Housing Market Roundup: May 20, 2021

Here is a summary of recent housing and housing finance reports.

Zillow/Redfin: Home Price Growth Continues at ‘Staggering’ Pace

Seemingly endless demand and low supply have driven record-breaking home value appreciation over the past year, new reports from Zillow and Redfin said.

Zillow, Seattle, said the annualized home value growth rate for a typical U.S. house equaled 11.6 percent in April, the highest growth seen since 2005. And RedFin, also headquartered in Seattle, said the housing market is setting records for prices, competition and speed.

“Right now we are seeing a substantial increase in home prices, which could be a precursor to more widespread inflation throughout the economy,” said Redfin Chief Economist Daryl Fairweather. “Lumber prices are surging, which has driven up prices of new homes and indirectly drives up prices of existing homes.”

Fairweather noted the possibility of more shortages and price increases on everything from gasoline to hotel stays and food as states lift their pandemic restrictions. “These price increases will likely be short-lived, but could cut into homebuyers’ budgets and ease competition enough for the housing market to become more balanced,” she said. “A more balanced market could encourage more move-up homeowners to finally sell, because they won’t be so fearful about being able to find and compete for a home to buy.”

Though recent price increases seem reminiscent of the mid-2000s housing boom, the current market is built on “strong fundamentals with long legs,” said Zillow Economist Jeff Tucker.

“Both of these hot markets saw extreme price appreciation in a relatively short period of time, but that’s where the similarities end,” Tucker said. “Unlike the combination of speculators and people spending beyond their means with non-traditional loans in 2004 and 2005, today’s homebuying demand is driven by well-qualified buyers locking in traditional, fixed-rate mortgages.”

Zillow said it expects another year of “staggering” home value appreciation. It forecast 11.8 percent growth through April 2022.

Monthly rent growth was led by Sun Belt standout cities Austin (2.9 percent), Memphis (2.5 percent), Tampa (2.4 percent) and Phoenix (2.4 percent), and monthly rent appreciation picked up pace or held steady in all but nine of the top 50 U.S. metros, Zillow said. April also marked the second or third month in a row for monthly rent growth in expensive coastal metros including San Francisco, New York, San Jose and Seattle, though none of those have returned to pre-pandemic levels.

BAI: 43% of Consumers Doing All Banking Digitally

Research by BAI, Chicago, said since the pandemic, 43% of consumers report doing all of their banking digitally and 24% have increased digital banking usage. Nearly all customers (84%) say they plan to maintain the same level of digital usage once in-person banking resumes.

BAI said the top digital banking resource customers across all demographic segments would use if available in the branch is Video ATM, which was ninth on the list of investment priorities for financial services leaders. Financial services leaders and consumers agree on the value of Interactive Teller Machines with remote teller, with all generations of consumers reporting it among their top three priorities.

The survey said most financial services leaders reported an increase in customer center call volume, with 76% reporting at least a five percent increase due to the pandemic. The top two types of calls received by the contact center during the pandemic have been for support in using digital for the first time (41%) or using the mobile app (36%).

Gen Z and Millennials are more likely to switch their primary financial services organization for better digital capabilities (72% of Millennials and 61% of Gen Z). More than half of Gen X (51%) would as well, but only 21% of Baby Boomers and older generations would switch.

“The COVID-19 pandemic greatly accelerated the adoption of digital banking across all generations, and our research has consistently shown that this increased usage is a permanent behavior change,” said Karl Dahlgren, managing director at BAI.

Redfin: Investor Home Purchases Rise for First Time in a Year

Redfin, Seattle, said home purchases by investors rose 2.7% year over year in the first quarter, marking the first period of growth since the coronavirus pandemic began. That follows three consecutive quarters of declines, during which investor purchases slumped by as much as 45.5%.

The report said investors bought one of every seven U.S. homes (14.9%) in the first quarter—a rebound from the prior three quarters, during which they bought closer to 1 in 10 homes. Investor market share is now just shy of the 16.1% level it hit in the first quarter of 2020, when the pandemic had barely begun.

