Housing USA: A Housing Price Boom Comes to the Boring Metros

It’s been a common story in America, particularly since the pandemic: home prices keep rising. A mix of low inventory, low interest rates and easy money Fed policy caused the Case-Shiller index to increase 26 percent since February 2020, the fastest growth rate in more than three decades. And unlike the pre-pandemic conversation on housing prices—which revolved around the insane housing prices in coastal metros—this trend is hitting the whole country. As CNN Business reports, home prices increased in 99 percent of markets tracked by the National Association of Realtors (NAR) during the third quarter of last year, and in 78 percent of them, the increase was in the double digits. That means significant price increases even in so-called boring flyover metros long known for economic stagnation and low cost-of-living.

In the last year, according to Gay Coraraton, a NAR economist, prices grew in the 15 to 20 percent range in markets like Gulfport-Biloxi, MS; South Bend, IN; Erie, PA; and the upstate New York cities of Binghamton and Elmira. None of these areas are what most Americans would associate with dynamism – they lost their manufacturing base and have long been static or declining. In Binghamton, for instance, the median property value is only $91,000 and median household income is $34,487 (around half the national average). Population there is well below its 1950s peak. Yet prices rose by 16 percent, Coraraton says via Zoom. Similarly, Elmira saw a 17 percent increase, despite being one of the state’s poorest cities.

And this is a decidedly post-pandemic phenomenon, explains Coraraton. Whereas home prices were shrinking or modestly growing in most of these markets in 2019, now they’re growing fast, due, she suspects, to the increase in remote work, as well as buyers seeking vacation homes.

Realtor.com provides further insight by issuing projections for the year ahead. Prices in the declining Ohio markets of Akron and Dayton are anticipated to grow over four percent, while metro Syracuse, NY should see similar price growth to San Jose-Sunnyvale-Santa Clara, despite having about half of Silicon Valley’s median household income.

Another case study is Virginia’s Shenandoah Valley.

As someone who grew up across the mountains from there in Charlottesville, I can attest that there’s a stigma about it being lower on the socio-economic totem pole, due to its rural character and agrarian economy. But recently home prices have shot up in a similar trajectory to the nation as a whole, even as home sales have been moribund the last year. According to Mike Cooper, a Winchester, VA-based broker with Cornerstone Business Group, the region’s median housing prices increased 16 percent. In some cases, starter homes sell for $400,000, mirroring the country’s rapidly-growing national median.

Some of this is due to differing subregional dynamics, Cooper explains in an interview. Homes in Shenandoah County, the weakest of the markets, are in the range of $200,000, while in Clarke County, homes are listed in the $400,000 range. And Winchester is among Virginia’s fastest-growing cities, owing to its key strategic location along several highways; its commuting distance from Washington, DC; and its proximity to a major internet transmission line, which has encouraged corporations and government agencies to locate there.

“The traffic’s getting heavier, roads are getting wider,” says Cooper, and of course, housing is getting more expensive, with an 18 percent year-over-year increase of median home prices to $320,000, according to Zillow.

Cooper also points to the role remote work has played in luring employees out of big cities and into smaller markets like Winchester. But the key factor he identifies is stubbornly low inventory. While homes were being built at a rapid volume in Winchester pre-2008 recession, inventory never recovered. In a healthy scenario, the combined markets of Winchester and surrounding Frederick County would have 500 to 600 houses available at any given time, Cooper says, but “right now, we’re running about 180.”

Winchester in this respect resembles all of America. Over a decade after the Great Recession, annual nationwide home permits are not even close to their pre-Recession levels.

It’s also worth considering the impact of monetary policy. Throughout the pandemic, the Federal Reserve pumped unprecedented levels of money into the economy through programs like quantitative easing (QE). As real estate analyst Phil McAllister explains, QE functions through purchasing assets.

“They do not have to come up with money from somewhere on their balance sheet. They simply create reserves ‘out of thin air’ and swap those reserves for the securities they are purchasing from a bank,” McAllister says. “The bank had previously been holding an interest-bearing treasury security, and now it’s holding an overnight reserve.”  

The goal is to drive down interest rates and thus stimulate the economy, but this, of course, comes with costs. The most well-publicized has been price inflation of standard consumer goods, as evident in a Consumer Price Index (CPI) that rose seven percent in 2021. But even prior, when the velocity of this new money remained low, Americans stored it in assets, such as stocks, gold, crypto, and yes, real estate. That helps explain why median home prices have increased far faster than consumer goods.

In 2022, as the Fed is set to finally increase interest rates again and households become even more discouraged from homebuying, rents should be what rise (rent increases often follow home price increases for this reason). Already, rents jumped 12 percent for an average one-bedroom apartment in 2021, according to a study from Zumper, and this is projected to continue.

For these and likely other reasons, both the purchase and renting of homes will be more expensive in coming years. This has been a problem for a while now in superstar cities, like New York and San Francisco, and in boutique smaller ones, such as Boulder and Boise. But increasingly, it has hit forgotten “flyover” metros whose appeal to my generation was the lower cost-of-living.

“You feel bad for first time buyers,” concludes Cooper. “They’re the ones who are taking it on the chin.”

This article featured additional reporting from Market Urbanism Report content manager Ethan Finlan.