Despite some businesses and industries not doing so great due to the pandemic, the real state sector is doing well.
In fact, every metro area tracked by the National Association of Realtors through the fourth quarter of 2020 witnessed home prices grow from a year ago, according to NAR’s latest quarterly report.
Eighty-eight percent of the metros followed (161 areas) saw double-digit price increases.1 For comparison, only 115 metro areas saw such growth in the third quarter.
“The fourth quarter of 2020 presented circumstances ripe for home price increases,” said Lawrence Yun, NAR chief economist in a NAR new release.
“Mortgage rates reached record lows, thereby driving up the demand,” he added. “At the same time, inventory levels also reached record lows, leading to grim inventory conditions of insufficient supply in the fourth quarter.”
The highest price gainers were Bridgeport, Conn. (39.0%); Pittsfield, Mass. (32.2%); Atlantic City, N. J. (30.0%); Naples, Fla. (29.9%); Barnstable, Mass. (28.9%); Crestview, Fla. (28.6%); Boise City, Idaho (27.1%); Binghamton, N.Y. (24.4%); Kingston, N.Y. (24.2%); and Spokane, Wash. (23.6%).
It is worth noting that national destination sites such as Atlantic City, Barnstable, and Naples, along with small towns within driving distance from major cities like Binghamton and Kingston in New York, all saw large price increases, an indication of the strong demand for vacation homes and affordable homes during the ongoing pandemic, the news release said.
“Although tourism took a major hit overall throughout 2020, our data shows that vacation housing still did well in terms of sales,” Yun said in the news release. “Many people purchased in these areas because they found themselves with new work-from-home freedoms.”
Eight places in the West region, along with two areas in the East, combined for the 10 most expensive metros in the fourth quarter. This included San Jose, Calif. ($1.40 million); San Francisco, Calif. ($1.14 million); Anaheim, Calif. ($935,000); Urban Honolulu, Hawaii ($902,500); San Diego, Calif.
($740,000); Los Angeles, Calif. ($688,700); Boulder, Colo. ($661,300); Seattle, Wash., ($614,700); Nassau, N.Y. ($591,600); and Boston, Mass. ($579,100). Except for Boulder, these same metros—the most expensive markets—all saw double-digit growth in median single-family existing-home sale prices, the news release added.
The national median existing single-family home price rose 14.9% on a year-over-year basis, to $315,900. All regions experienced double-digit year-over-year price growth. The Northeast led this charge at 20.7%, followed by the West at 15.5%, the Midwest at 15.1%, and finally the South at 14.0%.
While home sellers have benefited from the fourth quarter price increases, Yun says the large shifts in home prices could soon become detrimental to homebuyers. “The average, working family is struggling to contend with home prices that are rising much faster than income,” he said in the news release. “This sidelines a consumer from becoming an actual buyer, causing them to miss out on accumulating wealth from homeownership.”
Nonetheless, Yun notes that low mortgage rates are helping many buyers afford their monthly mortgage payments. In the fourth quarter of 2020, a family needed an income of $49,908 to cover a 30-year fixed-rate mortgage with 20% down payment affordably, which is only slightly higher than the income required to afford a home one year ago ($48,960 in 2019’s fourth quarter).
In a majority of metro areas—130 of the 183 metro areas NAR tracked—a family needed less than $50,000 to pay their mortgage (71% of metros; 69% in 2020 Q3).
Not So Great
However, in seven metro areas, NAR found that a family needed more than $100,000 in income to buy a house. This was the case in San-Jose-Sunnyvale, Calif. ($222,989); San Francisco, Calif. ($181,576); Anaheim, Calif. ($148,925); Urban Honolulu, Hawaii ($143,748); San Diego, Calif. ($117,865); Los Angeles, Calif. ($109,694); and Boulder, Colo. ($105,330).
On average, families typically spent 14.8% of their income on mortgage payments based on a median family income of $84,313 in the fourth quarter (14.9% one year ago) if assuming a 20% down payment mortgage.2 With higher home prices, the monthly mortgage payment marginally rose to $1,040 ($1,020 one year ago). This is the case even as the effective 30-year fixed mortgage rate3 decreased to 2.81% in the fourth quarter of 2020 (3.76% one year ago).
1 Areas are generally metropolitan statistical areas as defined by the U.S. Office of Management and Budget. NAR adheres to the OMB definitions, although in some areas an exact match is not possible from the available data. A list of counties included in MSA definitions is available at https://www.census.gov/geographies/reference-files/time-series/demo/metro-micro/delineation-files.html(link is external).
Regional median home prices are from a separate sampling that includes rural areas and portions of some smaller metros that are not included in this report; the regional percentage changes do not necessarily parallel changes in the larger metro areas. The only valid comparisons for median prices are with the same period a year earlier due to seasonality in buying patterns. Quarter-to-quarter comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns.
Median price measurement reflects the types of homes that are selling during the quarter and can be skewed at times by changes in the sales mix. For example, changes in the level of distressed sales, which are heavily discounted, can vary notably in given markets and may affect percentage comparisons. Annual price measures generally smooth out any quarterly swings.
NAR began tracking of metropolitan area median single-family home prices in 1979; the metro area condo price series dates back to 1989.
Because there is a concentration of condos in high-cost metro areas, the national median condo price often is higher than the median single-family price. In a given market area, condos typically cost less than single-family homes. As the reporting sample expands in the future, additional areas will be included in the condo price report.
The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters. Total home sales include single-family, townhomes, condominiums, and co-operative housing.
2 Housing costs are burdensome if they take up more than 30% of income. The 25% share of mortgage payment to income considers the idea that homeowners have additional expenses, including mortgage insurance, home insurance, taxes, and expenses for property maintenance.
3 This is the effective mortgage rate based on Freddie Mac’s 30-year fixed contract rate mortgage, points, and fees.