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A few of the ResiShares team, fresh off vaccinations, spent spring break in Montana, just like everyone else in coastal California. With the housing market’s meteoric price growth nearly universal at this point, it’s tough to define anywhere as the epicenter of the COVID Zoomtown phenomenon, but Bozeman, MT, makes as strong a case as any.

Montana has never been known as a state particularly fond of large crowds. A friend, born and raised in Great Falls, recently described the local mentality as not viewing tourists as dollar signs, but instead as potential competitors in their favorite fishing spots. “Locals Only, Brah” may be an expression most attributable in pop culture to Hawaiian surfers, but the ambivalence towards economic development that it represents has both expanded geographically and taken on considerably higher stakes in the current housing environment.

Of course, our day job over here is precisely to translate migration into dollar signs, and since the plural of anecdote is data, we dove into some numbers to get a better understanding of what was happening in some of these markets experiencing the most acute pressure on local home buyers.

Specifically, our goal was to find the census tracts with the largest increases in median home sales price from September, 2019 to September, 2020. Those dates were chosen deliberately, capturing the height of the 2019 selling season as well as a point in time approximately halfway between the pandemic’s onset and the widespread availability of vaccines. We focused only on the 1274 census tracts with at least 10 transactions in 9/2020, to trim data outliers.

In the above histogram, pay particular attention to the maroon bar, representing neighborhoods whose median sale price in 2019 was <$200,000. You can see that this price point represents just under 300 neighborhoods (or a bit under 25%) of total neighborhoods in the sample. This makes sense. The US median home price in 2019 was approximately $275,000, which falls into the large green bar above.

What I found interesting, however, is that the maroon bar is BY FAR the largest bar in the histogram on the right, representing the 200 neighborhoods seeing the largest increase in median sales price. In other words, the neighborhoods with lower-than-average median sales prices in 2019 were the best performing during the pandemic.

This, by itself, might not be that surprising to keen observers. After all, lower priced neighborhoods typically see the most price volatility, which would have been to the upside in such a rallying market. What’s wild about these numbers, though is the magnitude. The census tract with the largest change, for instance, saw its median price increase from $115,750 to $631,250, a 400% increase!

To be clear, these are median sale prices, not paired sale indices. In other words, we are not saying that home prices in this part of La Quinta, CA quadrupled in the past year. What we ARE saying, however, is that a formerly sleepy community, where presumably most of the real estate activity occurred among the locals employed by the nearby golf communities, found itself the recipient of an out-of-town buying windfall that wildly changed the mix of homes being sold.

Imagine being the local realtor used to selling this:

for $57,000, and then being given a chance to earn a commission on this:

for $1.7 MM, located less than a mile away.

Indeed, our data suggests that the average home sold in 9/2020 was 20% larger in gross living area (GLA) than its counterpart in 2019 across the 200 largest jumps in median price. The Zoomtown phenomenon is real, and is very much a case of big money finding new neighborhoods.

The thing is, this really doesn’t do much for the owner of the $57k property. These are two entirely separate markets. The NPR article we shared at the beginning of this note referred to a young, relatively affluent couple who had missed on 17 different offers at a $500,000 price point in Bozeman, MT, and their frustration competing for a house with Bay Area tech transplants. The NPR quote to describe this phenomenon was:

”Bottom line, if you are a Bozeman local working a job in Bozeman, buying a house is becoming financially out of reach. The math doesn't work.”

If you were picturing the “Bozeman local with the Bozeman job” as a low-income worker, that person is likely not terribly affected by this housing boom. The locals getting priced out of their home markets, in many cases, are the more affluent, who now have to compete with larger pools of capital earned in more productive regions during the last cycle.

The Rest of Resi

• Zillow thinks listings are coming back. We agree. Both of us are talking our books, but such is life.

• Most fundamental models for real estate underwriting consider housing prices a lagging indicator to local GDP and job growth. Part of our thesis that has been accelerated by the Zoomtown phenomenon is that with remote work, the magnetism of work may be supplanted by the magnetism of recreation and social/cultural connection. Apparently, there may be precedent for this in ancient history.

• Or, you could move to West Virginia for a $12k bonus. I still think Bentonville + $10k + mountain bike beats West Virgina + $12k.

• Here’s a “Bidenomics” breakdown from the head of his economic advisory council (who, incidentally, overlapped with your correspondent in undergrad). It covers a lot, but one consistent theme, at least by my reading, is that inflation is coming, by hell, high water, or government policy.

• Housing shortage now up to 4 million units, per Freddie Mac.

• Sovereign wealth funds getting into US SFR

• Here’s a community-based bid to convert a mall to mixed use. I absolutely love the idea of repurposing underutilized retail as affordable housing. At the same time, if it can’t be done repeatably on a for-profit basis, the model won’t scale.

Have a great weekend,

—

Michael Greene

Co-Founder and CEO

ResiShares | www.resi-shares.com