Here at first tuesday, we’ve been saying it for years: cities are the future of California real estate. Urban centers are home to scores of high-paying jobs, offering reasonable employment security, as well as cultural amenities that appeal to the younger generation of renters and homeowners. There are even new reports claiming living in a dense city gives you a better shot at a long, healthy life.

But recent reports have also questioned the notion that the population has their sights set on city-living, with hard data actually showing a population shift from the city into the suburbs. Did we get it wrong?

Turns out, the situation is pretty nuanced.

Jed Kolko, former chief economist at Trulia, has analyzed movement to and from urban cores based on household income. He finds that households in the top 30% of income-earners are more likely to choose high-density urban living since 2000. In fact, the richer the household, the more likely they are to have moved to a city center in the past decade-and-a-half.

On the other side of the income scale, the poorer the household, the more likely they are to have left the urban core since 2000.

Demographically, Kolko explains those who have moved to the city in larger numbers are:

  • white;
  • possessing four or more years of college education;
  • without children or with young children; and
  • between the ages of 25 and 49 (a mix of Generation Y and Generation X).

California dreaming

Gentrification of cities is becoming a big problem for residents of highly popular urban centers — particularly for neighborhoods with strict zoning ordinances which don’t allow for denser (read: taller) housing. Demand increases faster than new units are made available. The response from lower-income and now even middle-income households is to look further afield, as they are unable to find rentals or buy in urban cores, even though they may have been residing there for years.

From 2011 to 2015, the average home sale took place further from its urban core, according to Redfin. In California this equals an increased distance outside of the city center of:

  • 2 miles further out in Ventura County;
  • 7 miles in Riverside-San Bernardino;
  • 8 miles in San Francisco;
  • 7 miles in San Diego;
  • 6 miles in Sacramento;
  • 4 miles in Orange County;
  • 3 miles in Los Angeles; and
  • 1 miles in San Jose.

In other words, the bulk of home sales in California are now taking place closer to suburbia. However, the highest-priced homes are still most often found in dense, walkable downtown areas.

What do these trends mean for your real estate practice? It depends on what direction you want to run with it.

Thinking of focusing your practice in the high-priced city? Look to San Francisco for a glimpse into that life. Low inventory and quickly rising prices lead to a highly competitive environment for buyers and their real estate agents. But while you may close few sales in a year, they will each yield large fees.

Considering the suburbs? Look to the quintessential bedroom community of Riverside, where home prices are much lower and sales volume is steady. Here, real estate agents tend to earn smaller fees. But the cost of living is lower, so real estate agents themselves can qualify for a larger lifestyle here than in nearby cities.

The suburbs and the city each have their benefits, and their drawbacks. Whatever direction you choose to take your business, even if it’s to continue serving the same neighborhood where you already practice (a good choice for the sake of not having to rebuild your clientele), keep an eye on local real estate trends to stay up to speed on what’s coming.