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Coming to an End: The Zoom Town Housing Boom
When the COVID-19 pandemic caused the world to shut down in March 2020, much of the population escaped densely-packed urban cores to more spacious suburban and even rural-urban areas. These “Zoom Towns,” named in honor of remote work, were smaller, with more affordable housing than what the larger cities offered. Keeping Econ 101 in mind, higher demand for housing in the Zoom Towns led to housing booms – and higher prices.
But a recent CBRE report, “The Zoom Housing Boom is Coming to an End in the U.S.,” indicated that aggressive Federal Reserve rate hikes, combined with slowing home price appreciation, could be signaling the demise of the Zoom Town housing boom.
Drawing on data from Freddie Mac, CBRE analysts indicated that much of the decline is situated in Western U.S. markets. The reason? “Some of these markets benefitted hugely from the pandemic-era price run-up,” the report said. For instance, an increase in remote work during the 2020-2021 period meant households left expensive markets – like California – for less-expensive ones – like Arizona and Idaho.
But affordability in these and other markets has fallen in the past two years, the report said, as housing prices have increased. For example, in Reno, NV, the typical mortgage-to-payment income ratio is close to twice as high as it was before COVID struck. Phoenix and Las Vegas are also demonstrating stressed affordability. “This is in stark contrast with the Midwest and Northeast, where higher mortgage rates alone have been responsible for the recent erosion of affordability,” the report pointed out.
The report’s authors indicated that decline in affordability isn’t necessarily confined to the Western U.S., predicting that “higher mortgage rates and a slowing job market will eventually erode the Southeast’s strong price gains.” Even as the Federal Reserve will possibly cut interest rates later in 2023 and homebuying will likely pick up, “the ‘Great COVID Migration’ is unlikely to repeat, presaging a slower recovery for once-booming Zoom Towns,” the report noted.
- ◦Sale/Acquisition
- ◦People
- ◦Economy
