Rising Rents and Population Shifts Sustain the Edge for Sellers in U.S. Cities


The pandemic has motivated many Americans to make major lifestyle changes, which has often meant moving – and the resulting population shifts should factor into how buyers and renters plan for the coming months. Although rising interest rates and inflation are starting to slow the pace of many real estate markets, old city dwellers are returning to major urban centers and new residents are flocking in, which could continue to fuel demand and competition. And even though sales are slowing in some places, rental markets are accelerating, which could encourage some renters to buy their first home.

At the start of the pandemic, many major cities experienced out-migration as residents fled to second homes or decided to move permanently. Today, some of those same urban centers are seeing an influx of new buyers and tenants, with New York experiencing the most dramatic fluctuations. After an initial population decline, the city, and Manhattan in particular, is rebounding, according to Bloomberg. The effect of this population growth is being felt most in the rental sector, with median Manhattan rents hitting $4,000 a month for the first time in May, Douglas Elliman found.

On the sell side, although borrowers are feeling the pain of rising interest rates, inventories remain low. Brokers in cities like New York and San Francisco anticipate continued demand as more people return, even as price appreciation and competition move at a less frantic pace than in 2021 and early 2022 .

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“In the first year of Covid, people left in droves. Young couples who had planned to move to the suburbs within five years accelerated those plans,” said Kimberly Jay, broker at Compass in New York. “The rental market has been much more affected than the sale market, and now we are seeing a complete reversal.”

The rapid growth in the cost of renting – also a major factor in Brooklyn and Queens, where the average median rent rose 18% and 20.5% from May 2021 to May 2022, respectively, according to figures from Elliman , could in turn fuel demand for sales in the coming months.

“The sales market has slowed, especially at the lower end, because of mortgage rates, but we can see rents are so high that people are starting to think they should buy an apartment if they can. “said Ms. Jay.

In San Francisco, which has seen the steepest population decline of any U.S. city — 6.7% from April 2020 to July 2021 — much of the emigration was linked to the rise of remote work policies , said Mike Schwartz, a broker for The Agency in Northern California.

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Despite this drop, he expects prices to continue to rise, thanks to the low supply.

“We’re still at 1 million light homes for what a normal active inventory is,” Schwartz said. “There is always the basic fact of supply and demand.”

How changing demographics affect real estate

While there was undoubtedly emigration from major cities after the pandemic began, some analysts say stories of “mass exodus” have been exaggerated. New York and California, for example, both experienced gradual population declines of 1.1% long before the Covid outbreak, from 2018 to 2022, according to a white paper by the pedestrian traffic analytics firm. Placer.ai, based in Los Altos. , California.

And many New Yorkers who left the city during the pandemic may have only done so temporarily and are now returning.

“During the pandemic, a lot of people left, but they weren’t leaving and selling everything. They were going to second homes and had no problem maintaining apartments,” said Daniela Sassoun, a broker at Douglas Elliman in New York. “A year or two later, people whose kids are about to go to college don’t need the huge apartment, so they sell and buy something a little smaller.”


There has also been an increase in the number of foreign buyers, she added, attracted by the relatively good deals Manhattan had to offer after the borough’s sales market was initially hit at the start of the year. pandemic.

And for former city dwellers who have left and are now interested in returning, even if only part-time, small lodgings for use as a pied-à-terre are particularly sought after.

“I’ve seen a lot of people who left during the pandemic who are happy in Florida, but want to have roots in New York,” Ms. Jay said. “They’re looking for something smaller or testing the waters by getting a rental.”

Brokers who have worked in New York throughout their careers say they have seen similar patterns of emigration and immigration in the past, and that ultimately the city remains a place to be. good living.

“We’ve been through this cycle of migrations and returns – it happened after 9/11 in particular,” said Frederick Warburg Peters, president of Coldwell Banker Warburg in New York. “People realize, whatever tentative choice they made, that they just weren’t as happy as they were in town. They want to be back, and that’s the main driver.

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San Francisco’s population shifts are distinct from New York’s, largely due to the tech-centric city’s continued remote work policies. Many residents who left have not yet returned as they can continue to work from other more affordable locations.

“The exodus is not so much a Covid phenomenon as an opportunity to exercise the ability to work remotely,” Schwartz said. “People who were paying inordinately high rents or who owned condos flocked to surrounding areas, like East Bay and Napa. I still don’t see them coming back.

However, this was not correlated with declines in selling or renting costs. The city’s median sale price is $1.7 million, up more than 10% from May 2021 to May 2022. Inventory is still tight in the region, which continues to drive price appreciation .

In South Florida, which has seen a huge influx of buyers spurred by the pandemic, demand remains intense. Local officials predict immigration will continue as new residents are drawn to Miami and its surrounding suburbs as major corporations open their headquarters in the area.

“We are still seeing a significant amount of promise and an increase in interest. our mayor [Francis X. Suarez] is very pro-tech, and these companies come here. It’s not just a bubble that’s going to burst now,” said Darin Tansey, broker at Douglas Elliman in Miami. “Sales prices have increased significantly, and there are also much higher figures for rentals.”

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Prospects for the coming months

Forecasts regarding the state of the real estate markets in the coming months depend more on economic factors than on demographic developments. Rising interest rates and inflation, for example, should have a cooling effect on demand, leaving sellers with less of an advantage.

Inventories are expected to remain tight, however, especially since buyers who bought property during the recent boom are unlikely to sell for some time.

“Buyers have a little more control because rates have gone up and mortgage applications and demand have gone down,” said David Parnes, a broker with The Agency in Los Angeles. “But inventory will still be tight, as people who bought a few months ago locked in great rates and had to compete for the property, so I don’t see those homes coming back on the market anytime soon.”

But even though rates have risen, they are still at historic lows, brokers point out. And in cities like New York, soaring rents could prompt some residents to buy instead.

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“People are looking to rent but find it so expensive,” Mr Peters said. “Given that this is a time with more flexibility for sellers, you have to start thinking seriously if this is not a better value game to buy.”

Buyers who take a long-term view will likely find that real estate is still a good investment today, even amid the current flux around population shifts, interest rates and inflation.

“Markets are going to be bumpy over the next few years, and real estate is a hedge,” Ms Sassoun said. “There are ups and downs, but the line over enough time is stable. New York has always been a market where the advice is that if you buy and hold the property for five to six years, you will cover your costs and make money.

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