Upper/Middle-Class Urban Home Ownership

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Upper/Middle-Class Urban Home Ownership

According to a Redfin report of over one million visitors to their website searching for homes across 87 metro regions in the United States between April and June of this year, locations within or near Phoenix, Sacramento, Las Vegas, Austin and Atlanta are the most searched (smaller) metro areas. Data shows "a record number of people from the country's largest metropolitan areas, including New York City, Los Angeles and San Francisco, are flocking to smaller, more affordable cities amid the coronavirus pandemic." Prior to the current pandemic, Millennials, in particular, were noted as looking for more spacious luxurious offerings in more rural settings; this after they (generally) led a movement to large cities like New York and San Francisco. William Frey, a demographer and senior fellow with the Brookings Institution, noted this reversal of Millennial migration movement. But not all of the most recent data points to a deliberate exodus to the suburbs, exurbs, or rural areas. Most industry experts believe the current trend is merely an onset of a movement away from large cities for luxury residential buyers, but almost all agree it is simply too early to be certain.

Conjecture and Facts

  • Personal finance contributor for Forbes Jeff Rose wrote last week, "There’s been anecdotal evidence of urban Americans moving out of the big cities and metropolitan areas in route to rural locations. But is it really happening? As it turns out, hard evidence is in short supply, or maybe it’s just too early to tell." He continues by explaining how some are reporting data that can be a bit misleading in referencing Realtor.com's May rankings for residential markets.
  • "Out of nearly 20,000 ZIP Codes nationwide, urban ZIP Codes had a median improvement of 87 spots, suburban ZIP Codes had 404, but rural ZIP Codes experienced a median jump of 846 spots. Those rankings however do not necessarily represent actual sales. Instead, they track the number of page views for property listed on the website, and the number of days a listing remains active."
  • Rose concludes, "Whether that qualifies as a wholesale exodus from city to rural locations, and is supported by sales data, remains to be seen. But there’s little doubt the advent of COVID-19 has cast a new focus on the shift from cities to rural areas." And it would be, "a reversal of the centuries long trend of people moving from rural areas to cities and suburbs."
  • Aramino concludes, "In fact, in our research, a decrease in urban demand is the only trend agreed upon by all sources. It appears there is no question that many Americans will leave large metropolitan areas. The percentages of that exodus are yet to be determined."
  • Jeff Andrews writing in Curbed in July claimed, "The narrative persists, but supporting evidence is weak at best," in referencing the stories of people fleeing cities for suburban, exurban, or rural communities. He wrote, "It’s a narrative that has, since mid-March, proliferated through practically every major media outlet in the country. These new versions of “Why I Left New York” stories have helped paint a picture of a city significantly changed by people decamping to the suburbs. The only problem is that supporting evidence for this urban exodus narrative is, at best, flimsy and, at worst, nonexistent."
  • Admittedly, he states "undoubtedly, people who have left", but references similar real estate data. "To validate the urban exodus narrative as a large-scale trend, stories have often pointed to search traffic data provided by real estate portals like Zillow and realtor.com. Using search data to validate individual anecdotes is problematic for a number of reasons, first of which is that searching for a home in another city on Zillow is a very weak indicator of intent. Furthermore, diving deeper into Zillow’s search traffic data reveals that there isn’t even a pronounced trend of city dwellers searching for homes in suburban and rural areas."
  • The article details, "For the week ending on May 10, which was around the height of the pandemic in New York City, the percentage of search traffic from the New York metro area to out of market areas rose 5.4 percentage points year-over-year, which appears to reflect a minor uptick in people wanting to get out of the city. The share of search traffic from the New York metro area to suburban and rural areas dropped, while the share of search traffic looking at other urban areas rose. Taken together, this shows that while there was a minor uptick in New Yorkers looking for homes outside of the New York area, it’s slightly tilted toward other urban areas than it has been in the past."
  • "The search data, which is already a weak indicator, does not actually reflect an increase in New Yorkers’ interest in moving to suburban or rural areas. The same is generally true for a number of other cities as well, including Detroit, St. Louis, San Jose, Pittsburgh, Cleveland, Miami, Las Vegas, Boston, Baltimore, Los Angeles, and Philadelphia."
  • “We just don’t have any basis to claim a boom in the suburbs,” says Jeff Tucker, an economist with Zillow. “There are people who really believe the urban exodus hypothesis. If there’s an evidence for it in the data, it’s very weak.” The article concludes, "This doesn’t mean there won’t be a flight from cities at some point in the future. As the virus continues to rage on across the country, people who have lost their jobs may decide to leave their cities for more affordable areas. Widespread adoption of work-from-home polices may also give people who didn’t want to live in cities to begin with, the option to leave. People in cities like New York and Detroit, which were hit hard by the virus, may decide they’ve had enough."
  • Joel Kotkin studies how and why people move and wrote about the “Coming Age of Dispersion” at newgeography.com. He stated, “There will be a longer impact, an acceleration of the process that was already starting. The work-at-home trend was already building, the small towns were already becoming much more cosmopolitan, with more and better coffee places and restaurants, and the big cities were already becoming prohibitively expensive.”
  • Urbanist Richard Florida quoted, "Some affluent Americans might abandon city life, Florida said: Rich New Yorkers, for example, “are going back to the Hamptons, and older people who are scared of things like viruses are less likely to have that Fifth Avenue apartment.” But that “temporary reset” will lead, he said, to “a period when urban real estate is slightly more affordable.”

