Large cities will offer better potential than suburbs, where home values may soon plateau.
A major real estate story over the past year has been the movement of buyers from cities to suburbs, prompted by the pandemic to leave small spaces and crowds behind. Tight inventory in areas like suburban New York has pushed up house prices, but now, with more Americans vaccinated and cities reopening, real estate analysts are anticipating a return in demand to urban areas.
Contrary to the perception that there has been a mass exodus from cities, Redfin found that the median sale price of urban homes in the United States rose 15.9% from February 2020 to February 2021. In Manhattan, 130 contracts were signed for high-end homes. priced at $ 4 million or more in May, down from just 17 around the same time in 2020, an increase of 665%, according to a report released this week by Douglas Elliman. And rating firm Fitch Ratings has predicted that suburban home price growth will stabilize over the year.
“We are all seeing a return to the cities, and more fear than there was once,” said Vanessa Grout, CEO of OKO Real Estate in Miami. “The submarkets have appreciated tremendously, and there may be a decrease in that acceleration now.”
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Suburban markets in other parts of the United States will also experience a gradual flattening of demand, brokers say, and urban markets may now offer better opportunities for higher returns on investment.
“We will see a stabilization as more people start to come back to the city, because the prices have gone up so much in the suburbs and there is not a lot that a market can absorb,” said Susan. Landau-Abrams, Associate Broker at Warburg Realty in New York. “The Hamptons are up 30%, so the question is how much could prices really go up? People are less likely to buy now.
Because the pandemic has lowered house prices in cities like New York City, returning homebuyers are now seeing opportunities to purchase city homes at a discount. And the reopening of travel means international buyers benefit as well.
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“The demand and speed of the market in New York will overtake the suburbs,” said Andy Ashwal, vice president of GFI Development Company, with projects in New York and Florida. “You have the reintroduction of foreign buyers in cities like New York and Miami, which have been closed, so there is pent-up demand. You also have first-time buyers coming back to town where they can watch something bigger and more affordable than they would have gotten before.
This means investors must be prepared to act quickly as the pace picks up and competition returns to urban markets.
Long-term prospects for cities
Even before the pandemic, the high-end real estate market in New York was experiencing a slowdown, further exacerbated by the Covid-19. Now, as transmission rates drop and the city reopens, the outlook is much brighter.
“The New York market had softened for three to four years, and we had very high hopes for 2020, but then the pandemic came,” said Michael J. Franco, broker at Compass in New York. “Now we are experiencing a shortage of stocks in some neighborhoods, especially the Upper East and Upper West sides. [of Manhattan], which will drive up prices.
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The decision to reopen public schools for in-person learning is also bringing many families back to the city, according to the brokers. And some former New Yorkers who moved during the pandemic are now finding that suburbs are not for them.
“The last time we had an economic downturn, people left town only to come back later when they found out they didn’t like the suburban lifestyle,” Landau-Abrams said. “There are things in the city that cannot be replicated elsewhere. ”
And as buyers feel more comfortable investing in urban properties, the frantic pace and price acceleration in suburban markets may start to level off. Meanwhile, demand has increased in urban areas since the start of 2021, as buyers look to take advantage of a weak market where they can expect home values to appreciate.
“We saw activity and interest last fall, but not at the rate we would have seen historically,” said Ashwal. “It started to recover in December and January, with buyers looking for larger units, close to train lines, with easy access to outdoor spaces, confirming what has historically been driving demand. ”
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However, buyers looking for positive ROIs shouldn’t rule out areas beyond the city limits altogether.
“There is a perception of a zero-sum game, where the popularity of one market means the devastation of another, but in the high end we don’t experience that,” Ms. Grout said. “People can own multiple residences and work remotely, so it’s not an all-or-nothing scenario. ”
Buyers are now more excited to invest in multiple properties, she added, driven by a new ability to work remotely and the way the pandemic has renewed their appreciation for comfortable living spaces.
“People are looking for diversity in their lifestyles and are considering owning townhouses, beach houses, mountain houses,” Ms. Grout said. “There has been an increase in demand, which means there will be more development, more appreciation and more growth.”
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Invest in cities now
In the first quarter of 2021, Manhattan sales still appreciated at a slower pace than in previous years, but showed signs of recovery, with a 2% increase in transactions compared to the first quarter of 2020. Apartments are also moving out of the market. market to a faster clip, with a 12% decrease in time between listing and sale for units priced at $ 4 million and under compared to last year, according to first quarter data from Douglas Elliman.
A combination of tight inventories, low interest rates and pent-up demand should continue to increase the pace of activity and the value of apartments in the city, but for now there is still time for buyers to profit. lower prices.
“Prices are still down from previous years, and there are still opportunities, especially at the high end,” Franco said. “Sellers value their homes more realistically. ”
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And when they properly assess their homes, sellers find that they are receiving multiple offers, so buyers need to be prepared to act.
“Now is a good time to buy if you want to be here for the long haul, get out of the suburbs or have a foothold,” Ms. Landau-Abrams said. “Manhattan always comes back, and we’re going to look back and say this was the time to buy and the best opportunity we’ll see in years.”
Demand is already quite high in Miami-Dade County, which has seen an influx of new buyers during the pandemic, and prices for single-family homes are up more than 21% from the same period last year.
Deals are to be found in some of the city’s emerging neighborhoods, Ms Grout said, citing the Bayfront community of Edgewater as an example.
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“If you look into emerging markets, there is potentially better value,” she said. “We have seen the evolution of these neighborhoods, and what is evident is that the main market today was the emerging market of yesterday. Get there early rather than waiting for a neighborhood to ripen.
Beyond New York and Miami, Case-Shiller’s March report identified price acceleration in 20 US cities, including Atlanta, Boston, Chicago, Los Angeles and San Francisco.
“There are so many buyers here now,” Mr. Ashwal said. “We’re going to see values in the suburbs stabilize and cities will be the places where we see the next surge. ”
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