Key Highlights
- Home prices up +6.5% in March 2021 nationwide
- Home prices in Western states/cities hitting double-digit increase
Housing Markets in West on Fire
Prices are surging, supply is so tight it creaks and competition among buyers is ferocious in Western states and cities. According to Lawrence Yun, chief economist with the National Association of REALTORS®, “Everything from the Rocky Mountain states and west from there are doing much better than the rest of the country and it’s been like that quite consistently.”
Nationally, home prices climbed +6.5% in March. For comparison, Western cities such as Seattle, Las Vegas and San Francisco, according to the latest S&P CoreLogic Case-Shiller indicators, saw year-over-year double-digit home price gains in March 2021.
What is Current Trifecta in Real Estate?
During the peak years of the housing boom in the early 2000’s, the Sunbelt region of the US was the beneficiary of a trifecta composed of great climate, available land and reasonably priced housing.
Today’s real estate trifecta benefits Western states. Strong economic growth, strong job creation/growth and strong housing demand from high-talent workers are the key elements in today’s trifecta. For now anyway, the western states have those trifecta elements locked up.
Rise in Tech Sector Driving Current Price Surge
Coupled with strong economic growth and job creation, the tech boom has created strong talent pools in the West. There simply is not enough housing to meet these talented techies’ over-the-top demand.
Nela Richardson, chief economist with Redfin, believes that taxes could also be driving housing demand in the West. Washington state has no income tax and California’s Proposition 13 has reduced property tax rates for homeowners. Richardson said, “The East Coast has some of the highest tax rates in the country. Not just property taxes but also income taxes, and now with the new tax changes, you can only deduct upt to $10,000 on state and local taxes, so that’s a double whammy.”
Rising Home Prices = Boon to Current Homeowners
Half of all homes in Denver became pending sales in just six days in April, according to Redfin. Likewise in Seattle with a median of seven days on the market and nine days on the market in San Jose CA and Tacoma WA.
Nationwide, average homeowners gained $16,300 in home equity curing the first three months of 2021, according to CoreLogic. In California, homeowners got a bump of $51,000 in home equity jumps and in Washington state, the average home equity gain for homeowners came to approximately $44,000.
High Home Prices Also Impact Businesses
When high home prices become too high, talented business people may choose to move to cities with more affordable housing options. Such moving to more affordability may hurt businesses efforts to retain top talent.
High home prices may also cause businesses to relocate to more affordable areas. Think Tesla picking up Silicon Valley stakes and moving to Texas.
Yun said, “In places like San Jose and San Francisco, even a starter home can cost more than $1M. I am not sure they (businesses) can attract high talent over time. You may begin to see the copy-cat effect of other cities trying to replicate high tech sector areas.”
Thanks to money.cnn.com, Redfin, National Association of REALTORS and S&P Case-Shiller CoreLogic.
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