Vaccine rollouts and the reopening of the economy are breathing new life into big city housing markets.
Homebuyer interest in large metro areas is surging while interest in rural areas and small towns is slowing down, according to real estate brokerage Redfin. Redfin.com pageviews for listings located in metro areas with populations over 1 million were up 62% year-over-year in March.
While the change is likely exaggerated by lockdowns that began last March, that’s clearly far larger than the 30% pageview growth in small towns or 18% growth in rural areas. With more inventory and slower sales than suburban areas right now, cities are providing some people with an opportunity to buy.
The renewed interest in larger cities is a reversal of trends that started with the pandemic last spring. Lockdown conditions across the country persuaded some city-dwellers to look to suburban and rural areas for larger homes, bigger yards and more space for social distancing sending prices in those places up.
Now, with many adults at least partially vaccinated and mask mandates being lifted, the buzz of urban activity is being heard once more. Restaurants, theaters and museums are reopening. With the lifeblood that makes cities thrive pulsing once again, buyers are taking a closer look at urban centers.
Even before the COVID-19 pandemic, the housing market had been running low on inventory, particularly in some popular cities. With the rush on homes created by low interest rates, inventory reached an all-time low of 1.1 month supply in January.
Now, there are signs that more inventory is slowly making its way back to the market. New listings in urban areas increased 1% year-over-year at the beginning of April compared to a decrease of 5% in the number of new listings in the suburbs. As the economy continues to reopen, the inventory crunch is expected to ease a little more.
Expensive and densely populated, New York and San Francisco were particularly hard hit in the pandemic downturn. Their real estate markets struggled as companies switched to remote work allowing employees to migrate to less dense areas. Although they are still by no means cheap, there are deals to be found.
The real estate market in New York virtually shut down between late March and late June 2020, says Nicole Beauchamp, a global real estate advisor with Engel & Voelkers, as the pandemic forced the city that never sleeps to take a nap.
New York’s housing market rebound started in late fall and has continued picking up steam. In April, there were a total of 3,187 homes sold, according to Redfin. The median sale price is $770,000, an 8% increase from last April.
However, nearly 2% of homes on the market are selling for less than the list price, and competition is relatively low. The average time on the market is 98 days. “There is still the opportunity to trade out and trade up,” says Beauchamp.
San Francisco’s market also saw a big decline early in the pandemic. Last May the market hit a slow point with only 215 homes sold, according to Redfin. At the same time, 9% of homes had their prices reduced in order to attract buyers.
Fast forward to this April. There were 701 homes sold, an increase of 221% year-over-year. Although prices are starting to make a comeback, 7% of homes are selling below their list price.
What about smaller cities?
“As the vaccine has been rolling out, people have started to re-envision what their post-pandemic might be like,” says Taylor Marr, an economist at Redfin.
Many buyers, he says, now want the best of both worlds: suburban space with big city perks. “People envision cooking more at home and enjoying their backyard but also having access to public parks and nice restaurants when they want,” he says.
So, it makes sense that some smaller cities are seeing an influx of buyers. For example, in Charlotte, North Carolina the number of mortgage applications during the first quarter this year increased by 466% year-over-year, according to Better.com.
The increased interest in the city has led median sales price to increase by 15% year-over-year to $331,000, according to Redfin. Even with the double-digit price increase, buyers can still find affordable prices in Charlotte and the market doesn’t appear to be hyper competitive yet. Only 1% of homes sold over list price.
Other cities cited by Better.com as seeing the largest increase in the number of mortgage applications include Houston (a 190% increase year-over-year), Austin (up 120%), Chicago (up 109%) and Atlanta (up 101%).
Is it a good time to buy in a city?
At first, suburban and rural areas also provided a more economical housing market. Lower home prices allowed some who may have been renting in larger cities to actually buy a home.
At the height of the pandemic in June 2020, prices for both urban and suburban homes were seeing price increases of less than 5% year-over-year, according to Redfin. By the end of that month, as the economy started opening up and interest rates started to plunge towards new lows, the price growth on suburban homes started to outpace their urban counterparts.
Since late fall, however, urban home prices have started to catch up, seeing double digit annual increase in price growth starting in October and peaking at nearly 20% this April, the largest year-over-year growth rate yet. Redfin expects the trend for double digit growth to continue over the next few months.
Now, as the demand for suburban homes has skyrocketed and inventory has dropped, the same cities that saw people leave are offering not only more supply but also relatively reasonable home prices, according to Christian Wallace, head of real estate at online lender Better.com.
She notes that many people are taking advantage of slower city markets where they may only have been able to rent prior to the pandemic because of the high cost of buying a home.
“In some urban areas there’s still an amount of inventory. There’s no better time to buy,” says Wallace.