The pandemic shake-up to the traditional norms of why and where Americans move has been one of the biggest stories of 2020. Hundreds of real estate writers, myself included, have been pouring over the analytics all year, looking for patterns and offering projections on the next shoe to drop, where to buy, and whether “Zoom” towns can last.
As counterintuitive as it might sound, COVID-19 has been a transparent reminder that home prices don’t just increase or decrease as a matter of simple supply and demand. Housing is an emotional game, driven as much by fear, greed, and the herd mentality as family values, smart financial planning, and common sense.
It’s also motivated by promise and speculation just like every other asset. Mass transit lines, election outcomes, new taxes, school redistricting, and major development announcements can all begin to skew the perception and value of a neighborhood before a shovel is even in the ground, giving it a momentum of its own.
Pandemics, it turns out, do the same thing—only faster.
COVID-19 has triggered transformations to America’s residential housing market on a compounding scale that we haven’t seen since the Great Depression: from panic selling, urban flight, and worker migrations on a national scale to larger, glacial shifts as a society in where we work, how we interact in public (and private), and the way in which people see and value “space as a service”.
From a social and economic standpoint these sudden changes will have long-term ramifications on both a state and local level that will take years to emerge outwardly beyond the current heat maps and graphs.
As people move in to new neighborhoods and home prices rise, others will be forced out or move. Demographics and politics will shift. So too will businesses, community organizations, religious groups, and schools adapt and evolve. The same thing will happen in reverse to the neighborhoods that people leave: prices will fall, tax revenue will drop, services will suffer, businesses will close, and people will cut their losses and sell. The right to pick and move is one of America’s founding freedoms. The consequences of it are also one of its inevitabilities.
So where exactly have America’s housing markets been growing fastest in 2020? And more importantly why?
According to Zillow’s most recent housing data for 2020 through November 30th, America’s hottest zip codes where housing prices have jumped the most over the past 11 months since the pandemic began aren’t at all where you’d expect them to be.
It’s easy to quickly spot a few clear trends, however.
The topline that jumps out is that only one zip code on the list is located in Southeast or Southwest states like Texas, Florida, Arizona, Georgia, or North Carolina, clustered around low-tax, STEM centers where populations continue to steadily increase. What that suggests is that where people are moving isn’t the same thing as where housing prices are going up—which also includes factors like available housing supply and whether newcomers are renters or homebuyers—though in many cases the two metrics reflect the same broader trends.
“Migration to the Sunbelt has continued in 2020,” explains Jeff Tucker, Senior Economist at Zillow. “But one of the reasons it has been able to flow so steadily for years now without major price appreciation is that the supply of homes is pretty responsive to demand. That means demand translates mostly into a larger quantity of occupied homes, rather than driving up the price of a relatively fixed quantity of existing or historic homes. Regardless of price appreciation, the South still accounts for over half of all new residential sales every one of the last 12 months [hyperlink to recent Census New Residential Sales report]”.
Also jumping out from the data is the fact that six of 15 of America’s fastest growing zip codes according to Zillow are in Ohio and Missouri (three each, respectively), stretched along a roughly 800-mile interstate corridor between Cleveland and Kansas City with Columbus, St. Louis, and Indianapolis in between, and equidistant between Chicago (to the north) and Nashville (to the south). So why here? Why now?
“This is reflective of a broad turnaround in price appreciation patterns that seemed to only accelerate in 2020,” says Tucker. “As the large Millennial generation enters their 30s en masse, they are finding that many coastal markets are too expensive to buy their first homes in and turning renewed attention toward more affordable Midwestern cities such as Columbus, Kansas City, and St. Louis. Millennials are discovering that these heartland metros have really ‘good bones’ in the sense of affordable family-sized houses, good job markets, as well as many of the same big-city attractions like restaurants, bars, sports teams, and cultural institutions that once made places like New York, Seattle and Boston stand out.”
Factor in all of these economic positives—along with geographic proximity to more than 50% of American consumer markets and some of the nation’s best transport and higher education systems—and it’s not surprising that the Midwest has been luring in domestic tech startups, smart manufacturing businesses, international corporations, and venture capital for more than a decade [hyperlink to PLT Silicon Prairie article]. Based on Zillow’s data there’s good reason to believe COVID-19 is simply ossifying permanently what was an already strong affordability vortex inward to the Midwest from the coasts.
Also making Zillow’s list were three zip codes in California, which might seem surprising depending on what you read about California’s taxes, lock downs, and forest fires, and how everyone’s apparently moving to Texas.
