Housing Heat Index: Which state real estate markets are doing the best, worst during the coronavirus boom?

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Before the coronavirus recession, Utah’s housing market was on fire. Then came the COVID-19 pandemic, which sent residents of Northern California and Seattle in search of affordable homes and more space, and an already-hot market grew hotter.

Dave Robison, president of the Utah Association of Realtors, sums up the activity simply. “It’s insane,” says Robison, a real estate broker in Salt Lake City.

His assessment isn’t just salesmanship. Utah home prices have been soaring as Californians stream into the state. Utah boasts the nation’s strongest pace of job growth, along with rock-bottom unemployment, few mortgage delinquencies and low state and local taxes.

All those factors pushed Utah into first place in Bankrate’s Housing Heat Index for the third quarter of 2020. Residential real estate has boomed during the coronavirus recession, and Utah has emerged as a particularly desirable market.

Other states in the Mountain time zone also are thriving. Montana, Idaho and Arizona rank in the top five of Bankrate’s index.

At the opposite end of the list is Hawaii, a state that has been hit hard by the COVID-19 pandemic. Its tourism industry has ground to a halt, and Hawaii’s jobs picture has darkened.

The 5 states with the hottest housing economies

The Housing Heat Index shows how states’ real estate markets are faring in the coronavirus recession, and how they might perform in the future. To calculate the ranking, Bankrate analyzed six data points: annual home price appreciation reported by the Federal Housing Finance Agency’s Home Price Index; share of mortgages past due as reported by the Mortgage Bankers Association; unemployment and job growth from the U.S. Labor Department; the cost of living index from the Center for Regional Economic Competitiveness; and state-by-state tax burdens as reported by the Tax Foundation.

These five states had the strongest housing economies in the third quarter of 2020:

  1. Utah. Its home values jumped 10.7 percent in the 12-month period that ended Sept. 30, fourth-best among U.S. states, according to the Federal Housing Finance Agency. Utah posted the strongest job growth in the nation from September 2019 to September 2020, according to a Bankrate analysis of Labor Department data. And its tax burden is among the lowest in the nation, according to the Tax Foundation.
  2. Montana. Home prices rose 10 percent in the past year, and Montana has the nation’s lowest level of past-due mortgage payments, according to the Mortgage Bankers Association.
  3. Missouri. A geographical outlier in our top five, Missouri experienced home price appreciation of 9.1 percent, 10th among all states. The job market remains strong, but its strongest suit is its rock-bottom cost of living. Missouri ranked third on the Center for Regional Economic Competitiveness index, making the state a compelling bargain for people moving from pricier markets.
  4. Arizona. The state’s 11.1 percent price appreciation was second-highest in the nation, but Arizona’s ranking was pulled down a bit by an unemployment rate that was in the middle of the pack among U.S. states.
  5. Idaho. Idaho’s home prices have been the hottest in the nation, jumping 14.4 percent in the year ending Sept. 30. And job growth is strong. However, Idaho’s overall ranking was tempered by middle-of-the pack readings for past-due loans, cost of living and taxes.

Buyers seek affordability, space

The prominent rankings of states in the Mountain time zone illustrate a shift in the housing market: Americans are still drawn to healthy labor markets, but even before the coronavirus pandemic, they were growing less willing to pay up to live in places like San Jose, Seattle and Boston.

COVID-19 has pushed many — especially those who can work remotely — to leave the priciest areas for more affordable regions.

“We are seeing the makings of a renewed affordability migration,” says Mark Vitner, senior economist at Wells Fargo. “The beneficiaries of that shift have largely been the midsized metros in the mountain states of the West.”

The median price of a single-family home sold in Silicon Valley during the third quarter was a whopping $1.4 million, according to the National Association of Realtors. The typical price in Salt Lake City was $396,900 — above the national median, but not dramatically so, and just a fraction of the price paid by residents of Northern California.

The price gap has spurred many in high-cost markets to consider moving. The notion is especially appealing to workers who can take their high-wage jobs to areas with lower costs of living.

“People suddenly have the ability to choose where they live, because they’re not tethered to an office,” says Alicia Holdaway, an agent at Summit Sotheby’s International Realty in Draper, Utah, and president of the Salt Lake City Board of Realtors. “We’ve had a net in-migration that’s been happening for years, and that’s only increased.”

Every boom brings its disadvantages, of course. In some cases, new arrivals to Utah’s housing market are flush with cash and willing to bid up prices.

“There’s always a flip side,” Holdaway says. “We’ve been seeing housing affordability become a crisis.”

The 5 states with the coolest housing economies

As a nationwide housing boom rages, every state saw property values increase during the 12 months that ended in September. However, some state economies are struggling with weak job growth and other challenges. The bottom 5 on our index:

  • 47. Nevada. The state’s tourism-heavy economy has performed poorly in 2020. Nevada’s unemployment rate was second-worst in the nation at the end of the third quarter, and home price appreciation has cooled.
  • 48. Illinois. Its double-digit unemployment and tepid price appreciation placed Illinois near the bottom of the pack.
  • 49. Louisiana. It ranks worst in past-due loans, with more than 11 percent of homeowners behind on their mortgage payments. Louisiana also fares poorly on price appreciation, job growth and tax burden.
  • 50. New York. Hit hard by the pandemic, New York is facing a number of headwinds. It ranks next to last in job growth and is near the bottom in unemployment, tax burden and past-due loans.
  • 51. Hawaii. This tourism-dependent state ranks dead last in job growth and unemployment and near the bottom in price appreciation. “The overall picture is one of a very weak economy,” says Carl Bonham, executive director of the University of Hawaii Economic Research Organization.

Methodology

To calculate the Housing Heat Index for the third quarter of 2020, Bankrate analyzed six data points:

  • annual home price appreciation for the third quarter as reported by the Federal Housing Finance Agency’s Home Price Index;
  • share of mortgages past due for the third quarter as reported by the Mortgage Bankers Association;
  • unemployment rate for September from the U.S. Labor Department;
  • annual job growth as of September from the U.S. Labor Department;
  • the cost of living index for 2020 from the Center for Regional Economic Competitiveness;
  • state-by-state tax burdens for the 2020-21 fiscal year as reported by the Tax Foundation.

The index overweights home price appreciation, the metric that most clearly conveys a housing market’s desirability. And the index underweights cost of living and tax burden — home prices can soar despite those factors, but a new wave of remote work makes those factors more relevant than they were in the past.

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