How the Tech Sector Is Driving Smaller Housing Markets
Although larger metros are struggling, many second-tier cities are seeing their economies (and populations) surge
College towns, vacation locations and a string of Sunbelt cities are seeing the biggest jumps in job growth.
THE REAL-ESTATE market in the U.S. is finally showing signs of falling back to earth. After a record surge in the past few years, existing home sales are expected to drop 6.7 percent by the end of this year, according to Realtor.com’s 2022 housing forecast. That’s a dramatic shift from earlier in the year, when soaring demand and dwindling inventory led the real-estate services company to predict a 6.6 percent rise in existing home sales. Yet despite the dour prediction, sales aren’t expected to weaken everywhere.
A booming tech sector emerging far outside of Silicon Valley is boosting economies and driving home prices higher in many smaller markets, as fallout from Covid reshapes workplaces, labor markets and the economy. Cities such as Madison, Wisconsin, Virginia Beach, Virginia, and Durham, North Carolina, join a wave of smaller metro areas seeing rising real-estate prices fueled by a sharp growth in tech-sector jobs, with more software engineers, app developers and other tech workers pouring into these markets.
In Virginia Beach, where tech-related employment has increased steadily over the past two years, home prices jumped 12 percent year over year in June. The median sales price in that city reached $324,000 in June, a 28 percent increase from the same period in 2020, Redfin data shows.
And the tech economy in Virginia Beach is likely set for another jolt now that Amazon is considering opening a new e-commerce robotics fulfillment center, potentially adding thousands more jobs to the city. College towns, vacation locations and a string of Sunbelt cities are seeing the biggest jump in job growth, even though none are known as traditional tech hiring markets.
The report shows tech-sector job growth expanding in places from Ogden, Utah, and Nashville, Tennessee, to Phoenix and Charlotte, North Carolina. All of those cities are bucking national real-estate trends, registering double-digit price growth compared to 2021. Ogden—a gateway to several popular ski resorts—saw home prices in May reaching a record $530,000 for a single-family house, a 21 percent increase from May 2021, according to Redfin data.
The good news in smaller markets comes amid a reckoning in the overall market as increased borrowing costs, a gyrating stock market and rising inflation continue to sow economic uncertainty and dampen buyer demand. Mortgage rates are at their highest levels since 2009, and seasonally adjusted home sales fell three percent month over month in May. It’s the only May decline on record apart from 2020, when the start of the pandemic sent shock waves through the housing market, Redfin reports.
But smaller metros will likely remain a bright spot for the U.S. property market as more tech firms embrace remote work. This will allow workers from traditional tech hubs like Boston, San Jose and Seattle to move to parts of the country where housing is cheaper and the cost of living is lower.
It’s a major reversal from just a couple of years ago, when metropolitan areas that serve as the nation’s technology hubs were sucking jobs away from other parts of the country. In fact, just five cities—Boston, San Diego, San Francisco, Seattle and San Jose, California—accounted for more than 90 percent of employment growth in the innovation sector from 2005 to 2017.
So with tech executives allowing more work-from-anywhere policies, newly mobile tech workers will likely improve the economies of smaller cities around the U.S. And those flexible work policies will allow more tech professionals to retain roots in their hometowns, rather than making their careers in expensive cities where most jobs have been based. This will translate into robust housing markets in many smaller metros around the country as larger markets continue to struggle.