What’s even more interesting is where these zip codes are clustered: along a 109-mile arc beginning just west of Sacramento across the temperate central valley west to Mendicino County just north of California’s famed Napa and Sonoma wine regions. Each of these zip codes list has appreciated 23.4% on average since January 2020, with month by month increases virtually in lock step with the trajectory of the pandemic.
“These California zip codes are representative of a trend we’ve seen underway in northern California all year, where affordable towns (by California’s standards) with beautiful natural scenery are getting a surge of demand from people now working remotely at Bay Area firms,” Tucker explains. “Many of those employees don’t want to leave the region entirely, so they are moving or buying second homes within a few hours’ drive of San Francisco to enable occasional trips to the city for work, or weekend visits to friends or family.”
The more simple, indeposable truth—tax free, temperate Texas notwithstanding—is that California is still one of the most desirable places in America to live. The rare combination of moderate weather, stylish quality of life, cross-sector job opportunities, and proximity to the outdoors for tens of millions of people far outweighs the cost of doing business or buying a house—and during a pandemic actually adds value for many who are now working from home for the first time.
Other rural areas within driving distance (or a short jet) to major metropolitan centers with a reasonable cost of living— like Whitefish, MT, Honesdale, PA, and the Hudson Valley and Catskill region north of Manhattan—are seeing similar home appreciation spikes for the same reasons.
The most revealing trend in Zillow’s data suggests a long-lasting shift towards affordability. Outside of the three zip codes in California, the other twelve on Zillow’s list are in single family neighborhoods where average home prices range from $30,000 to $150,000 in small to medium sized cities with an attainable cost-of-living, like Corpus Christi, TX, Johnstown, PA, Columbus, OH, and Birmingham, AL.
Tucker attributes this trend more to macro level factors that have been rippling demographically through the economy for a while rather than just the pandemic, though he’s quick to point out that COVID-19 has likely been an accelerator.
“We have seen especially acute demand increases and therefore price pressure on more affordable homes and neighborhoods this year,” he explains. “A lot of that demand is driven by first-time, 30-something buyers, who are accelerating a move into homeownership in response to ultra-low interest rates that can make mortgage payments cheaper than renting, as well as a desire for more space since more people are working remotely.”
That should give buyers, home builders, real estate brokers, and investors confidence that many of the shifts and patterns we’re seeing in housing right now aren’t just temporary responses to a global pandemic, but here to stay.
“These trends and data reflect just how broad-based the demand for home purchases has been around the country this year,” says Tucker. “That suggests this wave of demand was really driven by national fundamentals and not just the pandemic and a limited supply of listings because existing homeowners have hunkered down.”
Exactly what housing’s new normal looks like once real estate’s great pandemic “re-sorting” finally unspools is anyone’s guess, of course.
Here are America’s fastest growing zip codes by home sale price appreciation according to Zillow’s most recent data (as of November 30th, 2020). 2021 projected growth and national ranking is also included where applicable.
1. 35204 — Birmingham, AL. Up 28.1% (2021 projected 10.3%, #8)
2. 78330 — Agua Dulce (Corpus Christi), TX. Up 27.3% (2021 projected 12.1%, #1)
3. 63140 — Kinloch (St. Louis), MO. Up 26.6% (2021 projected 11.0%, #2)
4. 95435 — Lakeport (Clearlake), CA. Up 23.8% (2021 projected 9.5%, #34)
5. 95494 — Yorkville (Ukiah), CA. Up 23.5%. (2021 9.2%, #67)
6. 07608 — Teterboro (Newark), NJ. Up 23.4% (2021 protected 10.4%, #6)
7. 43211 — Columbus, OH. Up 23.2% (2021 projected 10.1%, #11)
8. 44502 — Youngstown, OH. Up 23.2% (2021 projected 10.8%, #3)
9. 15921 — Beaverdale (Johnstown), PA. Up 23.1% (2021 projected N/A)
10. 95606 — Brooks (Sacramento), CA. Up 23.1% (2021 projected N/A)
11. 64128 — Kansas City, MO. Up 22.6% (2021 projected 9.2%, #62)
12. 04226 — Andover, ME. Up 22.6% (2021 projected 10.7%, #4)
13. — 44104 Cleveland, OH. Up 22.3% (2021 projected N/A)
14. — 29726 McConnells (Charlotte), SC. Up 22.1% (2021 projected 9.9%, #15)
15. — 64130 Kansas City, MO. Up 22.1% (2021 projected N/A)