Reports that forecast the death of cities were a bit premature.
A lot of the things that make city living great — a short commute, the nightlife, the restaurants, the live entertainment — have been shut down.
But, as Zillow Economist Jeff Tucker notes, “it won’t be shut down forever.”
“As employers bring employees back to their offices, this is probably a great opportunity for renters to get a good deal and really for home shoppers as well,” said Tucker.
Many economists believe there’s pent-up demand from would-be buyers who were stymied in 2020, partially because it’s been hard to find homes for sale.
But, while there are fewer homes on the market to choose from, buyers are “still being driven by some of these fundamental factors of record low mortgage rates well under 3% still and just, actually, the fundamental forces of aging,” he said.
If the economy remains stable, mortgage interest rates will likely tick back up over the course of the year while remaining low from a historical perspective. Realtor.com predicts mortgage rates will end 2021 with an average around 3.4%.
Prime Home-Buying Age
There are more people entering their 30s right now, with about 23 million in the key homebuying range of 30 to 34.
“That’s the age at which Americans tend to buy their first homes, and so they are really trying to come into the market, and I think a lot of them sort of accelerated that decision in part due to the pandemic.”
For those going right into bigger homes outside of the city, will we see the big house/suburbs trend reverse?
“I think this was sort of accelerating the choice that a lot of young people were going to make in the next few years,” Tucker said. “And now that they’ve bought that bigger house, they’re not going to turn around and sell it and try to downsize back into a smaller condo.
“Once again, these demographics are hard to argue with. There are just millions more people in that key age range of 30 to 34. I do think in the rental market, there is some more space that has kind of been opened up. We only saw rent increase 1%, which is the slowest in ages.”
That is partially due to first-time buyers, as well as renters, struggling economically. Over the course of shutdowns, many moved in with family or to cheaper areas.
Outlook for City Rentals
“Put that all together,” Tucker said, “and it does mean that Gen Z, as they move out from their parents’ homes or move out from college, they could have an easier time getting their first place to rent in the big cities over the next year.”
Some sellers, Tucker adds, may be willing to accept less.
“If you’re shopping for a condo or townhouse, this may be a good opportunity to get a good deal.”
However, he adds, “If you’re shopping for a detached single family home, get in line because there are millions of people trying to do the same thing. And prices are just going gangbusters in the single family home market.”
Sources: Yahoo Finance & US News & World Report