The COVID-19 crisis is reshaping people’s lives across the U.S., leading to new and accelerated trends in the housing market. The pandemic and the economic fallout that followed have urged many people to leave expensive urban centers in favor of suburban areas and smaller cities. However, it is still rather early to firmly say whether this trend will be permanent or just a temporary glitch.
Before the pandemic, city centers with rich cultural lives, easy access to restaurants, museums and other entertainment options were experiencing the most growth. Shelter-in-place orders and the shift to remote work have swept away the benefits of urban centers. At least for now.
Multifamily markets in high-density areas were the most affected by the health crisis. Gateway cities such as New York or San Francisco saw the steepest rent declines year-over-year, down 10.0 percent and 8.2 percent as of October, according to Yardi Matrix.
WHERE ARE PEOPLE GOING?
As the pandemic forced people to perform most of their daily activities within the same building, space has become much more valuable, driving people to smaller, less dense cities that can offer more space for living. One of the most prevalent migration trends includes people relocating from gateway markets to secondary tech hubs, or smaller cities within the same metro, and abandoning city cores in favor of suburban areas, Yardi Matrix reports.
Although this exodus from major cities is not new, the pandemic has certainly accelerated the movement across the entire U.S. According to Mike Golden, co-founder & co-CEO of @properties, a Chicago-based brokerage firm, interest in suburban living in Chicago has increased since the coronavirus outbreak.
Transaction activity in the entire metro was up by 4 percent year-to-date through October, but multifamily investments in the city itself were down, showing that suburban markets are driving overall growth. “We’ve also seen this trend exaggerated on a micromarket level. For example, unit sales in the downtown core are down by double digits, while several suburban markets have seen double-digit increases,” Golden said.
Golden also noted that there was a rise in activity among first-time buyers in more entry-level markets. For example, buyers showed interest in Plainfield, Ill., where the average home price is below $300,000. Year-to-date, unit sales for 2020 are more than 10 percent ahead of 2019.
ARE CITIES REALLY LIFELESS?
While housing demand has surged in the suburbs, there are certain city neighborhoods that are still appealing. These urban pockets are generally characterized by lower densities and a strong retail infrastructure, Golden pointed out. Chicago’s West Town and Logan Square are two neighborhoods that proved to be resilient during the economic fallout, he added.
In contrast with popular trends, Art Scutaro, vice president of project management at National Realty Investment Advisors, saw strong investor interest in core urban markets. Taking advantage of low interest rates, buyers are gravitating toward luxury townhomes and condos in core areas in places such as Brooklyn, N.Y., Philadelphia and Delray Beach, Fla., according to Scutaro.
“All our developments are in spacious, secure locations and feature ‘pandemic-hardened’ building technologies like UV light filters and other cleansing technologies, reassuring buyers who may be wary of COVID-19, but still want a central location,” said Scutaro.
Frances Khawly, an agent at the South Florida-based RelatedISG International Realty, noticed a surge in the number of people relocating to South Florida, with the most activity recorded in the single-family and condo markets, driven by specific lifestyle choices.
Referring to a recent RelatedISG report, Khawly said that she has seen a “huge exodus toward single-family homes in the second quarter of this year because so many wanted more space and control of their environment. However, single individuals and those who were not interested in taking the plunge of purchasing a single-family home continued to create activity in urban areas, specifically condos.” According to the firm’s third-quarter Miami report, condo sales increased by 33 percent in October compared to October 2019, showing a strong comeback for the condo market.
Overall, the wave of pandemic-induced relocations has created high demand in the suburbs and spurred interest in the urban condo market. Although suburban areas provide major advantages during situations such as a health crisis, in the long-term, regional growth needs to be backed up by jobs, culture and institutions that are all concentrated in the cities, Golden said.
It is without a doubt that the health crisis is altering the way people live. However, the pandemic-driven changes will ultimately make cities better places to live, work and play, according to Golden. “When the pandemic ends, there is going to be a huge desire to reconnect, and that bodes well for cities,” he concluded.
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L5 Real Estate Investments, LLC is a privately held investment firm focused on stable, income producing multi-family opportunities in emerging U.S. markets.