Big ups, big downs widen the home price gap across the U.S.
A new Redfin report found that the difference in home price growth (or declines) among metro areas is nearly the largest it's been in three decades.
Key points:
- The most extreme price difference are between Miami, which has seen prices rise 10.9% year-over-year, and San Francisco, where prices have dropped 10.1%.
- The gap could start narrowing as elevated interest rates continue to put the brakes on the overall market.
The common refrain that all real estate is local seems to be truer than ever right now, as national data simply doesn't tell the whole story.
Home prices are going in very different directions, depending on which city you are looking at. A Redfin study found that metro-to-metro variation remains very high as the amount of cooling in the real estate market is happening unevenly.
The biggest gap in price changes is between Miami and San Francisco. While Miami is experiencing a boom — home prices have risen 10.9% in the past year — San Francisco prices have gone bust, dropping 10.1%. The 21-percentage-point difference is one of the largest in three decades, according to Redfin.
"The fact that Miami prices are holding up well despite the national pullback in homebuying suggests the relative popularity of Florida is here to stay," said Redfin's Deputy Chief Economist Taylor Marr.
Miami is a unique market because it has a high percentage of buyers who pay all-cash for a home, avoiding elevated interest rates that have been a barrier for some buyers and slowed the housing market, according to Ines Hegedus-Garcia, Miami Association of Realtors board chair.
Other extremes in price changes year-over-year include Tampa (up 7.7%) and Atlanta (up 6.6%) vs. Seattle (down 9.4%) and San Diego (down 4.2%).
Remote work continues to drive housing decisions
The big difference in home-price dynamics across the U.S. may also be a reflection of a longer-term shift in where people want to live.
"Even though some employees are returning to offices at least a few days a week, the pandemic has given many Americans much more freedom on where they choose to live — and a lot of them are choosing places where shelling out $1.5 million for a run-of-the-mill home isn't the norm," said Marr.
Rick Sharga, president and CEO of the consulting firm CJ Patrick Company, agreed that part of this divide in home prices is due to remote work, or a willingness to change jobs altogether. People who are able to move are opting out of high-cost or high-tax states and heading to states with a lower cost of living.
"Probably under-reported are the number of people moving to lower-priced states even though their job doesn't permit them to work from home — but they want to be homeowners, and are fleeing to markets where they can find another job and afford to buy a house," Sharga said.
These big variations in prices by metro area tend to occur when significant changes are happening in the overall market. Redfin noted that during the Great Recession, home prices were falling in nearly all the markets, but at different rates. For example, home prices fell 35.2% year over year in Phoenix, but just 4.6% in Dallas.
"Extreme moments in history lead to extreme swings in home prices," said Marr. "During economic boom times, when many Americans are flush with cash, homebuying demand soars because many people have the means to buy both primary and vacation homes and perhaps move from one part of the country to another. That pushes prices up in certain places and grabs the attention of home flippers, who jump into the ring and push prices up even further."
It's not all local, though
While local market conditions have a significant effect on home prices, studies have shown that national shocks also make an impact.
"Business cycle effects and macroeconomic conditions, such as interest rates, employment and economic growth, and other factors which determine demand and supply of housing, also influence prices," noted the Federal Reserve Bank of Chicago in a research paper, which also pointed to foreclosures during the Great Recession as a factor that impacted home prices many years later.
The Redfin report noted that there are signs that the extreme price variations will start narrowing. Rising interest rates initially caused some whiplash in the market, but now that they have been in place for nearly a year, sales have slowed across the board, which will mean less variation in price changes across the U.S.
"When there's a recession like there was in 2009, or economic uncertainty and fears of a recession like in 2023, homebuyers quickly pull back and prices swing down in some areas," Marr said.