In a gangbusters year for real estate markets across the U.S., resort towns and smaller cities—so-called “secondary markets”—have been some of the biggest winners, seeing an influx of well-off buyers eager for spacious homes in which to ride out the pandemic.
“We’ve been seeing that vacation or resort areas have done very well in the luxury market,” said Danielle Hale, chief economist for realtor.com. “And secondary cities or metros are the ones that are doing the best.”
In some cases, buyers have sped up their plans for retirement, and in others, they’re taking full advantage of indefinite work-from-home policies to move into areas with larger homes, lower prices and more outdoor recreational options than traditional urban centers.
But while a rush of moneyed residents might be a boon for local home prices, it doesn’t necessarily translate into a flourishing overall economy, and in many cases, areas that have seen skyrocketing home prices over the past year have simultaneously seen their unemployment numbers remain stubbornly high; with the unemployment rate, in some cases, still double pre-pandemic levels.
“What’s interesting is people who have moved, they’re not moving their jobs with them, they’re working remotely for wherever headquarters is,” said Redfin chief economist Daryl Fairweather. “But they are contributing to, for example, home renovations, which is an industry that’s been booming across America.”
To get a better sense of how the local economies in some of the nation’s hottest home markets are faring, Mansion Global and the Dow Jones Market Data team compared listing price growth data from realtor.com and metro-level unemployment rates to determine which areas have have the largest disparities between home prices and the local jobs market through January. (Mansion Global is owned by Dow Jones. Both Dow Jones and realtor.com are owned by News Corp.)
Below, a handful of cities where the numbers stood out the most at the start of this year:
- Coeur d’Alene, Idaho: Median home price rose 84.8% year over year in January, up to $850,000; unemployment increased from 3.8% to 6.1% from December 2019 to December 2020
- Santa Maria-Santa Barbara, California: Median home price rose 60.7% year over year, up to $2.8 million; unemployment increased from 3.6% to 7.6%
- Boulder, Colorado: Median home price increased 44.5% in that timeframe, up to $899,000; unemployment more than tripled from 2% to 6.9%
- Flagstaff, Arizona: Median home price increased 42.7%, up to $599,000; unemployment increased from 5.5% to 9.6%
- Napa, California: Median home price increased 29.3%, up to $1.4 million; unemployment more than doubled from 2.9% to 7.3%
- Las Vegas-Henderson-Paradise, Nevada: Median home price increased 35.2%, up to $283,900; unemployment roughly tripled from 3.5% to 10.4%
A high number of metros that topped the list were located in the West Coast and Rocky Mountains, areas around Idaho, Montana, Colorado, Arizona, California, Oregon and Washington, giving some credence to the idea that tech wealth has been radiating out beyond California, bringing home prices up along with it. But the overall picture is more complex.
“It is that influx of folks coming from California, Seattle, Portland and across the country,” said Kathy Denning, a broker with John L. Scott/Luxury Portfolio International in Bend, Oregon, where the median asking price had risen by 23.6% in January compared to a year ago, and unemployment had jumped from 3.2% to 6.8% by the start of this year.
“They’re coming from Texas, Arizona, Chicago, too,” Ms. Denning said. “People are coming in and keeping their jobs, working remotely, and jumping ahead to that end goal of buying a home here 10 years from now.”
In smaller markets, the sudden influx of high-earning buyers from elsewhere in the country has created stiff competition and contributed to a nationwide inventory crunch, with many house hunters simply acquiring second or third properties in new markets, rather than selling off primary homes as part of the move.
“A lot of second homes or vacation homes in the $1 million-plus range that used to take a year to sell, they’re now getting multiple offers from cash buyers,” Ms. Denning said.
Even a market like Boulder that’s more accustomed to tech wealth (and has a strong tech sector of its own) has seen the effects.
“People that are coming from the Bay Area, New York, Chicago, they don’t have the sticker shock that other people do,” said Pam Metzger, vice president of corporate services and relocation at WK Real Estate/Luxury Portfolio International in Boulder. “We have neighborhoods where $1 million gets you a really nice luxury home, and for people moving from the Bay Area, that’s really attractive.”
While this phenomenon has had an immediate and dramatic effect on local home values, with restrictions still in place on dining, entertainment and other hospitality-related industries, the wealth hasn’t necessarily spread into broader local economies.
“It’s hard for a vacation town to see the full benefits just yet because people aren’t eating in restaurants, drawing up big tabs, doing a lot of indoor activities,” Ms. Fairweather said. “Last summer, there was a lot of activity in some of these vacation places, but it wasn’t the same [as usual].”
As vaccines become more widespread and Covid-19 slowly gets under control, though the U.S. could be facing a fourth wave, there’s a potential case to be made for optimism.
“I moved from Seattle to a lake town in Wisconsin, and what I’ve noticed is that businesses that have remained open are really ramping up hiring, reaching out for workers for next summer,” Ms. Fairweather said. “I think a lot of places are going to rebound, and capture business from places that have closed, and you’ll probably see new businesses open up once the economy starts to [reopen].”
