Where's the market hot? Heck, where's it not? The National Association of Realtors says in its latest quarterly report that every one of the 161 metro areas it tracks saw home prices increase in the fourth quarter of 2020 from a year ago. And fully 88% of them saw double-digit increases from the year-ago fourth quarter, compared with "only" 115 in the third quarter, indicating the boom may, indeed, still be heating up.
Buyers grim while sellers grin
The median price for an existing single-family home rose 14.9% year over year to $315,900, the NAR says, led by the Northeast with a 20.7% year-over-year gain, followed by the West at 15.5%, the Midwest at 15.1% and finally the South at 14%.
Says Lawrence Yun, the trade group's chief economist: "Mortgage rates reached record lows, thereby driving up the demand. At the same time, inventory levels also reached record lows, leading to grim inventory conditions of insufficient supply in the fourth quarter."
What's grim for buyers creates grins for sellers, especially in areas benefiting from a particular kind of pandemic-driven revelation: Work-from-home options turn vacation destinations into a place to live year-round.
Of tourist towns, the exurbs, and beyond
Yun says in the Feb. 11 report: "Although tourism took a major hit overall throughout 2020, our data shows that vacation housing still did well in terms of sales. Many people purchased in these areas because they found themselves with new work-from-home freedoms."
The NAR pointed to Atlantic City, New Jersey; Barnstable, Massachusetts; and Naples, Florida, as examples. Small cities within easy driving distance of major metro areas also benefited regardless of their tourism appeal, such as Binghamton and Kingston, New York.
The trade association said the largest year-over-year price gains were recorded, in descending order, in the following communities:
- Bridgeport, Connecticut (39%)
- Pittsfield, Massachusetts (32.2%)
- Atlantic City, New Jersey (30%)
- Naples, Florida (29.9%)
- Barnstable, Massachusetts (28.9%)
- Crestview, Florida (28.6%)
- Boise City, Idaho (27.1%)
- Binghamton, New York (24.4%)
- Kingston, New York (24.2%)
- Spokane, Washington (23.6%)
The NAR report called these large one-year price increases "an indication of the strong demand for vacation homes and affordable homes during the ongoing pandemic."
But what about affordability?
Yun says: "The average, working family is struggling to contend with home prices that are rising much faster than income. This sidelines a consumer from becoming an actual buyer, causing them to miss out on accumulating wealth from homeownership."
At least for now, though, low rates also are empowering more buyers with modest incomes to buy their own homes. For instance, in the fourth quarter of 2020, a household income of $49,908 was needed to afford a 30-year fixed-rate mortgage with a 20% down payment, only slightly above the $48,960 required at this point last year.
The typical payment for that mortgage also rose slightly to $1,040. A family needed less than $50,000 in household income to afford a mortgage in 130 of the 183 metro areas the NAR tracks.
Of course, that's not true in the nation's pricier environs. Here, we find California still dominates the list of most-expensive metro areas. Here, in descending order, are the seven metro areas the NAR says more than $100,000 a year in household income is needed to buy a typical house:
- San Jose-Sunnyvale, California ($222,989)
- San Francisco ($181,576)
- Anaheim, California ($148,925)
- Urban Honolulu ($143,748)
- San Diego ($117,865)
- Los Angeles ($109,694)
- Boulder, Colorado ($105,330)
The Millionacres bottom line
As for investors, right now looks like a good time to buy and flip in those areas where lots of people can afford what you're offering. Mortgage rates are still low enough to allow many families to realize their dream of homeownership, whether moving in or moving up, across the country.
But one must wonder how long that will last, if prices keep rising and wages stay stagnant, for instance, or worse yet, if inflation kicks in if and when the economy begins heating up as the pandemic eases? Could that scenario burst this bubble? We've seen such scenarios in the not-too-distant past (2007-2010, anyone?)
While there are quite different factors at play here now than then, we surely do live in interesting times, for better or worse.