Maybe you really can’t go home again: COVID-19’s impact on the housing market

The COVID-19 pandemic changed how we worked, learned, and chose to interact with others and these, in turn, caused some of those who could afford it to rethink where they live. It precipitated a substantial exodus from urban areas in mid-2020 as people began to consider moving to less congested areas or to be able to afford housing that could accommodate the entire household’s need to work and take classes remotely. Now, thanks to vaccines, restrictions (self-imposed or mandated) have largely disappeared, and some may be revisiting their decision.

However, those contemplating a return to their former environs and looking to purchase a home might reconsider as they will likely have to deal with higher housing prices and mortgage rates, and limited housing supply. The cities and states that lost population during the pandemic might not find it easy to get these domestic migrants (and their dollars) back, which might dim their fiscal outlooks.

Rise in metropolitan outmigration after COVID-19

The US population growth rate has been on a downward trend since the 1990s, but higher death rates and continued reduction in international migration and births reduced population growth in 2021 to only 0.1%—the lowest growth rate in US history, according to the Census Bureau.¹ However, most of the differences in population growth among the states are being driven by internal migration. Among the 17 states where population declined over the year, losses were greatest in New York (–1.6%), Illinois (–0.9%), Hawaii (–0.7%), and California (–0.7%).² Although we do not have direct evidence of why people moved out of these states, the New York case may offer some insight. The pace of population growth in nearby Connecticut, Maine, New Hampshire, and Vermont accelerated in 2021 over their 2010–2020 trend,³ which suggests people are leaving New York in response to the pandemic. In 2021, the two states with the fastest population growth were Idaho and Utah, growing by 2.9% and 1.7%, respectively; this is a continuation of the trend of fast growth seen over the prior decade as folks move in from other states.

A recent Brookings study looks at the same Census data with a focus on metropolitan versus nonmetropolitan areas, including a further breakout of metropolitan into major metropolitan areas (the 56 Metropolitan Statistical Areas (MSAs) with populations more than 1 million), and “other” metropolitan areas (the remaining 365 MSAs).⁴ As in the differences among the states, domestic migration is the primary determinant of differences in population growth among these groups.

Overall, the major MSAs had been experiencing net-negative domestic migration since 2014–2015, but the rate of exodus more than doubled during 2020–2021. The study states, “Thirty-one experienced domestic outmigration in 2020–21, and 35 showed either greater net outmigration or smaller net inmigration than in 2019–20. Among several major metro areas that experienced domestic inmigration in 2020–21 (such as Phoenix, Dallas, Austin, Charlotte, and Atlanta), those migration levels were smaller than in 2019–20.”⁵ Within these major MSAs, the population losses were concentrated in the urban core counties; their suburban countries saw a jump in inward domestic migration. The smaller MSAs and nonmetro areas were the recipients of the remainder of the domestic migration.⁶

In only two years, a very different housing market emerges

Many choosing to make a move during the pandemic were renters—rental vacancy rates rose in states such as New York and California between 2020 and 2021.⁷ However, some of those migrating renters became homeowners with the move, as reflected in the rise in homeownership rates.⁸ This led to a boom in existing home sales starting in mid-2020, which only came to an end in January 2022 when mortgage rates began rising. The slowing of sales increased existing home inventories after reaching a low of 1.6 months in January 2022. However, this increase in inventories has not stopped existing home prices from continuing to rise at an increasing rate. Between January 2018 and January 2020, the price of single-family existing homes rose by 11.0%. According to the most recent data, between August 2020 and August 2022, the corresponding price increase was 25.9%.⁹

The major MSAs experiencing the highest increase in population between 2020 and 2021 were Dallas, Phoenix, Houston, Austin, and Riverside.¹⁰ These cities showed a noticeable uptick in the pace of home price increases from 2019 to 2020 and 2021 (figure 1). Interestingly, the MSAs experiencing the largest loss of population did not see declines in the median sales price of existing single-family homes over the same time span; rather, home prices continued to rise. This could be reflective of any number of factors, including increased demand from shifts from inner-city condos to nearby suburban detached homes.