Median single-family home and condo prices decreased from the third quarter of 2022 to the fourth quarter in 56% of Opportunity Zones around the country and went down at least 5% in almost half, according to a new analysis from ATTOM.
Low-income Opportunity Zones were targeted by Congress for economic redevelopment in the Tax Cuts and Jobs Act of 2017. ATTOM looked at 4,119 zones, finding that the declines closely paralleled drops in neighborhoods outside the zones as prices fell across the broader U.S. housing market during the second half of 2022, following a decade of almost continuous growth.
However, some signs emerged during the fourth quarter revealing that Opportunity Zone markets were withstanding the national market retreat better than other neighborhoods, just as they outperformed nationwide increases by some measures during the boom period. For example, larger portions of Opportunity Zones saw typical values rise by at least 10% both quarterly and annually compared to the rest of the nation during the last few months of 2022.
In yet another ongoing sign of strength, median values were still up year over year in almost the same portion of Opportunity Zones as elsewhere around the country.
“Home values inside Opportunity Zones are falling. But, on balance, they aren’t dropping any faster than in more well-off neighborhoods around the country,” says Rob Barber, CEO for ATTOM. “By a couple of metrics, they are even doing a little better. That speaks to the continued strength of Opportunity Zone housing markets and their potential allure for investors who still want to take advantage of the program’s tax breaks even in the current uncertain economic environment.”
Opportunity Zones are defined in the Tax Act legislation as census tracts in or alongside low-income neighborhoods that meet various criteria for redevelopment in all 50 states, the District of Columbia and U.S. territories. Census tracts, as defined by the U.S. Census Bureau, cover areas that have 1,200 to 8,000 residents, with an average of about 4,000 people.
Without a doubt, typical home values in Opportunity Zones remained well below those in most other neighborhoods around the nation in the fourth quarter of 2022. Median fourth-quarter prices fell beneath the nationwide median of $321,500 in 79% of Opportunity Zones. That was about the same portion as in earlier periods over the past year. In addition, median prices were less than $200,000 in 53% of the zones during the fourth quarter of 2022, also about the same as in earlier periods.
Considerable price volatility also continued in Opportunity Zones, as median values either dropped or increased from the third to the fourth quarter of 2022 by at least 5% in more than three-quarters of zones. That likely reflected the small number of sales in many zones.
Still, the fourth-quarter price trends, while down, continued a pattern of Opportunity Zones largely keeping pace with the national market despite their location in some of the country’s most distressed communities. Over the past few years, price trends inside the zones matched or even bested nationwide patterns. That happened as a combination of rock-bottom home-mortgage interest rates and a historically small supply of homes for sale pushed up demand and prices throughout the U.S. As buyers with more-limited resources were priced out of many areas, they likely turned to lower-priced locations, including Opportunity Zones.
Home prices have dipped in most of the country since the middle of 2022 as higher mortgage rates and consumer price inflation, combined with a faltering stock market and other forces, have cut into what buyers can afford. But the ongoing tight supply for homes for sale could help Opportunity Zones withstand steeper drop-offs.
“These areas targeted for redevelopment tax breaks may be less vulnerable to taking a big hit if the market keeps dropping because they are still some of the most affordable markets,” Barber adds. “The spring buying season should say a lot about whether they can maintain their strength.”