Home prices will recover quickest in cities with many IT, finance jobs
As the country reopens, the housing market continues to rebound from coronavirus shutdowns. And while economic uncertainties remain and some economists project that home prices will decline in 2020, the fastest recoveries are expected in metro areas that have resilient job markets, according to Unison.
Unison's report shows that markets that feature a large number of financial services and IT jobs are more insulated from distress than those dependent on hospitality, manufacturing and retail. Metro areas in the latter category face longer roads of recovery.
"Historically, cities with high concentrations of jobs in resilient industrial sectors experience the quickest recovery in housing prices," Brodie Gay, Unison's vice president of research, said in a press release.
Of the 20 major cities in the S&P CoreLogic Case-Shiller index Unison analyzed, Las Vegas, Miami, Detroit and San Diego have the most vulnerability due to economies that lean heavily on leisure or industrial sectors. Conversely, tech, financial and governmental giants like Boston, Washington, D.C., New York and San Francisco should see the swiftest recoveries.
But widespread remote work due to quarantine measures may prove to be a disruptor in more ways than one. Many have questioned the future of the commercial office building and Unison's advice for investors reflects the changing dynamic.
"Real estate capital is beginning a secular rotation out of undiversified retail and commercial spaces like malls and large office buildings. Investing in diversified residential real estate, with a tilt toward resilient cities, will provide institutional investors better, more balanced exposure to the U.S. economy."
Overall outlooks for the country remain cloudy. The latest government-sponsored enterprise forecasts offered mixed bags, given the large number of uncertainties at play.
In its June outlook, Freddie Mac projected home prices to grow annually by 2.3% in 2020 and 0.4% in 2021 — a decline from paces of 5.2% in 2018 and 4.2% in 2019. The GSE estimated the average 30-year fixed mortgage rate to settle at 3.4% for 2020 and 3.2% for 2021. It averaged 4.6% in 2018 and 4% in 2019.
"While the housing market undoubtedly has felt the effects of COVID-19, we are encouraged by recent homebuyer demand as well as mortgage rates that should remain at record lows for the foreseeable future," said Sam Khater, Freddie Mac’s chief economist. "However, beyond the initial rebound in the housing market, the economic and housing outlook will be heavily impacted by the prospects for a vaccine, fiscal policy and the underlying organic recovery of the economy which, in combination, make the outlook highly uncertain."
Fannie Mae's June forecast shows it expects home sales to fall 10.4% year-over-year before bouncing back at a growth rate of 7.1% in 2021. Annual sales grew 1.1% in 2019.
Despite the lowered sales, mortgage volume should be buoyed by refinances. Boosted by historically low interest rates, Fannie projects about 3 million single-family originations in 2020, with nearly 1.8 million refis. About 2.3 million originations with 1 million refis took place in 2019 and over 2.3 million and 1.1 million are expected in 2021.
"Housing appears to be providing some support to the overall economy, very much in line with our long-stated view that the slower growth of supply compared to demand would likely limit any downside risk to the housing sector," said Doug Duncan, Fannie Mae senior vice president and chief economist.
"However, it remains to be seen whether the recent multi-week spike in purchase mortgage activity is driven more by a short-term shift in the timing of purchase decisions or by remote working and social distancing measures sparking a longer-term change in housing preferences, which could sustainably elevate housing sales. We also expect the extremely low mortgage rate environment to contribute to historically high levels of refinancing activity as household balance sheets and incomes improve."