The Data

  • The pandemic and civil unrest found in many of America's largest cities is prompting an exodus from those cities. Aspen based luxury real estate agent Scott Bayens noted, "Colleagues in Tahoe and the Hamptons and in Montana, Wyoming, can’t pick up the phone because they’ve got so many people calling them from L.A. and New York and in this case, Denver and Houston. There is clearly a migration from urban centers for those who are trying to get out of the city and away from the virus and who now are able to work from home remotely.
  • Results from a recent Harris poll showed "40% of urbanites are considering fleeing the city as the coronavirus pandemic rages on. Now urbanites with the means to move are avidly discussing where to live, how to live, and how to educate and care for children—and they’re serious: 43% have recently browsed real estate websites, according to the same poll. A small but significant number have already moved, intending temporary relocation, and are now debating what’s next."
  • Forbes reported, "Viewings were up 28% in Palm Springs and 56% in the Hamptons compared to January", in referencing data for luxury properties. In addition, "prices for the top 5% of homes outpaced the rest of the sector in May."
  • A Realtor.com report highlighted, "Views per property for million dollar homes were up 7.3 percent year-over-year in May, recovering from a 9.5 percent decline in April, and a slight improvement over the pre-COVID growth of 6.2 percent." And, "New listings for million dollar homes are down 15.1 percent year-over year. However, this is a massive improvement over the 57.8 percent declines seen in April."
  • However, the report cautioned, "COVID-19 has slowed price growth, with just 25 of 94 tracked counties seeing price growth improve in May compared to the start of the year. Last year, 60 counties saw price growth improve during that same period, and million dollar homes were selling in 89 days, 18 days slower than last year."
  • The report concluded, "As the situation around COVID-19 has settled somewhat, it seems that luxury buyers have returned to the market with force. The most recent listings data from May shows key inventory metrics moving in the right direction. April was a tough month for all levels of the housing market, but the luxury housing market showed signs of resilience in May with listings garnering listing views higher than pre-COVID observations, and luxury home price growth outpacing the mid-market. That said, not everything is back to normal. In particular, realtor.com listings data suggests that luxury home buyers are favoring locales farther away from larger urban centers."
  • Interestingly, "In New York City, the wealthier parts of the city emptied out after the pandemic hit. Some of those people likely won’t return for the reasons listed above, and that flight has had an impact on the rental market. According to one Douglas Elliman report, residential vacancies in Manhattan rose from 1.61 percent in June of 2019 to 3.67 percent in June 2020, causing median rents in the borough to drop by 4.8 percent year-over-year. This is certainly an indication that housing demand in Manhattan has dropped."
  • Data from the Brookings Institute shows that migration from large cities was already underway in the immediate years prior to the current pandemic. In fact, growth had already slowed and "America’s three largest cities, New York, Los Angeles, and Chicago, saw their populations actually shrink by the end of the 2010s." A substantial decrease in growth also took place in other large cities: Washington DC, Miami, Boston, Atlanta, Houston, and Denver all saw population growth rates decrease in recent years.
  • Net migration in metropolitan areas of over 1 million actually decreased the past 4 years in the US, while smaller metro areas experienced large growth.
  • The article published by Spark Rental concluded, "It doesn’t take a demographer to understand why Americans are leaving major cities in the wake of the coronavirus pandemic. But the reasons are as numerous as they are compelling, and it’s worth pausing to understand them in full."
  • A UBS survey from last month reported results from 3750 global investors, including the US. The survey showed, "while there were anecdotes that wealthy American families are fleeing cities for less densely populated areas, the survey finds only 30% of U.S. investors plan to forsake cities, the lowest percentage across the regions and below the global average of 46%."
  • Mansion Global reported, "Before the outbreak of Covid-19, many wealthy buyers were already leaving major urban areas, particularly those in the northeast where the tax burden is high, for states like Florida, which has low property taxes and no income taxes." Phil Gutman, president of Brown Harris Stevens Miami recently stated, "A lot of people from the northeast were moving here prior to Covid due to tax reform. Between that and this pandemic, it’s a perfect storm." The data backs him up. In Palm Beach County, Florida, "contracts for homes worth $1 million and above increased by 109.4% from June 2019 to June 2020."
  • Niel Allen, a broker with Douglas Elliman in St. Petersburg, explained, "People have come over because the lifestyle is more suburban, and they’re realizing they can do what they need to for work on a Zoom call from the privacy of their own homes," as buyers are arriving from the Northeast, California, and South Florida. These buyers are drawn to low-density, smaller cities.
  • The Mansion Global article details, "On the west coast, smaller cities like Bend, Oregon, are seeing an influx of buyers from the Bay Area, Seattle and Portland looking to escape big city living, especially now that they can work from anywhere." And it concludes, "On the west coast of Florida, real estate at the high end is remaining strong, with pent-up demand from the early months of the coronavirus pandemic now getting released."
  • Of the nearly 20,000 zip codes tracked in realtor.com®’s Hottest Market rankings, "Fifty-four of the 100 largest metros in the U.S. are experiencing increased interest in the suburbs. Suburban listing views in May 2020 surpassed those from May 2019 and the beginning of 2020." “This migration to the suburbs is not a new trend, but it has become more pronounced this spring,” said Javier Vivas, realtor.com® director of economic research.