“Investors are likely starting to feel more comfortable because the economy is in recovery mode,” said Redfin Senior Economist Sheharyar Bokhari. “They also may be jumping back in because they see the intensifying shortage of homes for sale as an opportunity. With so few houses on the market, many families are resorting to rentals. Flush with cash, investors are able to snap up the homes that are available, and then turn around and rent them out to folks who can’t find a home or are priced out of homeownership. This is likely making the housing shortage even worse, and also means that individual homeowners sometimes end up competing with investors in bidding wars.”

Fannie Mae: Economy Expected to Heat Up Through the Summer as Inflation Risks Mount

Fannie Mae, Washington, D.C., said expectations for full-year 2021 economic growth were revised upward in May to 7.0 percent, a modest improvement from last month’s projection of 6.8 percent, attributable primarily to stronger-than-expected first quarter real GDP growth and an improved near-term outlook for consumer spending.

Fannie Mae Chief Economist Doug Duncan said the additional strength in consumer spending was previously projected to occur later in 2021 or early 2022, but recent incoming data increasingly points to eagerness on the part of consumers amid continued progress mobilizing COVID-19 vaccinations and waning virus-related restrictions. On housing, Fannie Mae expects home sales in 2021 to increase 6.3 percent as the industry continues to grapple with strong demand and limited supply.

“While most indictors point toward brisk economic growth over the second quarter, the combination of a disappointing employment report and an unexpectedly strong burst of inflation has raised in the minds of many market participants the potential confluence of broad-based supply restraints, very strong house price growth, and the posture of monetary and fiscal policies,” Duncan said. “Supply constraints across multiple sectors are pointing toward ongoing price pressure, most prominently in microchips and the auto sector. This has yet to significantly affect mortgage rates, except to the extent that the rise in the 10-year Treasury since the beginning of the year contains an increased expected inflation component and has prevented mortgage rates from retreating further from their temporary recent peak.”

ATTOM: Median Prices Grow in 75% of Opportunity Zones

ATTOM Data Solutions, Irvine, Calif., released its first-quarter special report analyzing qualified low-income Opportunity Zones established by Congress in the Tax Cuts and Jobs Act of 2017. The report found median home prices increased from the first quarter of 2020 to the first quarter of 2021 in 75 percent of Opportunity Zones and rose by at least 10 percent in two-thirds.

Prices in Opportunity Zones continued to lag far behind the national average in the first quarter. Some 43 percent of zones still had median prices of less than $150,000. But that was down from 50 percent a year earlier as prices inside some of the nation’s poorest communities kept surging ahead with the broader market, even as the 2020 Coronavirus pandemic caused major disruptions in the broader U.S. economy.

“Some of the country’s poorest neighborhoods continued riding the long national boom in home prices during the first quarter of the year, reaping increases that pretty much matched those in more-affluent areas. Those ongoing gains emerged in the latest price data showing values in designated Opportunity Zones rising at about the same pace, or even more, than in other communities,” said Todd Teta, chief product officer with ATTOM Data Solutions. “Home values inside the zones remain quite low compared to the rest of the U.S. But they are far from immune from the boom. That shows continued interest among home buyers in marginal areas and continues to bode well for the redevelopment that Opportunity Zone tax breaks are designed to promote.”

Redfin: For Low-Tax States, Four People Move In For Every Person Who Leaves

For states with the lowest taxes, an average of four people moved in from other parts of the country for every person who left over the past eight years, according to a new report from Redfin, Seattle. The trend is reversed in high-tax states, where an average of 2.5 people left for every person who moved in.

Nevada, Florida, South Carolina and Texas are prime examples of low-tax states that are attracting new residents. Nevada gained more residents than any other state over the past eight years—for every nine people who moved into Nevada from 2013 to 2020, just one person left—and it has the sixth-lowest tax rate in the country. For the national average, the 15 states with the lowest taxes are considered “low-tax states” and the 15 states with the highest taxes are considered “high-tax states.” Hawaii and Alaska are excluded because they’re extreme outliers in terms of migration.

Florida has the seventh-lowest tax rate in the country and gained more residents than all but four other states from 2013 to 2020. For every seven people who moved into Florida, just one person left.

“A lot of people are moving into Jacksonville from places like California and the East Coast because they can work remotely. They figure it’s a pretty good deal to pay no state income tax and live at the beach,” said local Redfin agent Heather Kruayai. “Competition and prices are up and supply is down this year, partly due to those out-of-state buyers who sold homes in expensive markets and are buying homes using cash in Florida.”