Home prices in newly built communities are outpacing pricing trends from 2019. According to data from Zonda, 56% of new home communities raised prices in July, while only 39% of new home communities increased pricing in July 2019. Phoenix, Denver, Las Vegas, Sacramento and Riverside are epicenters for new home construction an increased pricing.
“The price increases, especially in the new home market come from the puzzle that the industry was facing pre-pandemic, which is that there are no homes for sale. That has only gotten worse during the pandemic,” Ali Wolf, chief economist at Zonda, tells GlobeSt.com. “If a buyer is looking to take advantage of rates today, there are very few options, especially if they are selective about location.”
The pandemic has actually helped to fuel home sales. It has given many people flexibility to move further away from their jobs, but the pandemic has also helped many people save for a down payment, particularly in more affordable markets. “When people are deciding if they should rent or own, they are generally just looking at the monthly payment,” says Wolf. “In a lot of cases, the monthly payment comes our to be close, if you are looking at rent versus own. The unique thing today is that consumers have been saving money. That is important because if you look at the rent-versus-own equation and you see that the costs are about the same, you still have to come up with closing costs and a down payment. Those are the two things that have held people back from buying homes. The pandemic, however, has changed where we can spend our money, and a lot of people have saved more money than they ever have in their life. That has allowed people to put money toward a down payment and the low mortgage rates are keeping the monthly payment within a reasonable level as well.”
Many of these markets were already seeing inward migration, and the pandemic has accelerated the trend. “Las Vegas and Phoenix have always enjoyed positive in-migration from people in California. During the pandemic, that has been exacerbated for a few reasons,” says Wolf. “First, today, people that want to move don’t want to get on a plane. If you are in California, you are in a five-to-six hour drive from these locations. California buyers also have a lot of equity in their homes to buy more space in these markets. People that can work from anywhere can now get a four-or-five bedroom. It is a big move that is largely related to space.”
Price decreases in major markets like California won’t necessarily reverse the trend. “If prices flatten, supply increases and rates stay low, then people may be less likely to leave because the market dynamics look better for them,” says Wolf. “If home prices come down a lot, then that creates a whole new set of problems, not just for people migrating but also because it could mean that people are going to start losing equity into their homes and consumer confidence could start to unravel. That is really the worst-case scenario. At that point, we are asking, what does this mean for the economy?”
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