The ‘Amazon Bump:' HQ2 Finalists Project Housing Markets to ‘Overperform' in 2019

MBA NewsLink Staff

December 06, 2018

Right now, every homeowner in northern Virginia thinks they're sitting in a home worth at least $1 million, thanks to Amazon.

They might not be that far off. Zillow Inc., Seattle, and Pro Teck Value Solutions, Waltham, Mass., both suggested solid evidence that home prices in the winning jurisdictions (Arlington, Va., and Queens, N.Y.) are already enjoying a price bump as a result of Amazon's decision to build new headquarters there.

Additionally, Zillow said, the effect extends even to cities that were finalists for HQ2. The 2018 Q4 Zillow Home Price Expectations Survey rated Denver, Washington, D.C., Atlanta and Dallas as the four markets most likely to outperform the national average rate of home value appreciation. All four were on Amazon's final list of 20 candidates before it selected the New York City and the Washington, D.C., metros to split the planned headquarters. Boston and Nashville, two other HQ2 finalist metros, also made the respondents' top-10 list. Denver, Boston and Washington, D.C., so far this year have lagged behind the national average rate.

The report noted Las Vegas and Phoenix were the two non-HQ2 finalist markets deemed most likely to outperform the nation, followed by San Jose, where home values already have grown nearly 18 percent this year alone. Nationwide, home values have increased 7.7 percent through the first ten months of 2018.

Zillow said average expected home price appreciation rate for next year is 3.8 percent, down from 4.2 percent in the previous quarter. Also, the survey of 100 economists predicted expected annual growth rate over the next five years ticked down to 3.4 percent.

"Amazon ultimately selected two of the country's most prominent hubs of commerce for their second and third headquarters, but many of the candidate cities that were not ultimately selected could see spillover gains in 2019," said Zillow senior economist Aaron Terrazas. "The groundwork that they undertook to entice Amazon will also be attractive for smaller employers increasingly strained by high and rising costs in traditional tech hubs. As mortgage rates rise, communities that can offer affordable workforce housing and reasonable commutes are likely to be long-term winners and should expect their housing markets to outperform the nation."

But courting Amazon and its expected 50,000 jobs didn't guarantee a rosy 2019 outlook, Zillow said. Chicago, also on the HQ2 short list, was considered the metro most likely to underperform against the national market. Chicago has struggled relative to most other markets to recover from the housing bust over the past decade, with home values still more than 13 percent below their pre-recession peaks. Baltimore was just ahead of Chicago on the list of expected underperformers.

Panelists also were pessimistic about San Diego and Los Angeles, where home value growth has outpaced the national average over the past few years, but has dipped below the national average so far this year. An equal number predicted the San Francisco market to overperform and to underperform. All three of those California metros are vulnerable to rising mortgage rates, tax code changes and affordability concerns.

Pro Teck Founder and CEO Tom O'Grady noted his company predicted northern Virginia would be the likely winner in the HQ2 sweepstakes back in January. "Prices in Queens and Alexandria are both on the rise, trending above the CBSA trends and outpacing statewide averages," he said. "In both metros, Amazon will impact the housing markets, but it won't be transformative. Both of these communities have been and will continue to be hubs of commerce and politics, and growth would have come with or without Amazon."

Had Amazon been more interested in transforming a metro, O'Grady said, it would have chosen from one of the 20 finalists "still finding its way after the switch to the new knowledge-based economy, metros like Chicago, Columbus, Indianapolis or Pittsburgh. Instead, it looks like ‘the potential to attract and retain strong talent' won out, as both D.C. and New York are in the top nine for educated populations."

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