Urban Housing Markets are Keeping Pace with the Red Hot Suburbs -- Except in Manhattan and San Francisco

Rhea-AI Summary

Zillow reports that urban and suburban housing markets in the U.S. are showing similar strength, despite notable exceptions in high-cost cities like San Francisco and Manhattan. Newly pending sales have increased since February, with a faster selling rate in suburbs. Urban median sale price growth has flatlined, down 9.3 percentage points year-over-year, while suburbs slowed only 3.1 percentage points. A supply shortage is limiting urban recovery. Rental markets are struggling due to unemployment spikes. Overall, Zillow remains optimistic about housing demand.

Positive

• None.

Negative

• Urban median sale price growth is flat, down 9.3 percentage points year-over-year.
• Urban market recovery is hindered by an inventory shortage, particularly in the Northeast.
• In New York City, for-sale inventory is up 6.1%, while rental inventory surged by 63% year-over-year.

SEATTLE, Aug. 13, 2020 /PRNewswire/ -- Urban and suburban areas across the U.S. are showing similar strength in key housing indicatorsⁱ, according to a new Zillow® analysis -- but there are a few notable exceptions, including the nation's two most expensive major cities, and in the rental market. 

Zillow recently completed an in-depth analysis into whether the coronavirus pandemic and resulting explosion in people working from home has kicked off a boom in America's less-dense and typically less-expensive suburban areas.

The rate of newly pending sales -- a leading indicator of completed sales, which are typically reported weeks after an offer is accepted -- has picked up since February in both urban and suburban areas. The slowdown and re-acceleration of newly pending sales during the spring followed almost exactly the same trendline in urban and suburban areas. Those sales are also happening more quickly after a home is listed, though time on market has decreased slightly more in the suburbs since February. 

"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. 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."

A difference in sales price growth is the strongest signal of diverging interest between urban areas and the suburbs. Year-over-year growth in the median sale price has slowed in both, but much more so in urban areas. It's down 9.3 percentage points (now flat year over year) from pre-pandemic to the end of June in urban areas, but down just 3.1 percentage points (from 6.4% to 3.3% growth) in the suburbs. The urban slowdown was driven by coastal markets, especially those in the Northeast. 

The median sale price reflects which homes are selling in addition to true value changes, so it is susceptible to composition differences and can be especially volatile when there are relatively few sales like there were for much of the spring, particularly in urban areas. Sales figures are also reported on a lag, so the most recently available data mostly reflects sales that went under contract in May, while many measures were still recovering. The Zillow Home Value Index, which measures the estimated value of all homes across a given geography, shows virtually even acceleration in year-over-year growth between urban and suburban homes. 

Homes selling for above their list price or having their price cut can indicate the strength of a sellers' market, potentially capturing bidding wars that drive up the sale price or a lack of interest that leads a seller to lower the price in an attempt to attract a buyer. The year-over-year change in both metrics has moved very similarly in urban and suburban areas, another indicator that the sale price discrepancy may be driven by factors other than buyer demand. 

In addition, suburban home listings on Zillow are not getting any more attention than last year relative to listings in urban or rural areas. Homes in the suburbs attract about three times the number of views that urban homes do, but that was true last year as well. Total page views on Zillow were up about 42% year over year in June, spread across suburban, urban and rural marketsⁱⁱ. The takeaway is that housing demand is high generally, not that buyers are flocking to homes in the suburbs in greater numbers than in past years.

There are regional exceptions to the national trend. In Northeast states, for example, newly pending sales in urban areas slowed more and have yet to recover to the same degree as in the suburbs. Supply, not demand, appears to be holding back the urban recovery there -- significantly fewer urban homes have been added to the market there than in other regions, leading to fewer possible sales. Urban homes in the Northeast have spent less time on the market than those in the suburbs, indicating demand exists for the limited homes that are available.

At the local level, New York and San Francisco present notable counter-examples. According to StreetEasy's July Market Report, inventory has surged in New York City and buyer demand has not kept pace. For-sale inventory in the five boroughs was up 6.1% from the previous year in early August -- it's down more than 25% nationally -- and New York City rental inventory is up 63% year over year. Many sellers have accepted offers well below their asking price, and homes are typically lingering on the market longer than usual, almost twice as long as last year in Manhattan. In the broader New York metro area, the median days to pending was a full three weeks shorter than last year as of the week ending August 1, indicating homes outside of the city are moving quickly. And the city of San Francisco has seen an even bigger flood of new listings -- for-sale inventory was up 97% year over year on August 1 -- while list prices have fallen 4.9% from last year. 

One segment of the market that has seen an impact nationally is rentals. Rent prices were stable early this year, but rental demand has been hit by the spike in service-sector unemployment and the millions of young people that have moved in with parents or grandparents. Year-over-year growth in rent prices has slowed overall during the pandemic, and rent prices in urban areas have slowed more than those in the suburbs.

About Zillow
Zillow, the top real estate website in the U.S., is building an on-demand real estate experience. Whether selling, buying, renting or financing, customers can turn to Zillow's businesses to find and get into their next home with speed, certainty and ease.

In addition to for-sale and rental listings, Zillow Offers buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Home Loans, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase.

Millions of people visit Zillow Group sites every month to start their home search, and now they can rely on Zillow to help them finish it — with the same confidence, ease and empowerment they've come to expect from real estate's most trusted brand.

Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and ZG).  

ⁱ According to Zillow data. Movements in year-over-year changes since February 2020 in metrics were examined for both urban and suburban areas to examine how each have potentially differed during the coronavirus pandemic. This approach is used to control for differences in urban and suburban conditions that may have existed pre-pandemic. The classification of areas as urban or suburban was done at the ZIP code level and was derived from a nationwide Trulia survey. That methodology is published here: http://jedkolko.com/wp-content/uploads/2015/05/Data-and-methodological-details-052715.pdf
ⁱⁱ Including all page views of for-sale homes on Zillow.com and the Zillow app, excluding those from real estate agents and other professional users. Daily figures were calculated using a seven-day trailing average. Year-over-year comparisons were made after offsetting 2019 data by two days in order to compare consistent days of the week.

 

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SOURCE Zillow

FAQ

What did Zillow's analysis reveal about urban and suburban housing markets?

Zillow's analysis indicates that urban and suburban housing markets are showing similar strength, with notable exceptions in high-priced cities like San Francisco and Manhattan.

How has the pandemic affected housing sales in urban areas?

The pandemic has caused a significant slowdown in urban housing sales, with median sale price growth flatlining year-over-year.

What are the trends in rental prices according to Zillow's report?

Rental prices have stabilized, but demand has been affected due to spikes in service-sector unemployment and people moving in with family.

What inventory trends are observed in New York City?

In New York City, for-sale inventory has increased by 6.1% year-over-year, while rental inventory has surged by 63%.