The average home price has risen nearly 50% nationwide since the start of the pandemic. But that’s too general and doesn’t take regional differences into account, says Thomas Ryan, real estate economist at Capital Economics a new note.
Ryan predicts real estate markets in the South will continue to be “at the forefront” of appreciation. Since December 2019, just months before the pandemic hit, home prices have increased 74% in Miami, 71% in Tampa and 62% in Charlotte. This reflects a “surge in housing demand driven by strong economic immigration,” Ryan wrote. And in his opinion, real estate prices rose just 29% in San Francisco, 30% in Minneapolis and 33% in Washington, D.C. — slower than southern metros but much faster compared to pre-pandemic norms.
And he doesn’t think anything will change that quickly. “The increase in home prices in southern metros has been even greater, while prices in most major metros and the Midwest have risen less,” he wrote.
Housing price growth appears to be returning to pre-pandemic pace, but Ryan expects southern metros to “continue to outperform over the next few years,” and there are a few reasons for that.
First, job growth in the South is not slowing because of buoyant labor markets, he explained — in part because of more favorable taxes and regulations for businesses. (None other than Elon Musk made the switch where SpaceX is integrated to Texas; Ken Griffin’s Citadel moved its headquarters to Miamibut he claimed it wasn’t because of low taxes).
Above all, people who now have the opportunity to work remotely are moving to cities in the south because the prices are cheaper there. Dallas and Atlanta also saw real estate prices rise above the national average, and yet their average property values are significantly lower than, say, Los Angeles or San Francisco (both considered the six largest metropolitan areas). The average home value in Dallas is about $308,000; Atlanta’s is around $390,000. Meanwhile, the average home value in Los Angeles is nearly $954,000 and in San Francisco is about $1.2 million. This does not take into account higher mortgage interest rates and therefore higher monthly payments.
“Aside from Miami, mortgage payments for a new loan for an average priced home relative to income are quite low in Southern markets compared to the rest of the country,” Ryan wrote.
Strong job growth and property prices that are not out of balance relative to local incomes will ensure southern markets stand out from the rest. Property prices in the West and major metropolitan areas were already unaffordable, and high mortgage rates aren’t helping – plus competition isn’t as fierce in the South because supply isn’t as tight, Ryan argues.
“Post-pandemic, many houses were built in southern metros as developers responded to changing migration trends,” he said. “That’s why active listings – which have been suppressed nationwide due to mortgage rate lock-in – have recovered much more quickly.”
As Assets has previously reported, the three largest housing markets in Texas (by starts) built 300% more homes than California, despite having smaller populations, for several reasons including: migration, employment, land accessibility, and less stringent regulations. Still, more supply and less competition typically mean lower and slower growth in home prices, but that’s a short-term view, Ryan wrote. Over the next few years, demand will actually be strongest in southern metropolitan areas, eventually “outweighing increasing supply” and driving up real estate prices. Still, it’s important to emphasize that while a rise in house prices is really good for homeowners, it technically only serves to make it more difficult for renters to become homeowners in an already unaffordable housing market.
But the Southern markets’ gain is the loss of the six major markets – Los Angeles, San Francisco, Washington, DC, New York, Boston and Chicago – according to Capital Economics, which expects home price growth in those cities to “remain sluggish ” becomes. ” Real estate prices in Midwest markets, on the other hand, are expected to experience a “mini-rival” or “reversal,” but not enough to compete with major cities in the South.