Here’s Why the U.S. Real Estate Market Will Collapse in Big Cities First

May 4, 2020 1:36 PM UTC
The real estate market could crash in big cities like New York as Americans move to the suburbs to distance themselves from others.
  • The coronavirus might prompt Americans to leave the cities and move to the suburbs.
  • Research shows Americans are becoming more afraid to live in big crowded cities and want to be further away from neighbors.
  • Residential real estate sales and house prices could drop in high-density metros.

The coronavirus pandemic has shut down large swathes of the U.S. economy. The real estate market has been severely impacted too.

The Real Estate Market Will Recover – But Not Like You Think

Home sales plunged in March as the coronavirus froze the real estate market. But this plunge in home sales should be temporary. The housing market should snap back soon.

The housing market is going to recover, but that doesn’t mean it will look the same when the coronavirus crisis is over. | Source: gemphoto/Shutterstock.com

Zillow reports that pending home sales went up 6.2% in the week ending April 19. After falling for five weeks, mortgage applications rose 12% for the week ending April 24 compared with the previous week, according to the Mortgage Bankers Association. Unlike the stock market, home prices didn’t plunge.

But this doesn’t mean the real estate market will be the same when the crisis is over.

Americans May Flee Crowded Cities Because of COVID-19

Homebuying will continue after the pandemic, but the COVID-19 outbreak could change the U.S. real estate market permanently.

Downtowns have attracted younger generations in recent years. But life after the pandemic could change this dynamic. After watching the outbreak unfold, Americans may flee cities to move to the suburbs.

Real estate agents are already seeing greater interest in the suburbs among people living in New York City, the epicenter of the pandemic in the United States. This could suggest that more people will look for single-family homes in the short-term.

According to a Harris Poll survey, 39% of Americans are considering moving to a less crowded area following the pandemic. Urbanites (43%) were twice as likely as suburban (26%) and rural (21%) residents to have recently visited a real estate website for homes and apartments to rent or buy.

Americans don’t want to live in crowded cities anymore because they want to protect themselves from the coronavirus – which could be around for a long time – and other similar threats that will emerge in the future.

Viruses are more easily transmitted in densely populated cities. People living in the suburbs aren’t packed as closely together, so they have a lower risk of being infected.

Brad Hunter, housing economist and managing director at RCLCO Real Estate, said:

If you’re in a downtown high rise, it’s hard to socially distance on the elevator, where somebody might cough or sneeze. On the other hand, in the suburbs, you can pull into your driveway and go straight into your house, and it’s easier to socially distance.

Plus, many people are now working remotely, so they have the flexibility to choose where they live. And they can purchase larger homes for cheaper in the suburbs.

Harris Poll CEO John Gerzema said in a statement:

Space now means something more than square feet. Already beset by high rents and clogged streets, the virus is now forcing urbanites to consider social distancing as a lifestyle.

The Real Estate Market Could Struggle in Big Cities

The migration from cities to smaller towns may herald a change that would have a major impact on residential real estate sales and house prices.

Markets where housing affordability was already an issue, such as San Francisco, Los Angeles, and Seattle, could experience price declines if the economy falters in the next six months.

New York City home prices could be especially hit hard because it is the city with the greatest number of COVID-19 cases.

On the other hand, home prices in the suburbs could rise because there won’t be enough supply to meet demand. Low mortgage rates will encourage people to buy houses too.

So when the real estate market does begin to turn lower, expect the damage to hit the big cities first.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.

Josiah Wilmoth edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: June 13, 2020 9:40 PM UTC

@SBChateauneuf

Stephanie has been writing about stocks and financial markets for several years. Based in Canada, she has written for The Motley Fool and Seeking Alpha. She received an MBA in finance and worked for National Bank of Canada. Check out more of her experience on LinkedIn + and follow her on Twitter. Reach her at stephanie.chateauneuf (at) gmail.com or visit her profile on Muck Rack here. Stephanie is a Trusted Journalist.