median price for a single-family home rose 14.9%, to $315,900.
Reasons new markets are getting hot
When we combine rising home prices with the markets that are already topping the lists of most expensive places to live, you can see why many people are looking elsewhere. The average home in some of the most expensive markets in the country finished 2020 almost 400% pricier than the national average. In San Jose and San Francisco, home to tech startups and Silicon Valley, median home-sale prices were $1.4 and $1.14 million, respectively.
But it’s not just the costs of homes in these markets that are pushing homebuyers to markets in the Midwest and the South, as well as other more affordable spots.
The pandemic effect on housing
The pandemic has changed our relationship with our homes and our careers. So many people are spending so much time inside that we’re rethinking what we need in our homes. Remote learning and working from home have put a premium on livable space. Buyers are seeking more space inside and outside of their homes. Big yards, dedicated workspaces, and less bumping into other members of the family are what people are searching for.
Our new WFH lifestyle
The other factor at play here is that many people are working from home—and liking it. That’s led to less of a geographical connection to the company office. Without that commute, we’re getting hours back in our days, and homebuyers are taking advantage of being untethered.
"In light of the pandemic, prices jumped in a number of metros that contain larger properties and open space – where families could find extra rooms, including areas for an at-home office," said NAR’s Yun.
Saying goodbye to the commute for good
Even large companies are starting to realize that allowing employees to work remotely has its advantages. Huge companies like Microsoft, Twitter, Salesforce and Facebook have even committed to allowing parts or all of their workforces work remotely permanently.
"Gone are the days of a sea of desks…,” wrote Brent Hyder, chief people officer of Salesforce in a blog post, "This isn't just the future of work, this is the next evolution of our culture."
Where people want to live now
With all these reasons in mind, where are the new hot spots? A look at the data shows a few trends amongst the ten metro areas that saw the most year-over-year growth in home values at the end of 2020.
| Metro Area | % Change Q4 2019-2020 | % Change Q4 2018-2019 |
|---|---|---|
| 1. Bridgeport-Stamford-Norwalk, CT | 39.0% | 2.4% |
| 2. Pittsfield, MA | 32.2% | 8.9% |
| 3. Atlantic City, NJ | 30.0% | 7.4% |
| 4. Naples, FL | 29.9% | 0.5% |
| 5. Barnstable, MA | 28.9% | 2.9% |
| 6. Crestview-Ft. Walton Beach-Destin, FL | 28.6% | 0.4% |
| 7. Boise City, ID | 27.1% | 13.7% |
| 8. Binghamton, NY | 24.4% | -8.2% |
| 9. Kingston, NY | 24.2% | 11.2% |
| 10. Gulfport-Biloxi, MS | 22.6% | 11.8% |
Vacation towns and second homes
Six out of the top ten are vacation destinations, including Pittsfield in the Berkshires and Barnstable on Cape Cod. Folks must love getting away from it all in Massachusetts. Two of the top ten are suburban areas outside of New York City, a manageable commute away once the WFH restrictions are lifted.
The popularity of vacation destinations coincides with another trend we’ve been watching—the rising demand for second homes. "Although tourism took a major hit overall throughout 2020, our data shows that vacation housing still did well in terms of sales," Yun said. "Many people purchased in these areas because they found themselves with new work-from-home freedoms."
Moving where their dollar goes further
Without a need to stay close to the office, many Americans are moving where their down payment and monthly mortgage expenses get them more home. In these markets, the price for square foot is significantly lower, not mention the amount of outdoor space they’re finding. They are also moving closer to family.
With all these reasons in mind, where are the new hot spots? A look at the data shows a few trends amongst the ten metro areas that saw the most year-over-year growth in home values at the end of 2020.
| Market | % Change Q4 2019-2020 | Average Home Price |
|---|---|---|
| Boise, ID | 27.1% | $381,300 |
| Youngstown, OH | 21.2% | $126,700 |
| Memphis, TN | 20.5% | $229,000 |
| Cincinnati, OH | 19.7% | $216,000 |
| Cleveland, OH | 17.4% | $187,100 |
| Indianapolis, IN | 16.0% | $232,4000 |
| Kansas City | 15.3% | $248,500 |
Staying close to the action
What’s interesting is that there hasn’t been a trend of folks moving away from cities and into the suburbs. According to a study of trends by Zillow, “Through the end of 2020, home value growth, sales volume growth and sale price growth among urban homes matched or exceeded growth in the suburbs.”
So, it seems that many still prefer to be close to the amenities a city provides, even if the restaurant, bars, music venues and theaters aren’t open at full capacity right now. This trend seems to be fueled by younger professionals taking advantage of low rates to ditch renting and get into the real estate market.
Will these markets stay hot?
The question is: are these trends here to stay? Most forecasters are predicting some form of remote work remaining the norm even after pandemic fears have subsided. Will homeowners still prefer more space and larger yards, or will we start to see them moving back into the cities where they work?
It’s hard to know how long this will last, but the underlying issues that are driving this trend seem likely to remain in place for at least the next year.
It’s perhaps a little bit ironic that in fleeing the expensive cities, homebuyers seeking better deals have now driven up the prices in these traditionally less-expensive markets. But fear not, the big cities are still as popular—and pricy—as ever, and savings are there to be found in smaller markets.
And the reasons that people love big cities and cherish smaller towns haven’t changed at all. The biggest thing that changed is the need for employees to live within a commute of their office. Now we are all freer to live in a place that works best for all aspects of our lives—home, family, hobbies, work, all of the things that are important to each of us.