Limited housing stock has led people to seek less expensive housing outside of major metro areas
Most people buy homes using a mortgage, and that mortgage comes from a bill that is one of the largest annual expenditures for U.S. households, according to the U.S. Bureau of Labor Statistics. Paying a mortgage has traditionally required workers to commute to an office. That changed after the COVID-19 pandemic took hold in March 2020 and remote work became commonplace for some Americans.
The relationship between employment and housing is closely intertwined. People often relocate for jobs, and it is usually household income that dictates the amount that a mortgage lender will approve. As a result, housing affordability is an essential consideration in the house-hunting process. Often, more affordable homes are located outside of major metros.
Although jobs have traditionally required employees to live close to the office, people are more frequently choosing homes that accommodate remote working. Between 2019 and 2021, the number of people working from home tripled, according to the 2021 American Community Survey released by the U.S. Census Bureau. By 2022, a Gallup poll showed the number of remote or hybrid employees had reached eight in 10.
Smaller Metros Receive Big Interest Thanks to Relative Affordability
Increasing flexibility in work locations led to growth in previously sleepy areas of the country. Research from CoreLogic demonstrated that in-migration was recently concentrated in areas with access to outdoor amenities, and such places recorded significant home equity gains. The Mountain-West region of the U.S. experienced particular growth during the pandemic, with vacation destinations seeing an uptick in housing demand. Desire for exurban areas was amplified as housing costs rose by double digits for the majority of 2022, according to CoreLogic S&P Case-Shiller Indexes released during that period.
During this period of elevated costs, U.S. Census Bureau data showed that people flocked to cities surrounding major metros and job centers in both the South and the West. Such regions were home to the top 15 cities with the largest population gains. Areas like Georgetown and Leander, Texas, are on the outskirts of tech center Austin; and Maricopa and Casa Grande, Arizona, just outside Phoenix, were among the top 10 fastest-growing cities in the U.S.
However, this trend may be reversing. The aforementioned areas saw 2.59%, 2.53%, 1.49% and 2.17% averages in year-over-year price growth, respectively, according to CoreLogic HPI data. These gains are significantly smaller than the nationwide 6.9% year-over-year growth recorded for December 2022. While price deceleration is occurring across the U.S., previously overheated markets such as Idaho have even seen price declines. Idaho was the only state to register an annual home price loss in December (-1%), compared with its 17% gain recorded in April 2022.
The dance between real estate prices and work location requirements remains an intricate balance, and as part of the U.S. workforce gradually returns to offices and the unemployment rate hit its lowest point in 10 years in January 2023, this relationship will continue to play a role in regional housing prices.
“Some exurban regions that became increasingly popular during the COVID-19 pandemic saw prices jump and affordability erode at the time, but these areas are now seeing major corrections,” said CoreLogic Chief Economist Selma Hepp. “And while price deceleration will likely persist into the spring of 2023, when the market will probably see some year-over-year declines, the recent decrease in mortgage rates has stimulated buyer demand and could result in a more optimistic homebuying season than many expected.”
Location May Not Be at the Root of Housing Affordability
While discussions around housing affordability typically follow the correlation between employment, income and housing costs, there is another lens through which one can view the affordable housing crisis.
According to Pete Carroll, executive of public policy for CoreLogic, the affordable housing crisis is a bit of a misnomer. At its core, this crisis is due to a lack of housing inventory with respect to demand. When there’s a lack of supply, home prices naturally continue to rise.
Housing supply has struggled for years, and new construction has been sluggish to meet demand. Annual housing stock growth between 2020 and 2021 was 1%, which resulted in only about 1.3 million units added to the U.S. housing stock, a marginal increase from the 0.8% gain recorded between 2019 and 2020, according to the U.S. Census Bureau.
While there are many regions in the U.S. where new housing units are required, Carroll noted that it is important to provide housing affordability across income levels in order to promote homeownership for all residents. In areas like Harris County, Texas, which partially encompasses the Houston metro, the period between July 2020 and July 2021 saw some of the largest numeric gains in new housing units, according to the Census Bureau. CoreLogic data shows that the Houston metro posted an 8.7% year-over-year price gain in December 2022.
Nevertheless, there are signs that home price gains may continue to cool. “The year 2023 offers some signs of optimism, as mortgage rates have recently taken a step back and could decline further in the new year and there are continued expectations of slowing home prices,” Hepp noted.
To help accelerate home price stabilization and move toward a more affordable market overall, builders can employ GPS and mapping tools at the property level to identify communities that make good candidates for new development or the rehabilitation of existing housing stock. Market listing data helps gauge consumer demand and price points, and construction cost numbers and machine-learning models can accurately assist with determining the cost of developing new homes in each community and give builders a quicker path to return on investment.
However, using these tools to determine risk and glean actionable insights requires uncompromisingly accurate data. Harness CoreLogic’s extensive property insights to anticipate the needs of U.S. residents faced with an ongoing housing shortage, squeezed pocketbooks and new permission from employers to work remotely. Data has the potential to identify where more housing is needed while providing an opportunity to develop a thriving business.