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Feb. 16, 2021, 4:20 p.m. EST

Big city flight led to surging suburban home prices — Will it outlast the pandemic?

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By Joy Wiltermuth

U.S. home prices have surged in less dense suburbs of big cities in the past year as families fled the pandemic for more sparsely populated locations.

But as the U.S. vaccination effort ramps up, Fitch Ratings expects suburban price gains to moderate as homeowners once again get comfortable living in big cities.

“Home price growth has accelerated more notably in suburbs of cities like New York City, Washington, D.C., Boston and San Francisco than in their once crowded central business districts,” said Fitch senior director Suzanne Mistretta.

“Longer term, however, home price growth in these suburbs will likely cool over time as the comfort level with central business districts increases with rising vaccination rates and the health crisis waning.”

This chart shows home prices in the most dense areas around Boston, New York City and D.C. grew less than 4% during the COVID-19 crisis, but shot up by 6% in further flung and less crammed commuter hubs of San Francisco.

Perhaps unsurprisingly, homes with five or more bedrooms have led the price gains, according to Fitch, as many white collar workers scrambled for more space as companies required them to work from home during the crisis.

Related : Why remote work, schooling in rural America need Biden’s infrastructure plan

But that doesn’t mean everything necessarily will remain rosy for the U.S. housing market in 2021.

While the Biden administration said Tuesday it will extend forbearance and foreclosure protections through June , other factors could potentially put a damper on the housing market this year or make it more risky for investors.

“Demand for higher-priced single-family homes is likely to continuewith mortgage rates remaining low,” Mistretta’s team at Fitch said. “However, if job losses begin to creep into previously unaffected sectors and affect higher-wageworkers, current housing demand will be affected.”

For investors in housing bonds, there also could be fresh risks tied to the planned rollback of crisis-era rules that limit how much mortgage debt a homeowner can take on relative to their income.

Specifically, the previous administration removed the set 43% debt-to-income limit of the so-called “qualified mortgage” (QM) rule and broadened the parameters of how lenders can verify a borrower’s income. The QM rule was established after the 2008 global financial crisis to make mortgages less risky and easier for borrower to understand.

The changes to the rule, unless challenged by the Biden administration, are scheduled to become effective March 1, 2021 and to be followed with mandatory compliance on July 1, 2021. Any “regulatory freeze pending review” of the changes by the Biden administration could impact the issuance of both housing bonds with and without government guarantees, Fitch said.

This chart also shows families leaving New York, Brooklyn and San Francisco in the early months of the pandemic for cities in Indiana, Florida and Texas.

“According to migration estimates included in our heatmap, Arizona, Nevada, andNorth Carolina recorded the strongest net migration inflows, while New York and Illinois saw outflows,” said Oren Klachkin, lead U.S. economist at Oxford Economics, in a Tuesday note.

Klachkin noted that while home prices rose annually about 9% nationally by the end of last year, Idaho saw the strongest gains of nearly 20%, while New York underperformed at about an 8% gain.

Meanwhile, longer-dated Treasury yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.11% have been on the rise since January , with the 30-year rate /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -0.10% up nearly 45 basis points to 2.089% on Tuesday, since the start of the year, according to Dow Jones Market Data.

Rising government debt yields come as investors increasingly fret about the prospects of trillions worth of pandemic aid causing runaway inflation, which can hurt savers, pull down stock prices and erode the value of bonds over time.

The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.93% eked out a fresh closing record Tuesday , while the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.93% and Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +1.19% closed slightly lower.

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