While the coronavirus pandemic has slowed, or outright halted, significant portions of the U.S. economy, the housing market is as hot as ever.
More than 20% of homes for sale on the U.S. market are selling above their initial asking price, according to a recent Zillow report. The national data also shows that the median price of residential properties in September 2020 rose more than 13% from the year before, to $277,000.
But those topline figures are just the national snapshot. Zillow collected local data for more than 100 metro regions, and of those, more than three-quarters saw year-over-year price increases greater than the national figure, Grow's analysis finds. And nearly all of those also had more than 20% of homes sell higher than their original asking prices.
The cities seeing this phenomenon run the gamut, from Seattle to Wichita, Kansas, to Columbus, Ohio. In some markets, including upstate New York, ultra-expensive San Francisco, and much-smaller Spokane, Washington, nearly half of the homes that were for sale in September sold for more than their initial listings.
The metrics in question — median home price and percent of homes selling above list price — indicate a competitive housing market, but they shouldn't set off alarm bells, says Chris Glynn, senior economist at Zillow.
While the percentage of homes selling for above their initial price has increased significantly from years past, in most cases, the final prices were within 10% of the original listings. That tracks with normal homebuying behavior, Glynn says, and doesn't indicate that the U.S. overall is experiencing a housing bubble.
"There's a broader base of people who might be willing to pay 1%-5% above the listing price to make sure that they get the home that they want in a very competitive buyer's market," Glynn explains.
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He attributes that broader base, in part, to millennials and Gen Zers who have come into homebuying age and are reevaluating their housing needs (like location and space) as they look toward a future where more of them will be working from home.
Charles Hunt, chief operating officer of Hunt Real Estate Corporation in Buffalo, New York, has noticed that broadening base of younger homebuyers in his business, too.
He speculates that many of them likely grew up in upstate New York but left for work in big, expensive cities in their early adulthoods. Even though rents in those expensive cities are now falling, those who've been unmoored by the pandemic are now being enticed by low mortgage interest rates to return to their old stomping grounds and put down roots.
"They might have planned to live in the big city until they were 40," Hunt says. "Well, now they're 35, and now it's as good a time as any, so they're coming back."
A recent study from the Federal Reserve Bank of Dallas found that only a quarter of Americans are working from home full time, but that's still been enough to change the narrative around homebuying. Now, it's a classic example of supply and demand: An increased number of new buyers and a lower inventory of homes on the market have pushed prices higher.
However, both Glynn and Hunt have noticed prices cooling in the past few weeks, indicating that the market will remain tethered to reality for the longer term.
The real estate market is seasonal: Activity picks up in spring, peaks in late summer, and begins to slow again in the fall as the weather gets colder. This year, however, prices were still peaking in September and October, Glynn says.
In Buffalo, Hunt has noticed some slack in those higher numbers recently, but he suspects that this year's winter slowdown will still be busier than most other years.
"There's still these buyers out there who haven't gotten a house yet," he says. "Our number of first-time buyers and young people buying homes is just through the roof."
Hunt also says that the trends he's seeing aren't unique to his city.
"You could change Buffalo and just replace it with Rochester, Syracuse, Albany, and it's pretty much the same story across the board," he says.
Inventory is tight in large part because of the pandemic. The number of new homes under construction was at a 10-year high at the beginning of 2020, according to the Federal Reserve. However, new housing fell precipitously in the spring when coronavirus shutdowns swept across the country, and while they've recovered significantly since then, as of October, they still weren't at their pre-pandemic levels.
In addition, pandemic uncertainty is making many existing homeowners reluctant to sell their properties, Glynn says. When Zillow surveyed potential sellers as to why they weren't putting their homes on the market, about a third of them cited uncertainty caused by the pandemic as a primary reason.
"We're actually seeing a higher share of potential sellers not selling their home in the way that they have in the past," Glynn explains.
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