Grace and Chad Vredingburgh knew they would never be able to buy the home in suburban Austin, Texas, before they even reached the cherry-red front door.
The couple had been house-hunting for two months. Grace is an Austin native, and Chad has lived there for 13 years. They wanted to buy a family home before having children.
But the Austin real estate market, heating up for years, exploded during the pandemic. Houses were flying off the market in two days, and the median sale price shot up by almost a quarter in 12 months, fuelled by a growing population, including cash-rich, out-of-state buyers.
The city’s skyline, traffic and number of out-of-state licence plates on the roads have all risen, Chad says. Restaurants that residents could walk into five years ago require reservations now.
The Vredingburghs were waiting in line with more than 10 other prospective buyers to each tour the property for 15 minutes. Then a twenty-something wearing a Gucci belt pulled up in a gold Lexus with California licence plates. He waited in line, talking loudly on his mobile phone, negotiating a deal to buy the four-bedroom, three-bathroom property.
“It was very clear that person would never be living in that house,” Chad says. Ultimately, the house received 23 offers and sold for more than $400,000 in cash — $100,000 more than the list price. “For me, there’s some peace in it, because it’s not like we just missed it. We never had a chance.”
“It was a really beautiful home,” Grace says. “That was the first really crushing feeling.”
Around the US, more people are looking to buy homes outside their current metro area. The influx has driven prices upward in targeted cities, and real estate agents and house-hunters say the increase has made it harder for longtime residents to buy homes. One man in Bozeman, Montana, even resorted to wearing a sign begging someone to sell him a house. (It worked.)
The pandemic and the rise of remote work have accelerated the decades-long trend of US residents migrating from larger, more expensive, often colder cities to cheaper and warmer locales.
Online property brokerage Redfin found that nationwide, 31 per cent of 2m site users in January and February searched for properties outside their current location, compared with 26 per cent for the same period a year ago. Redfin used IP addresses to determine users’ locations and limited its sample to those who viewed at least 10 homes in a given metro area, with 80 per cent of their searches focused there.
The top five cities Redfin users are considering leaving are New York, San Francisco, Los Angeles, Washington, DC, and Seattle. The five most popular relocation prospects include Phoenix, Austin, Las Vegas, Dallas and Miami.
The share of Redfin users looking to move to Austin from elsewhere has particularly increased: In January and February of 2020, 33 per cent of the home searches in Austin came from Redfin users located outside that metro area. For the same period a year later, that percentage had grown to 44 per cent. Most were looking to move from San Francisco.
The median price of a home in Austin hit an all-time high in February, according to the Austin Board of Realtors, rising 24 per cent over 12 months to $491,000. It already had risen 14 per cent from February 2019 to February 2020.
Katie Dochen, a real estate agent and fourth-generation Austinite, says the rising prices have left her feeling conflicted. The rush of out-of-state buyers is good for business, but it is “heartbreaking” to watch her own friends be priced out of the market.
“Bay Area to Austin has definitely been a trend, but now it’s on steroids,” she says. “People sold their little shack in San Francisco for a million [dollars], and they come here and they’re like, ‘This is cheap.’ Whereas to us, prices are skyrocketing.”
Phoenix was the most popular destination for Redfin users looking to move away from expensive coastal cities. In January and February, 10,471 more searchers looked to move into the city than leave, with Los Angeles as the top origin point.
“There’s probably between a 25 to 30 per cent increase of California buyers showing up here,” says Chris Altman, managing broker at Keller Williams Realty Biltmore Partners in Phoenix. “Generally, we have a comparable climate and their jobs have become more transportable,” he says, adding that while the city has always drawn buyers from out of state, the pandemic “gave [them] a turbo boost”.
Typically, Altman’s company would have 60 to 90 days’ worth of inventory for homes priced $400,000-$600,000 at any one time, but now the velocity of activity is such that there are “about two weeks’ worth of inventory”, he says.
