Why Home Prices Are Fluctuating Across The US
When the pandemic hit, big cities like New York and San Francisco saw tenants leave for the suburbs. This led to falling housing prices in densely populated cities, but surprisingly, less densely populated cities like Phoenix, Arizona and Charlotte, North Carolina are holding their value.
How COVID-19 is Impacting the Housing Market
A recent study suggests that the spread of the virus and the trend toward remote work is driving growth in suburban areas but restraining prices in crowded urban cities.
Economist Troy Ludtka of Natixis, an investment banking firm, says that Americans have been leaving cities for suburban and rural areas to minimize their risk of contagion and to enjoy the benefits of remote work policies during COVID-19.
In addition, Americans who are spending significant time indoors are searching for houses with greater indoor and outdoor space.
Home Sales and Prices in 2020
According to a Redfin study, in the four weeks ending September 20, home sales in US suburbs had increased annually by 13.6%, 13% in rural areas and 8.8% in urban areas. Home prices, on the other hand, rose 16.6% in rural areas, 13.7% in the suburbs and 13.1% in urban areas.
A Natixis analysis shows that overall, highly populated cities have seen sharp price declines or very slight increases. Cities like New York and San Francisco were most affected by depressed prices, according to the analysis. In New York, prices fell for three consecutive months, down 0.3% in July from March levels. In San Francisco, prices fell during two of the three recent months and had risen less than 1% since March.
The analysis showed some cities saw modest price increases since March:
- Miami: 1.5%
- Chicago: 2.4%
- Los Angeles: 2.6%
- Washington, D.C.: 2.6%
Manhattan saw an even sharper decline, with median prices falling from $1.7 million in February to $1.2 million in June, a 30% decrease. Since the pandemic began, Redfin has seen home prices reduced by an average of about 10%.
Other less-densely populated cities weren’t as hard hit. The following cities saw slightly higher price increases:
- Phoenix: 4%
- San Diego: 3.2%
- Charlotte: 3.4%
However, not all crowded cities are seeing prices fall and not all suburbs are seeing price increases. This is because other factors, such as the local economy, affect housing prices.
Boston home prices increased 3.1% between March and July, even though the city ranks third in the country for population density. Similarly, prices in Tampa only rose by 1.8%, even though the city ranks 46th in density.
Other factors affecting prices in large cities, such as high taxation and social unrest caused by protests and riots, are discouraging high-income earners from staying. Business-friendly states like Florida and Tennessee have attracted businesses, while high-tax states like New York, New Jersey and California are making it difficult for homeowners and business owners to prosper. Expensive states are seeing declining populations and tax revenue. This will inevitably lead to rising personal and real estate taxes and even further population outflows.
Hope for Big Cities
If large companies return to their big city offices, then young professionals may help rejuvenate the housing market. However older individuals, such as empty nesters, are less likely to return due to their increased health risk.
QuickDraw Fund Control wanted to share these important trends with you to consider for your current and future projects. Please feel free to contact us with any questions.