Several reports of late have been touting an urban exodus of sorts, with homebuyers exceedingly searching for solace from coronavirus and high prices alike by moving toward areas with less density.
Not so fast, though: Zillow has recently found that, with a few notable exceptions, urban areas across the United States have so far kept pace with the sizzling suburbs in key housing indicators since the onset of the pandemic.
“When you step back and look at the bigger picture, it seems that those writing off urban real estate have done so prematurely,” said Zillow economist Jeff Tucker. “There is some localized evidence of a softer urban market, particularly in the highest-priced markets, San Francisco and Manhattan, and an eye-catching divergence in sale prices, but no evidence of a widespread flight to suburban pastures.”
That difference in price growth has so far been “the strongest signal of diverging interest,” Zillow noted, with year-over-year median sale price gains slowing in both urban and suburban areas, but much more in the former. Suburban areas were seeing annual price growth of 6.4% pre-pandemic; that gain fell 3.1 percentage points to 3.3% by the end of June. The rate of urban price gains, on the other hand, plummeted 9.3 percentage points from pre-pandemic to the end of June, when growth was flat year over year.
Median sale price, however, can reflect which homes are selling, as well as true value shifts, said Zillow. That renders the statistic susceptible to composition differences and leaves median sale price particularly volatile when there are relatively few sales occurring, like for much of the spring.
There is also an inherent lag in the reporting of sales figures, so the most recent available data is largely a reflection of sales activity from May. According to Zillow’s Home Value Index, which purports a more up-to-date metric by estimating the values of all homes across a given geography, acceleration in year-over-year price growth between urban and suburban homes is virtually even through June.
Price growth aside, Zillow instead looked to other metrics to gauge market hotness between urban areas and suburbs. The rate of newly pending sales, for example — a leading indicator of completed sales, usually reported weeks after an offer is accepted — has gained steam in both urban and suburban areas since February. In fact, the slackening and resurgence of newly pending sales throughout the COVID-19 pandemic has followed nearly the exact same trendline in both geographies, although time on market has decreased slightly more since February in suburbs.
The number of homes selling above list price or seeing price cuts offers another yardstick for the strength of a seller’s market. And for both, year-over-year shifts have largely been parallel in both urban and suburban areas. And suburban listings on Zillow haven’t seen an influx of attention compared to last year, relative to listings in urban areas; homes in the suburbs are currently viewed on Zillow roughly three times more than urban homes, but the same was true last year.
The takeaway, per Zillow, is that housing demand appears high across the board and that buyers don’t (yet) appear to be fleeing for the suburbs more than before. The discrepancy in sale price growth, rather, may be driven by something other than buyer demand.
“The primary issue in much of the country is the inventory drought, both urban and suburban, that’s failing to meet the surprisingly robust demand from buyers eager to lock in record-low mortgage rates,” Tucker said.
There are some geographic exceptions, noted Zillow — regions where suburban metrics are indeed outpacing those of denser areas. In the Northeast, for instance, newly pending sales in urban areas slowed more than the suburbs and are still waiting to bounce back to the same degree. Again, though, it’s supply, not demand, that appears to be the culprit driving the divergence here. Considerably fewer urban homes have been added to the market in the Northeast compared to other regions, holding back sales. Those same Northeastern urban homes have spent less time on the market than suburban homes in the same region, suggesting that demand is still strong for the few homes that are listed.