From the NorthEast, New York City, to the Burbs and Beyond

No area in the US has received as much press about an exodus of its wealthy residents as New York City. While the immediate exodus may have been temporary initially, reports point to a more permanent trend as the pandemic continues.
  • An oft referenced New York Times article opens, "Hundreds of thousands of New York City residents, in particular those from the city’s wealthiest neighborhoods, left as the coronavirus pandemic hit, an analysis of multiple sources of aggregated smartphone location data has found."
  • The article explains, "Roughly 5 percent of residents, or about 420,000 people, left the city between March 1 and May 1. In the city’s very wealthiest blocks, in neighborhoods like the Upper East Side, the West Village, SoHo and Brooklyn Heights, residential population decreased by 40 percent or more, while the rest of the city saw comparably modest changes."
  • It also detailed, "The phone data shows New Yorkers primarily went to surrounding counties: east into Long Island’s Nassau and Suffolk counties, west to Monroe County in Pennsylvania, south to Monmouth County in New Jersey, north to Westchester County, northeast to Fairfield County in Connecticut and farther afield in all directions. Palm Beach County, in South Florida, was among the top locations for displaced New Yorkers."
  • A different NYT article wrote, "Wealthier Americans, meanwhile, appear to be hedging their bets. Todd Richardson, vice president of sales and marketing for a real estate developer in South Florida, said in recent weeks he had seen a significant jump in inquiries for a luxury condo building being built in Boca Raton, where three-bedroom units start at $1.75 million. " It continued, "In the past, he said, he typically got one or two leads a day from the Northeast. “We are right now averaging eight to 10 per day from the wealthy suburbs of New Jersey, Manhattan and Long Island,” he said, as well as other parts of the Northeast that have been hit hard by the virus."
  • CNBC reported at the end of April, "It’s too early to tell how many New Yorkers will leave the city, or if the mass exodus that many are predicting will come true. Yet sales activity and interest, especially at the high end, is already shifting from New York City to the surrounding areas." The article reveals, "Some of the wealthy are looking to rent. Others are checking out second homes a short drive from the city and still others want more permanent primary homes for their families."
  • A July article written in The Hill proclaims, "A combination of the coronavirus pandemic, economic uncertainty, and social unrest is prompting waves of Americans to move from large cities and permanently relocate to more sparsely populated areas." It continues by explaining how, "The trend has been accelerated by technology and shifting attitudes that make it easier than ever to work remotely. Citizens of all ages and incomes are moving in record numbers to suburban areas and small towns."
  • The article details, "Many are moving to small towns north of the five boroughs. Four upstate counties have seen an incredible surge in real estate demand, while the rest of the New York market is cratering. And, an estimated quarter of a million New York residents will move upstate for good, while another two million could permanently move out of the state. More than 16,000 New York residents have already relocated to suburban Connecticut. The preliminary figures show New York is also losing citizens to rural New England and Florida in significant numbers."
  • The Daily mail reported, "A recent survey found 69% of people in tech and finance said they would leave New York if they were given the option to work from home permanently."
  • Data by PropertyShark.com reported by Norada Real Estate Investments shows, "The median sales price in the NYC hit $718,000 in June for the highest figure year-to-date. June also marked the first noticeable year-over-year price contraction, coming in 2% below June 2019's median of $735,000. Residential sales in NYC were reported to be down by 25% as compared to last year." Also, "There were a total of 3422 transactions, down 62% compared to the same month last year."
  • The full Property Shark report may be found here.
  • Finally, the NYT reported that "since the coronavirus shut the city down, the number of sales in Manhattan dropped 54 percent and the median price fell to $1 million."

