Tight Housing Inventory & Historically-Low Mortgage Rates Fuel the U.S. Housing Recovery
A recent report from Realtor.com indicates that as states slowly reopen their economy, the once-stagnant housing market has begun to surge. Two contributing factors to this rise can be pinpointed to the 30-Year Mortgage Rates hitting historic lows (2.86 percent) and a more competitive housing market due to limited housing inventory — which can be seen as far back as 2019.
These two forces, combined with the pushback of typical housing seasonality behaviors, are leading over half the top 50 U.S. cities to score above the average on the “Housing Market Recovery Index.”
What Is the Housing Recovery Index?
Due to the onset of the COVID-19 pandemic, the Housing Market Recovery Index was created by Realtor.com to measure the level of recovery for a specific area’s housing market. The indexed value combines the following proprietary metrics to create a valued score:
This number is based on Realtor.com’s online search activity and carries a weighted value of 10 percent of the overall indexed value.
The company gathers this information from the median list price of homes being sold in the area and possesses a weighted value of 30 percent of the overall indexed value.
Based on new listings, this data point holds a 30 percent weighted value of the overall indexed value.
Pace of Sales
This metric is sourced from the median time homes in the area are on the market and possesses a 30 percent weighted value of the overall indexed value.
HD (.1) + HP (.3) + HS (.3) + PS (.3)=Housing Recovery Index
The overall index is baselined at 100 and is the score that all cities initially received in accordance with the state of their housing market in January 2020. Scores above the 100 baseline indicate a stronger housing market, while scores lower than 100 demonstrate a weaker housing market when compared to January 2020 numbers.
Where Are Real Estate Markets Recovering?
Oceanside cities in the West and the Northeast are seeing massive gains. Megalopolises like New York, Los Angeles, and Seattle are seeing this recovery due to several reasons:
- Stable real estate markets
- First epicenters of coronavirus with quick government responses
- Historically strong economies that are starting to reopen
- Housing markets that were poised to rise pre-COVID-19
When you add in the increased buying power from lower mortgage rates and delayed demand from spring home buying seasonality, a higher level of recovery is the result.
Where Are Real Estate Markets Lagging?
Landlocked, smaller cities in the South and Midwest are seeing slower recovery scores than the index. These emerging markets include Oklahoma City, Richmond, and Columbus. A few reasons why recovery is slow include:
- Recent epicenters of the coronavirus
- Fast-growing but not as large housing markets
These two potential reasons are part of a bigger problem that is stymying the real estate recovery in these cities. However, as virus outbreaks diminish, the housing markets in these places should rebound like the rest of the country.
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