Mid-sized markets -- especially those across the Midwest -- are making up for softness in New York and San Francisco, keeping the for-sale market in urban areas on pace with or slightly ahead of red-hot suburban areas, a new Zillow analysis shows.
Housing demand is on fire as the explosion of remote work has caused many to reimagine what and where they want their home to be. That demand is supercharging home values in affordable areas of the country as buyers look for homes that offer more room to spread out. In expensive coastal markets, that typically means moving farther from the downtown core into the suburbs. But for much of the country, the suburbs have long been more expensive, and buyers are now searching for homes in more urban areas.
The Midwest region in particular, where the typical home value is less than other regions in the U.S., has seen urban home value growth accelerate ahead of the suburbs in recent months. In metros such as St. Louis, Cincinnati, Cleveland, Kansas City, Columbus and Indianapolis, urban home values have been growing faster than those in the suburbs for at least the past several months.
In more expensive housing markets, demand for affordable homes has led to booming home value growth in the suburbs relative to urban cores. New York, Washington, D.C., Atlanta, Boston, San Francisco, Seattle and Denver experienced stronger home value growth in the suburbs for all or part of 2020.
"The for-sale housing market is experiencing a pandemic-fueled surge in both urban and suburban areas," says Zillow economist Alexandra Lee. "Home has become more important than ever, and buyers are eager to hit the market to find their next place to live, many newly freed from their commute and suddenly finding themselves in need of more space for a home office or gym. More often than not, buyers are flocking to homes in affordable areas and pushing up prices. However, there have been some sharp downturns in the rental market as demand to rent in pricey areas like San Francisco and New York plummeted, at least temporarily."
At the national level, buying in the suburbs became more competitive in the fall, trending slightly hotter than urban areas in some measures including shorter time on market and a higher share of homes selling above list price. Days on market are historically low across the board, helping to increase sales volume, but homes are moving faster in the suburbs. Suburban listings were selling four days faster than those in urban areas in August, and by December the gap had widened to 10 days.
Still, high demand drove urban areas to keep pace as home value and sales price growth, sales volume and Zillow web traffic matched or exceeded the suburbs on a national basis. Home values grew at a nearly identical rate in urban and suburban areas last year -- 8.8% and 8.7%, respectively. The share of page views on listings on Zillow in urban areas was slightly higher in December 2020 (18.1%) than December 2019 (17.6%), indicating interest in urban homes has remained steady.
While the for-sale market soared, rent growth was stunted in 2020, slowing from 3.5% annual price growth in 2019 to 0.8% last year. But suburban rents accelerated during the pandemic -- since February, annual rent growth has swelled from 3.8% to 5.2% in the suburbs. Urban rent growth fell from 3.6% to 1.5% during the same period.
It remains to be seen what the impact will be of local economies fully opening up and some workers who had been working remotely returning to offices at least part-time. Zillow economists expect a bounceback for urban rents this year as vaccine distribution continues and local economies kick back into gear. A record number of adults lived with their parents in April as nearly 3 million Americans -- mostly from Generation Z -- moved back home as the pandemic hit. A majority of 18-25 year-olds rent, and nearly half of those rent in urban areas, suggesting many of those who moved home will return to cities when amenities reopen, they feel it is safe and they are financially able to do so.
A panel of economists surveyed by Zillow expects the COVID-19 pandemic to have a lasting impact on some home buyer preferences, including boosted demand for suburban living and homes in "secondary cities." The panel also largely expects overall rent growth to recover to pre-pandemic levels within the next two years -- 11% of respondents predict annual rent growth will reach 4% this year, 33% think it will reach that mark next year, and 29% think it will have rebounded by 2023.