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The hottest housing markets of 2020

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Jeff Ostrowski, Bankrate.com analyst, joined Yahoo Finance Live to discuss Bankrate's latest housing heat index and the hottest housing markets in Q4 2020.

Video Transcript

ADAM SHAPIRO: But that kind of money, you could probably buy a new house. Don't ask me where, though, because the prices are going up through the roof, right? Jeff Ostrowski is Bankrate.com's analyst, and he's joining us now to talk about the hot housing market. And some places that for years might have been not the popular, must be destinations are now the it destinations. I'm talking about Utah and places in the Midwest that people used to call flyover country. Can you tell us more?

JEFF OSTROWSKI: Yeah, flyover country is hot all of a sudden. So, yeah, as you mentioned, Utah is the hottest state in the country, according to our latest housing heat index. And this looks at the fourth quarter housing market. And you see the list there. So those are the top five-- Utah, Montana, surprisingly, Nebraska and Indiana. Idaho has been hot for a while.

But the Mountain West states have really been luring a lot of buyers from California, you know, people who realize they can sell their three, two in Silicon Valley for a million dollars and and go buy something bigger and newer in another state for half the price or a third of the price.

So, yeah, that's-- this housing market has really changed a lot in the past year now that people can work from home. So you've got workers in California, in New York, who can take their six figure paychecks and move to a much cheaper housing market.

SEANA SMITH: Jeff, how much of it has to do with the employment picture overall, just in terms of the low employment numbers? I saw a correlation there with some of your top destinations. And I guess, the opportunity that that provides and for people who are looking to move to those locations.

JEFF OSTROWSKI: Right, that's part of it, although the-- traditionally, the local labor market and the local real estate market were really closely tied. But that's not the case so much anymore. So you've got a lot of people moving to Utah, and they've got their-- the big proceeds they pocketed from selling their house in San Francisco or Seattle. And in many cases, they've got their jobs that they're now working virtually.

So, you know, traditionally, the local wages and local home prices were linked very closely. But that relationship is not the same anymore. And so that's why-- that's part of the reason we're seeing really strong price appreciation in some of these markets.

ADAM SHAPIRO: Jeff, part of it, too, is that we've got household formation by the generation that had to delay it for so long, right? The millennials going into the market. But I bring that in because there are some people who are saying these prices will start to fall as the pandemic gives back and we get people vaccinated, but also as the housing boom that-- or building boom is going to take place gets ramped up. You think those people are wrong?

JEFF OSTROWSKI: Well, I'll echo the barbecue chef's comments about crystal balls-- I really don't know. I mean, it's just so hard to forecast the future of home prices. We learned that during the bubble of 2005 and 2006. And we're learning it again now. I mean, nine months ago, everyone was bracing for another housing crash, and instead, we've got a housing boom. But yeah, you do wonder how long prices can keep going straight up, I mean, especially now that mortgage rates are starting to rise a bit, so that's going to put some pressure on prices. But who knows? It's really difficult to predict what's going to happen with the housing market.

SEANA SMITH: Well, Jeff, speaking of predictions, though, I guess, are you seeing any signs just in terms of getting more supply? Because we've had a total imbalance when it comes to supply and demand. That, of course, has been a major issue, especially for suburbs or suburban areas right around some of these big cities, like where we are right now in New York City. Is that showing any sign of balancing anytime soon?

JEFF OSTROWSKI: I don't think so. I mean, there are a lot of predictions that now that the pandemic is easing and people feel more comfortable letting strangers into their homes, that we might see more houses coming onto the market this spring. So last spring, a lot of sellers just decided to skip the spring selling season. They didn't want people coming through their homes. And so, a lot of the inventory that would have come on the market disappeared.

So, yeah, it looks like some of that inventory might come onto the market, but then, it always gets a little tricky to sell during a boom. You wonder if prices are going up 10% or 12% a year and in some markets, 20% a year. Do I really want to sell if my house is going to be worth an extra $100,000 a year from now? So the boom sort of create their own calculus around these decisions. But it--

ADAM SHAPIRO: Is it--

JEFF OSTROWSKI: I'm sorry. In most parts of the country. There's very little building. So that's the other issue with the inventory crisis.

ADAM SHAPIRO: But the other issue, though, is, the do you really want to be there factor. My career took me through South Bend and Indianapolis, so I spent close to nine years, if you add it all up, as a Hoosier by choice. I love Indiana. I don't want to go back again. What's the song? Back home again in Indiana, a lot of people do. But how long do they want to be there? Because once the kids are grown, isn't that the attraction of big cities like Chicago, which is three hours from Indy, New York from parts of Western Pennsylvania. Do you see these people coming back at any point?

JEFF OSTROWSKI: Yeah, I don't know. I mean, we've seen such a huge change. 20 years ago, the cities were dying, and everyone was moving to the suburbs. And then over the past 10 years, we've seen this huge resurgence of city center. So, New York and Chicago and San Francisco have seen a huge influx of people to urban living. So it's hard to know.

I mean, we had-- you know, for a long time, Americans moved every five to seven years. And then, in the past 15 years, that time has doubled. And now it seems like people are moving again. They're mobile again. So, I don't know. It's really hard to predict what's going to happen, but I mean, based on what's happened over the past year, we've just seen a real change in home buyers' preferences.

ADAM SHAPIRO: Jeff Ostrowski is Bankrate.com analyst, and we appreciate your being here, giving us some insight on what's happening with this housing market.