West Coast

  • "Redfin reports that more than a quarter of searches on its website are by urbanites in Seattle, San Francisco, and the District of Columbia searching for homes across less populated places. While real estate sales are down in San Francisco, where prices are falling by more than 50 percent, demand in its suburbs has been soaring, where prices are rising by almost 10 percent."
  • The Hill reported, "There has been a sharp uptick in interest in moving out to Montana, with the majority of new inquiries coming from California. Real estate sales in Montana are 10 percent higher than at this time last year. Rural Colorado, Oregon, and Maine have seen similar upticks in property sales."
  • Bay Area Market Reports details, "The San Francisco market currently reflects a variety of both positive and negative indicators", in that some "more suburban or rural are experiencing extremely high demand." The report also shows that in San Francisco county, "The number of listings going into contract has been increasing, but at a much lower rate than inventory is growing."
  • The report also clearly shows an increase in real estate markets in counties outside of the city limits. Specifically, "The Bay Area markets with the largest year-over-year increases in the number of listings accepting offers in June 2020 were the 4 outer Bay Area counties of Monterey (up 61%), Santa Cruz (58%), Sonoma (47%) and Napa (37%)."
  • A prominent trend in San Francisco this quarter includes the desire to move from condo to single-family housing, either within the city or further out in outlying counties. Compass agent Bill kitchen explained that it is not necessarily that buyers moving out of the city isn't happening, since he had several San Francisco clients leave the city in search of more space in the suburbs. "There are still plenty looking to stay put, with their sights set on a new must-have: private outdoor space. (he is) seeing outdoor living as a big trend right now in San Francisco. Those cooped up in a small condo are looking for some outdoor space, even if it is a small patio."
  • According to a June report from John Burns Real Estate Consulting, "State-of-the-art technology will make an even bigger difference now, as people are looking to relocate out of expensive areas. Salt Lake City, Las Vegas, Boise, Portland and Phoenix are all experiencing surges in California buyers, some of whom have been greenlighted to work from home permanently."
  • Ernie Carswell, luxury real estate agent with Douglas Elliman, was quoted in the Washington Post, "Even though Los Angeles is not a dense city compared to the vertical city that is New York, our local wealthy people are trying to get out to Laguna, Santa Barbara, Malibu, even Palm Springs."
  • Bloomberg reported in June, "Across the San Francisco Bay area, home to some of America’s earliest and strictest shelter-in-place rules, demand for real estate is soaring in outer suburbs and wealthy havens known for their gorgeous landscapes. From affluent Marin County to Napa wine country and south to Monterey’s Carmel Valley, brokers say the coronavirus outbreak is leading to a surge of interest from home buyers looking to spread out."
  • Written in Bloomberg and according to data collected by Patrick Carlisle, Compass’s chief market analyst for the Bay Area, "After real estate deals initially fell off with shelter-in-place orders, last month saw a resurgence in interest. The suburban and rural areas around the Bay Area had the biggest rebound, while contracts in San Francisco and Oakland’s Alameda County were well below where they were in 2019."
  • Referencing the Bloomberg article, SFGate reports "Lake Tahoe has also seen a surge in real estate interest. The prospect of living out of the city on an alpine lake while maintaining a career is appealing for a new generation of young buyers, as many tech companies have signaled that remote work may be the new norm for a long time."

