Elaine Ng, Region 9 Economic and Market Analysis Field Director, Discusses Housing Market Trends During the COVID-19 Pandemic
Elaine Ng, field director for the Economic and Market Analysis Division in PD&R.
Hello! For those who don’t know me, I am the new field director for the Economic and Market Analysis Division (EMAD) in Region 9, in the Office of Policy Development and Research (PD&R). The field economists in EMAD are the local housing market experts who produce publicly available housing market reports, including the Comprehensive Housing Market Analyses, Regional Narratives, and Housing Market Profiles for the U.S. Housing Market Conditions website. My team produces these reports for HUD’s Pacific region, which covers Arizona, California, Hawaii, and Nevada. Field economists also support other HUD departments outside of PD&R; most notably, we review market conditions relating to Federal Housing Administration multifamily mortgage insurance applications for HUD’s Office of Housing.
Before arriving at PD&R, I worked for several years at a private economic consulting firm in the Bay Area that specialized in providing expert economic testimony for antitrust litigation and mergers and acquisitions. I joined PD&R as a field economist based in HUD’s San Francisco regional office in September 2010, and I became the field director in September 2021. I feel fortunate to be working alongside 35 intelligent and capable field economists from across the nation who keep PD&R closely connected to local communities.
Sales Housing Markets Conditions During the COVID-19 Pandemic
Part of that connection to our local communities derives from our research on economic, demographic, and housing market trends that affect the demand for housing in local markets. During my tenure at HUD, two shocks have significantly affected the nation’s housing markets: first, the Great Recession and the resulting foreclosure crisis, and second, the COVID-19 pandemic. Both events caused notable shifts in housing market dynamics. In the case of COVID-19, the widespread adoption of remote work opportunities to curtail the spread of the virus altered location preferences and views on homeownership versus renting. In the early stages of the pandemic, home sales declined in most of the nation’s large metropolitan areas as potential homebuyers and sellers sheltered in place, adhering to social distancing guidelines. During the 12 months ending in August 2020, the number of home sales decreased in all but 6 of the largest 25 metropolitan areas. Five metropolitan areas experienced double-digit declines, including New York-Newark-Jersey City, Detroit-Warren-Dearborn, and San Francisco-Oakland-Hayward (Zonda).
As it became increasingly clear that the pandemic would last longer than a few months, and some large corporations began announcing permanent or extended remote work opportunities, home sales increased significantly in most of the 25 largest metropolitan areas in the nation. The number of homes sold increased in all but one of the largest 25 metropolitan areas during the 12 months ending in August 2021, with increases of at least 10 percent in 21 metropolitan areas. The fastest increase, almost 43 percent, was in the San Francisco-Oakland-Hayward metropolitan area, where sales had declined more than 10 percent during the previous year. The Baltimore-Columbia-Towson metropolitan area was the only area where the number of home sales didn’t increase during the 12 months ending in August 2021, remaining stable compared with the previous 12 months. The impact of the rising popularity of telework can be seen in faster increases in home sales activity outside of central city and downtown areas. Home sales increased at faster rates in areas outside of the central cities in 19 of the nation’s 25 largest metropolitan areas during the 12 months ending in August 2021. The largest difference was in the San Antonio-New Braunfels metropolitan area, where home sales increased only 6 percent in the central city compared with a 41 percent increase in the remainder of the metropolitan area. In three metropolitan areas — Baltimore-Columbia-Towson, Philadelphia-Camden-Wilmington, and St. Louis — sales in the central city were down from a year ago, but sales in the remainder of the metropolitan area increased.
Limited new construction activity because of labor and materials shortages contributed to declining levels of for-sale inventory and significant home sales price growth during the most recent 12 months compared with slower price gains during the 12 months ending in August 2020. Average sales price increases ranged from slightly more than 9 percent in the San Antonio-New Braunfels metropolitan area to more than 20 percent in the Seattle-Tacoma-Bellevue, Phoenix-Mesa-Scottsdale, and Miami-Fort Lauderdale-West Palm Beach metropolitan areas.
Shifting preferences away from urban centers also affected average home sales price trends within metropolitan areas. During the 12 months ending August 2021, the average home sales price increased in the central cities of 23 of the nation’s largest 25 metropolitan areas. However, 19 of those increases were smaller than the rate of price growth in the remainder of the metropolitan area.
Apartment Housing Markets Conditions During the COVID-19 Pandemic
As with sales market conditions, many of the rental markets in the nation’s largest 25 metropolitan areas also softened during 2020 but have since tightened. The apartment vacancy rate increased between the third quarter of 2019 and the third quarter of 2020 in all but one of the nation’s 25 largest metropolitan areas (RealPage, Inc.). Riverside-San Bernardino-Ontario was the only one of the largest 25 metropolitan areas where the apartment vacancy rate decreased, falling from 3.2 percent in the third quarter of 2020 to 2.6 percent in the third quarter of 2021. During the third quarter of 2021, however, the apartment vacancy rate declined in all of the largest 25 metropolitan areas. Declines ranged from 0.6 percentage points in Detroit-Warren-Dearborn (from 2.7 to 2.1 percent) to 2.5-percentage points in Orlando-Kissimmee-Sanford (from 4.9 to 2.4 percent).
The impact of the early stage of the pandemic on rental markets, like sales markets, was concentrated in the downtown/central city submarkets. Apartment vacancy rates were higher in both the downtown and suburban submarkets in most of the nation’s 25 largest metropolitan areas during the third quarter of 2020 than during the third quarter of 2019, with larger increases in the downtown submarkets of 23 metropolitan areas.
Apartment markets in both types of submarkets have since tightened, with apartment vacancy rates declining in all 25 of the largest metropolitan areas during the third quarter of 2021. Contrary to some stories of a mass exodus from downtowns and urban centers, however, vacancy rate declines were larger in all 25 downtown submarkets than in the corresponding suburban submarkets. Because of those declines, the apartment vacancy rate is now lower than the prepandemic rate in 14 of the 25 downtown submarkets.
Although rents remain higher in and around central cities, which generally have more urban amenities that attract renters, sharply rising rents in suburban submarkets may partly explain the past year’s rapid declines in apartment vacancy rates in downtown apartment markets. Average rents increased in most of the nation’s largest 25 metropolitan areas during the third quarter of 2021, although in 18 of these areas, rents rose at a faster rate in the suburban submarkets than in the central cities.
By comparison, average asking rents declined in 12 of the 25 largest metropolitan areas during the third quarter of 2020, with faster declines in 10 of the 12 downtown submarkets. Rents increased in 11 of the 13 metropolitan areas; of these, growth was driven solely by increasing rents in the suburban submarkets in 9 of them. Average rents increased in only three downtown submarkets during the third quarter of 2020, and Riverside-San Bernardino-Ontario and Minneapolis-St. Paul-Bloomington were the only metropolitan areas where rent growth was faster in the downtown submarket than in the suburban submarket.