One of the unique aspects of the current real estate market is how widespread the strength has been, geographically speaking.
Each month, we run market condition ratings for every core-based statistical area (CBSA) and ZIP code in the U.S., using the most recent sales and active listing data. These ratings are based on an array of internal market indicators, which include trends in sold and active prices, inventory levels, sold and active market times, sold-to-list price ratios, etc. We combine these numerical metrics to come up with a qualitative rating, which ranges from hot to distressed, as follows:
Historically, we expect about two-thirds to four-fifths of all markets to be in the middle three categories. Only a modest amount of markets, typically less than 10%, will show as “hot” or “distressed” at the top or bottom of normal cycles. Figure 1 shows the current distribution of these for approximately 14,000 of the more active ZIP codes in the U.S., with approximately 28% falling into the “hot” category.
Figure 2 below places this into historical context, with a quarterly chart for these categories for single-family homes going back to 2006. Here we express the counts as percentages of the total number of ZIP codes in each category. Note that in normal markets such as 2013 through most of 2020, we see “normal” and “good” for the bulk of all markets. We have never had more than half of all markets in the “strong” or “hot” categories before, nor such a high percentage in the top three.
Figure 3 shows the same historical percentages of these ZIP codes for the “good,” “strong” and “hot” categories. Of particular note is how many ZIP codes are now classified as being in these positive categories compared to the previous peak during the 2005-2006 period. During this time, we had several markets that were classified as “strong” or “hot,” but these were fairly isolated to the east or west coasts, specifically Phoenix and Las Vegas, where sales and speculation, along with easier underwriting, had surged. But today, it seems that much of the entire country is experiencing this sales price surge fueled by low rates, a lack of inventory, the momentum of economic stimulus and buyer preference to move to less dense locations.
The extent of the breadth and ubiquitous of the unusually strong market conditions can be seen in the next two figures, which show ZIP code maps of our single-family market condition ratings, respectively, for February 2006 (Figure 4) and February 2021 (Figure 5). The strong and hot condition ZIP codes are colored in orange and red, respectively, and can be seen in the markets mentioned above for 2006. These conditions are barely noticeable in 2006 but are omnipresent today.
As we have discussed in recent blog posts, the current situation can be best explained by the combination of very low housing inventory levels, low mortgage rates, economic stimulus in the trillions, and the COVID-19 pandemic inducing an increasing number of households to move to more suburban and affordable locations. These market condition indicators suggest a continuing of the strong first half of 2021 for price appreciation, if not beyond.