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M REPORT | 49 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA In a Post-Pandemic Housing Market, Opportunity Knocks—Downtown The latest data from Zillow shows that there may be more housing opportunities to be found in urban ZIP codes than in the suburbs. I n many ways, the CO- VID-19 pandemic is largely behind us. Even so, ripples from early in the pandemic are still affecting the market today. According to a report from Zillow, for the first time over a decade, it is easier to buy a home in a city versus in the suburbs. A key factor behind this is the massive appreciation of suburban homes, which is indicative of stronger demand and fiercer com- petition for this type of housing. Zillow says that even though competition for properties of all types is strong in most of the country, there are still opportuni- ties to be found. The study found that suburban ZIP codes saw home values rise faster than ZIP codes in tradition- ally urban areas. A typical home in the suburbs gained $66,490 in value in the past year, compared to $61,671 for a typical urban home. This atypical move is a 180-de- gree turn from the "norms" seen during the first 15 months of the pandemic. From 2013-2021, urban homes were generally gaining value more quickly. "In the beginning of the pandemic, home values in urban areas generally outpaced suburban areas, counter to what many ex- pected during the rush for more space," Zillow Economist Nicole Bachaud said. "And while urban home value gains have continued to accelerate, the suburbs are even hotter, showing just how strong demand is for limited suburban inventory. That could mean competition for homes will be lighter near city centers this home shopping season, something we haven't been able to say for nearly a decade. That's not to say shopping for a home in the city will be a leisurely affair, but any sliver of opportunity for buyers is welcome in this market." It's no secret that the switch to remote work changed the U.S. housing landscape; the National Bureau of Economic Research further found the shift toe remote work is responsible for more than half of the gain in U.S. home prices since late 2019, and that the "evolution of remote work is likely to have a major impact on the future path of home values." Zillow also said there are signs that demand may be shifting back in favor of urban homes according to data from the first three months of the year—annual suburban home value growth out- paced urban home value growth by about $7,250 in December, but only by about $4,820 in March. "The shift has been more pronounced in a few metro areas where suburban home values grew especially fast compared to urban home values in 2021: San Francisco, Columbus, Seattle, and Boston," Zillow's report noted. "This may reflect home buyers reacting to employers' return-to- office plans, realizing that the cost savings of a move to the suburbs are not as big as they once were, or sensing that competition may not be as stiff for homes in urban parts of the metro." Island (2.7); San Jose, California (2.9); Milwaukee (2.9); and Detroit (2.9). California has a lack of vacant land and less space zoned for housing development. Another reason for the relative lack of building permits in those areas is the outflow of homebuyers. New York, Chicago, San Francisco, Los Angeles, Boston, San Jose, and Detroit are all among the top 20 metros homebuyers are leaving. Home-price growth is slower than the national median in nine of those 10 metros (San Jose is the exception). The pandemic-driven home- buying boom intensified an existing housing shortage, drove up home and rental prices, and brought the need for newly con- structed homes sharply into focus. "We built fewer homes in the 2010s than we have since the 1960s, which is one of the fun- damental problems with today's housing market—especially with millennials, the biggest generation, now in their prime homebuying years," Fairweather said. "Builders were hit hard by the housing crash—and home construction didn't fully recover because of a combination of rising material and labor costs and restrictive zoning. Since the start of the pandemic, builders have run into additional problems, with a short- age of materials and skyrocketing lumber costs. As a result, the U.S. is roughly 4 million houses short of meeting homebuyer and renter demand." There are promising signs that homebuilders are making progress adding new supply. U.S. building permits were up 3.1% year over year in April after plummeting in mid-2020 at the onset of the pandemic. More than 1.7 million homes—including both single-fam- ily and multifamily properties— were under construction in March, the highest level since 2006. Builder sentiment fell to a two- year low in May; however, the outlook for building new homes is better than it was a year ago. If mortgage rates continue to plateau, builders may feel more confident in the outlook for demand. "In the beginning of the pandemic, home values in urban areas generally outpaced suburban areas, counter to what many expected during the rush for more space." — Nicole Bachaud, Zillow Economist