In the interim, however, local buyers may find themselves shut out of the market, while wealthier transplants continue to snap up properties at breakneck speeds.
Wealth Keeps Flowing out of Major Cities—but for How Long?
Few experts at this point deny that smaller U.S. markets are experiencing severe imbalances, due to high demand and disappearing inventory. But the disparity doesn’t seem to portend a potential crash, so much as an ongoing squeeze for local buyers.
Unlike periods of rapid price acceleration in the past, buyers this time around don’t seem to be stretching beyond their means in order to purchase.
“As many bad things there were that happened during Covid, there were two positive things,” said Jonathan Woloshin, head of U.S. Real Estate, global wealth management at the Chief Investment Office of UBS. “People couldn’t go out, so they saved a lot of money, and a lot of equity has been garnered in people’s homes as prices have gone up. If you look at the monthly payment to income ratio, that’s still significantly below the bubble period.”
Scottsdale, Arizona, was one such place to see a major bubble burst in the late aughts, after a few years of rapid development and speculative buying. “Back then, we had a lot of product but didn’t have the population growth to sustain it,” said Wendy Walker, managing partner of The Agency’s Scottsdale office. “Now, we have high population growth where people want to come to live here, retire, and relocatere-locate. Supply over $1 million is down 52%.”
Whether all these new residents who are working remotely for jobs based in major cities will continue to do so once offices reopen remains to be seen. If they stop coming or, worse, leave, it could be hard for prices to remain at such elevated levels.
“The fact that unemployment is going up tells you that you are likely not seeing the same level of local demand for housing,” Ms. Hale said. “If for whatever reason people stop coming from outside the market, you’d need to see some improvement in local conditions and jobs to sustain that price point.”
And there may be some reason for concern in secondary markets as major cities including New York and San Francisco witness a sudden return of homebuyers.
A recent report from UCLA Ziman Center for Real Estate found that “though renters [in the Bay Area] are pulling back on demand, higher-income homeowners are not,” and that housing data “does not unequivocally support a mass exodus from the Bay Area.”
In San Francisco’s market, “We had almost record-breaking numbers of available homes over the summer,” said Vanessa Gamp of Corcoran Global Living. “Now, we’re back in the ‘normal’ range for how many homes are coming on the market. It looks like people are feeling more confident, and are once again buying in both the condo and single-family house sector.”
Many well-off residents who purchased second homes elsewhere over the course of the pandemic may find themselves coming back to the city at least in a part-time capacity.
“I would assume that people who are currently living in a second home are doing so because everything, their job and their children’s school, is remote,” Ms. Gamp said. “It will be very interesting to see what happens in a few years, if all of these [second] homes will come on the market, or will just turn into [towns] of many more vacation renters instead of permanent residents.”
Local Buyers out of Luck
The long-term economic effects of property rushes in smaller markets remain to be seen, and will almost certainly vary city to city.
“Those who work in a certain job category and already started at a higher wealth level have done better [in the pandemic], whereas the service economy has obviously fared less well,” Mr. Woloshin said.
“An area with a lot of service jobs, maybe there’s a little more incremental risk,” Mr. Woloshin added. “A lot of factors go into it—is there overbuilding? What types of people are going there, and why? You can have a couple of businesses go somewhere, people move in, other people see it as a thriving market, you start to get a virtuous cycle.”
In the near term, local buyers with assets more in line with their smaller regional economy may continue to find themselves shut out of the market altogether.
While some new jobs are coming to the greater Phoenix area via companies like Amazon and Intel, Ms. Walker said, “a lot of the folks moving here, say from San Francisco or Seattle, they’re working remotely and trading those dollars for what they can get here. It’s driving our prices significantly higher, because they have a lot of money and resources to pull from, and buyers just moving around in Arizona are getting beat out pretty harshly.”
The recovery of the service industry and the broader economy has the potential to bring market forces at least somewhat more into balance. (In March, the U.S. economy added 916,000 jobs, 176,000 of them from the restaurant industry—the highest numbers in seven months—as vaccination rates continue to rise and Americans had extra discretionary income from the $1,400 stimulus payments.)
“I had a lot of buyers toward the end of last year back off feeling completely defeated. Hopefully we can get to where that needle gets back to the middle where things aren’t so extreme,” Ms. Denning said. “Things are opening up more, kids are back in school at least a couple of days a week, but it remains to be seen. A lot of businesses have closed, it’s been a struggle.”
As for the wealthy out-of-town buyers, don’t expect most to rush to sell properties once they head back to the office.
“The amount of second-home owners [based] in San Francisco has skyrocketed,” Ms. Gamp said. “We’re a city where there is just money here. And that’s not the kind of person that needs to liquidate.”
This article originally appeared on Mansion Global.