In Boise and Grand Rapids, the Housing Market Looks Red Hot
The housing market is booming. Just not in the places you might expect.
Homes for sale in small to midsize cities like Boise, Idaho; South Bend, Ind.; Columbia, Mo.; and Youngstown, Ohio, are enjoying a sustained upswing.
During the crucial spring selling season, only of metropolitan areas had double-digit annual price increases, down from two dozen in the second quarter of , according to the National Association of Realtors. Nearly all of those high-growth areas were in less-expensive, smaller markets, where home prices are now rising faster than incomes, inventory levels are shrinking, and bidding wars are breaking out, especially for starter homes.
“We’ve seen this shift to the center of the country,” said Glenn Kelman, chief executive of Redfin, a Seattle-based real-estate brokerage. “It used to be flyover country, and now it’s saving our bacon.”
The national housing market and the economy have been on separate paths for most of the past year. Jobs have been plentiful and wage growth is picking up, while mortgage rates are at their lowest level in nearly three years. But existing-home sales are down % this year compared with last, according to an analysis of National Association of Realtors data by Ted Jones, chief economist at Stewart Title Guaranty Co.
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That divergence has stumped economists. But the growing strength of housing markets in the heartland suggests that strong economic fundamentals are helping, just not where prices have already grown faster than incomes for seven years.
“Some of those smaller markets never saw a big boom coming out of the recession,” said Ralph McLaughlin, deputy chief economist at CoreLogic . “This may be a rising tide finally reaching some of these secondary markets.”
Danielle Parent, a Redfin agent in Cleveland, said she is seeing an influx of buyers from expensive coastal cities. Home prices in Cleveland rose nearly % in June compared with a year earlier, according to Redfin. That was driven by a shortage of inventory, as the number of homes for sale declined nearly %.
“Every time I think my buyers have just a minute to think about buying a house, if you get the price right, it immediately sells,” Ms. Parent said. “It’s still very, very competitive.”
Julia Tiersky and Brian Tiersky spent about a decade in Seattle before deciding last month to move back to Cleveland, where Ms. Tiersky is from. The couple said lower housing and child-care costs sold them on the move.
In Hudson, a suburb of Cleveland where the couple decided to settle, they were surprised at how competitive the market was. “We’d find something we like and think we’ll go out in a couple of weeks. By the time we did that, things would be off the market,” Tiersky said.
When the couple found the right home, with a treehouse and proximity to Hudson’s downtown, Ms. Tiersky took a redeye flight from Seattle and went straight from the airport to see it. They made an offer a few hours later.
A long rally in hot spots like the Bay Area and Seattle has run out of gas. These markets are experiencing their first price declines in years, as homes linger on the market for weeks and would-be buyers balk at the still-expensive price tags.
It is unclear whether the sales growth in smaller U.S. cities will be enough to prop up the overall housing market, since slower growth or price declines in the biggest metro areas have weighed heavily on national home sales figures.
Many Midwestern markets have heated up so quickly they are now experiencing some of the downsides of a hot market: shortages of inventory and rising prices that are blocking first-time buyers from entering the market.
Anthony West, a Realtor in Kansas City, Mo., said the rise in competition and lack of inventory have prolonged the buying process for millennials and increased prices of lower-cost homes.
He said younger buyers are having to make compromises, such as choosing an inconvenient location, forgoing the inspection period, or stretching themselves financially to pay for homes.
“That’s got me concerned for them down the road as to will they recoup those extra funds that they purchased this property for?” West said.
Michelle Gordon, a Realtor in Grand Rapids, Mich., said there is strong demand for entry-level homes, especially with lower mortgage rates. “We have some buyers coming out of the woodwork,” she said.
Many Midwestern markets have heated up so quickly they are now experiencing some of the downsides of a hot market: shortages of inventory and rising prices that are blocking first-time buyers from entering the market. For-sale signs line a street in a subdivision in Meridian, Idaho, near Boise, last year. Kyle Green for The Wall Street Journal
Nathan Thornton, a -year-old general manager at a manufacturing company, and his wife, Clare Thornton, recently bought their third home in Grand Rapids since .
The couple, who have three boys under years old, were desperate for a second bathroom. They looked for a year-and-a-half but kept losing out in bidding wars. “There were a lot of over-ask cash offers that were gobbling everything up,” Thornton said.
Eventually, the couple found the perfect four-bedroom house with an attached garage and two bathrooms. Then they sold their own home in hours.
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