South-west Florida has seen a similar acceleration, with the median home price in March rising 24 per cent from a year earlier to $345,000. Jason Jakus, broker and owner of NextHome Advisors, says in the past year he has seen 60 people permanently relocate while continuing to work remotely, a type of client he has never seen before.
Cape Coral and Fort Myers, long popular with Midwesterners, also are drawing from different parts of the US. Jakus says he’d sold maybe three homes to Californians in his 16 years in the industry, before selling five in the past seven months.
The influx is creating an inventory shortage, he says, which means “people who need to buy a bigger house because mom is having twins are having a hard time finding homes”.
James and Brittany Underwood are in a similar situation. The Fort Myers couple, with a 10-month-old and plans for another child, were at the limit of their space. But after eight months of looking, they abandoned the search for a four-bedroom property because home values seemed inflated.
“It’s difficult to justify the sticker price on these homes that we’ve seen five years prior going for $200,000, and now suddenly they’re twice as much,” he says. “We could afford it, but . . . I don’t think that the home values can sustain this.”
Sixteen hours north, the Eastern Shore of Maryland is seeing the same trend. Redfin’s sample shows that the percentage of users in Washington, DC looking at properties in Salisbury, Maryland, ticked upward from 12 per cent to 15 per cent in the past year. Salisbury is two hours away from the US capital and less than three to Philadelphia.
Real estate agent Bob Heim says the market is seeing an increase in young professionals who are working remotely. Multiple offers are common now, and homes are selling for more than the asking price.
“It all depends on what side you’re on,” he says. “It’s kind of frustrating for the buyers. The sellers are being pleasantly surprised every day.”
He added that he still advises sellers that, despite their advantage, they need to proffer a respectable property: “You can’t call a hamburger a steak and get filet mignon prices.”
Except possibly in Austin, where Dochen recalled one ordinary property in suburban Round Rock being listed for less than $300,000, receiving 97 offers and closing for more than $500,000.
The Vredingburghs say they started their search, as everyone does, scrolling through online listings and daydreaming. Dochen, a family friend, sat them down for what they jokingly refer to as “the wet blanket talk”.
While acknowledging their good fortune to be able to buy at all, Grace notes: “Growing up in Austin, I used to think Pflugerville [about 15 miles from the city’s downtown] was light-years away, and we can’t even live in Pflugerville.” The radius of the couple’s search widened as the months passed, which is how they found themselves 33 miles away in Bastrop, a town with a population under 9,000.
There was a record shop in Bastrop’s downtown, which seemed promising. They started talking to the lesbian couple who owned it, and the women connected them to a builder. On March 22, they struck a deal for a new-build home with three bedrooms, two bathrooms and a backyard for $340,000.
The house is “night and day from what we were thinking six months ago”, Chad says, but they get the keys in July, and they’re excited.
Pension fund follows the rush to smaller cities
At least one institutional investor has sought to capitalise on the movement from large coastal cities since the start of the Covid-19 pandemic, writes Steff Chavez.
Since September 2020, the $61.8bn Tennessee Consolidated Retirement System has invested up to $575m into single and multifamily homes in the US Sun Belt and secondary cities such as Phoenix, Dallas, Atlanta and Miami.
During a December investment committee meeting, senior portfolio manager Matthew Haitas said the main driver is the “strong demand from millennials”, who are now growing up, starting families and seeking space in suburbia. The real estate team expects the trend to continue, potentially opening the door for further investments.
However, in an interview with FT Specialist publication MandateWire, chief investment officer Michael Brakebill questioned the long-term viability of this real estate push away from megacities such as New York to suburban areas such as Westchester County.
“The thing I’ve been thinking about is [whether] everyone who moved out to Westchester is going to say: ‘I don’t like Westchester, I want to be back in the city.’”
Listen to our podcast, Culture Call, where FT editors and special guests discuss life and art in the time of coronavirus. Subscribe on Apple, Spotify, or wherever you listen.
Data visualisation by Steven Bernard