Other Markets

  • Texas Real Estate stated, "Real estate experts don’t know for sure, the data in the coming months and years will tell the tale. In the meantime, though, there are indications of increased interest" in reference to an increasing demand for rural properties.
  • NAHB Chairman Dean Mon, a home builder and developer from Shrewsbury, N.J. stated, ""We expect the virus could affect future housing preferences for those currently living in the hardest-hit, high-density environments like central cities and that housing demand will continue to increase in medium- and low-density communities."
  • "The first quarter HBGI data reveals that construction growth expanded over the last year more quickly in low population density areas than high-density regions," said NAHB Chief Economist Robert Dietz. "This trend will continue as households seek out single-family homes further from urban cores, particularly as telecommuting continues in greater numbers."
  • The Colorado Sun reports, "Inventories are dwindling, prices are soaring and resort-town schools are seeing enrollment climb as second-home owners and newcomers settle in places like Steamboat Springs, Vail, Crested Butte, Telluride and Aspen." The article explains, "the high-end rental market also is exploding as visitors prolong their summer vacation into fall and winter. They are buying homes they plan to move into, and not just for vacations."
  • The Sun's article also states, "Kevin O’Donnell, the president of the Vail Valley’s super high-end Beck Building Co. has seen a wave of new interest from part-time residents looking to renovate their vacation homes for full-time living and newcomers hoping to settle with young families in the valley.
  • Luxury home specialist with Coldwell Banker, Atlanta realtor Debbie Sonenshein explains how the suburban Atlanta market has been affected by the pandemic, "The market revved up fast here in Atlanta where local buyers are competing with buyers flooding in from out of state for upscale homes in the Atlanta suburbs, where a good-sized property with a pool and maybe a view is less costly than in other areas.
  • In reference to potential buyers from large cities New York, Boston, Chicago, and Atlanta, Dave Jarmin said of the Charleston area, "With everything going on in the world that we’ve seen with this pandemic, some are realizing that remote work is a possibility moving forward. Several clients with young families are ready to escape large metropolitan cities in case this type of lockdown were to occur again."

Canada

Very little has been written about wealthy Canadians leaving cities due to the Coronavirus pandemic.
  • The Huffington Post wrote in May, "The shift to working from home opens up possibilities, especially for wealthier people", in referencing wealthy residents of Toronto. The article explained "the wealthy are turning their attention to the Muskoka region, the cottage country north of the city" as it quoted Max Hahne, a Collingwood, Ont.-based real estate agent at high-end agency Engel & Volkers. "He said interest has 'spiked' since April, with much of it concentrated in high-end housing, properties above $1.5 million."
  • Global News reported, "Royal LePage CEO Phil Soper said online viewership of Ontario listings outside of Toronto, in “exurban” regions, are on the rise. And, Royal LePage numbers show Vaughan, just north of Toronto, saw an 83 per cent jump in May over the same time last year. Peterborough and Lindsay were up 56 per cent, and Kitchener and Cambridge saw an increase of 53 per cent." However, the article was not specific to wealthy people or the luxury residential real estate market.

Research Strategy

Investigative research yielded plentiful sources addressing the proposed exodus of wealthy home buyers from large city centers towards the suburbs, exurbs, or even rural locations. These sources mainly address two of the more prominent and news-worthy metropolitan areas: New York and San Francisco. Very little evidence was found concerning most of the specific cities identified in the initial research, However, many are located in or adjacent to large metropolitan areas, thus the material of this research applies.

Research into a specific exodus of wealthy people from Canadian cities did not identify any recognizable trends other than the 2 articles included in the Canadian section above. Aside from national research across Canada in general, all large cities were researched individually.
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