Covid, civil unrest, low interest rates and work from home equals urban exodus
Adam Contos, CEO RE/MAX Holdings Inc.
Rumors of the death of American cities may be greatly exaggerated but it’s hard to deny that there’s a significant shift underway in where people want to live. According to a recent National Association of Realtors survey, one-quarter of new home buyers are looking to move to rural or suburban areas.
“Real estate is very regional however,” cautions Adam Contos, CEO of RE/MAX Holdings Inc., the real estate franchise giant with over 130,000 agents in 110 countries and territories. “I’ve heard from agents and brokers who say they are busier than ever, for others, everything came to a complete halt during the shutdown and they are still recovering.”
In June, U.S. home sales posted a near-record 37 percent gain over a pandemic-impacted May and returned to near pre-Covid levels, just 6.9 percent lower than last June according to the latest RE/MAX National Housing Report.
“Our June data did see a decline in home sales for metros that had experienced the most stringent stay-at-home orders—down 32 percent year over year when compared to June 2019,” says Contos. “However, large metros that experienced less restrictions during the pandemic—such as Denver—still experienced nearly a five percent increase year over year. I think any evident shifts in urban to suburban areas will play out slowly over time.”
How people go about buying and selling homes was evolving before the pandemic, but quarantine rules have accelerated the change. “I think virtual tours are here to stay,” says Contos. “The more agents can do to sell a home virtually, the more successful they’ll be in the post-pandemic market. Brokers are going to need to show they’re tech savvy and have the resources available to stage and sell a home virtually.”
One of the winners of the shifting real estate landscape may be Connecticut, a state that has seen depressed sales in recent years. “We may see a jumpstart in activity in suburban areas of Connecticut,” says Contos. “The state has become a focus for downtown New Yorkers who are seeking access to more green space, home office space and more square footage that is not available to them in the city.”
RE/MAX, LLC
The opportunity to pitch the virtues of his state in the current environment isn’t lost on Connecticut governor Ned Lamont who told CNBC last month that, “phones are ringing off the hook at real estate agent offices. If you have to stay at home for a period of time having a nice little backyard is not a bad way to do it,” he said.
What they’re not talking about as much—at least publicly—is that distressed urban police departments and city mayors calling to defund law enforcement are also signaling open season for criminals, accelerating the urban flight many cities are experiencing. New York’s 19th Precinct has seen nearly a 300 percent increase in robberies, including several at gunpoint. And the city’s uber rich aren’t being spared. Real Deal.com reports that neighborhoods home to some of New York’s highest profile billionaires have experienced a rash of violent crime in recent weeks.
A New York City shop owner looks over damage in a looted souvenir and electronics shop near Times ... [+]
The city’s restrictive gun laws aren’t helping, says the National Shooting Sports Foundation’s Mark Oliva. “With overwhelmed police and New York City’s restrictive gun laws making it very difficult for law-abiding citizens to protect themselves,” says Oliva, “is it any wonder the city’s residents are bewildered and looking to get out? Violent criminals, by definition, don’t follow laws and they know a compromised police force and largely unarmed population make for easy targets.”
New York Governor Andrew Cuomo last week expressed his concern that wealthy taxpayers may not return, which would further deepen the state’s tax hole. Executives from moving companies are reporting historic movement out of the city. Ross Sapir, president of Roadway Moving, told Fox Business recently, “People are moving out of Manhattan in numbers I have never seen before.”
Losing high-net-worth taxpayers for good could be catastrophic for the city. Tax collections there dropped nearly in half in June, which follows a 32 percent decline in May and a 23 percent dip in April. Further, some two-thirds of people working from home, according to a recent Zillow survey, say they would consider moving out if their job allowed them to continue telecommuting.
And that may happen with businesses weighing whether they want to continue to pay for expensive downtown real estate with a workforce that can be productive—and often happier—from home. Given the perfect storm of real estate pressures, it’s no wonder many forecasters are predicting a surge to the burbs. As Shark Tank investor Robert Herjavec recently told CNBC, “we’re about to see the biggest exodus from cities in 50 years.”
Unlike the 2008 financial crisis, however, the real estate industry is in a much better place today. “Americans have more home equity now than they did in 2008,” says Contos. “That’s a key indicator that the country could rebound more quickly, which is already happening in secondary and tertiary markets. As we’ve seen, real estate is likely going to be one of the key indicators of the economic recovery.”
