Will demand for housing in population-dense urban areas drop as a result of COVID-19 and the 2020 recession?

View Results

The shift from urban to rural areas might seem like an exclusively pandemic-related response, with workers who are able to do remote work seeking less dense pastures. But a recent report indicates the movement from urban to rural areas began before COVID-19 was on anyone’s radar.

Between 2010 and 2019, mortgaged home purchases:

  • increased by 3% in rural areas;
  • increased by 2% in suburban areas; and
  • decreased by 5% in urban areas, according to Freddie Mac.

At the beginning of the 2010 decade, single-family, owner-occupied home purchase mortgages in urban areas comprised 22% of total mortgage purchases. By 2019, this number declined to 17%.

Alternatively, single-family, owner-occupied home purchase mortgages in rural areas in 2010 were 17% of total mortgage purchases. By the end of the decade, the share grew to 21%, outpacing urban purchases.

However, this correlation does not account for cash purchases. Thus, the shift to rural most closely reflects demand from homebuyers reliant on mortgage financing.

Now, the mortgage market is larger in rural areas than in urban areas.

Meanwhile, the share of mortgaged home purchases in suburban areas have remained approximately the same over the past decade, at around 62%.

Suburban areas have far and above the highest volume of home purchases, but demand is increasing faster in rural areas.

However, most of the growth occurring in rural areas is happening in rural areas that are still near to metro areas. In other words, homebuyers are willing to sacrifice convenience for space, but they still want to be within driving distance to amenities.

Urban flight continues – is the future rural?

Will this urban exodus and rural growth continue throughout the 2020s?

It might seem like the urban exodus is imminent, when reflecting on the past year. With the possibility of remote work available to an increasing number of people during the pandemic, there has been less of a need to be in city centers. Spending more time at home has increased demand for outdoor space. Many restaurants, retail stores and other amenities closed operations, dissipating many of the attractions for urban space.

However, jobs and their location are an element which decide where people will go.

Those with a job are mostly tied to their job’s location. Here in California, the largest number of jobs are found among California’s major metros. When jobs return, they return fastest in city centers.

In addition to urban areas growing due to jobs, cities also appeal to younger generations of renters and buyers, such as Millennials and Generation Z (Gen Z). These generations are entering their prime homebuying years and are drawn to urban areas for the opportunities they provide.

firsttuesday forecasts urban demand will return. Although the first half of the 2020s may be characterized by an imbalance in demand, once the economic recovery is underway beginning in 2024-2025, expect jobs to return to those metro areas, along with demand for housing.

Related article:

Is the pandemic-induced suburban rush here to stay?