Has demand for condo units in high-density multifamily projects dropped in 2022?

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The Pandemic Economy skewed home sales in 2020-2021, with home values skyrocketing across the state — but especially in the suburbs. While social distancing measures made urban living less desirable during the pandemic, recent data is confirming the past two years were an anomaly.

Urban housing is making a comeback.

The remote working aspect of the pandemic enabled many homebuyers to live in a different area than they actually worked. Without the pain of a commute, Californians sought cheaper, more spacious (inland) areas of the state. But now that the tide is shifting, California’s urban job centers are once again gaining traction.

Previously, the suburbs were leading the way in annual home price increases, rising each month through most of 2020-2021. During that time, annual home price increases in urban areas remained positive, but mostly flat-to-down, reflecting steady demand for urban homes alongside the ultra-competitive housing markets found in the suburbs.

However, beginning in 2022, the annual increase of urban home values is finally rising. For example, from the end of 2021 through March 2022, the pace of annual home price increases rose in urban areas:

  • from 24% to 25% in Riverside;
  • from 22% to 26% in San Diego;
  • from 16% to 17% in Los Angeles; and
  • from 14% to 16% in San Francisco, according to Zillow.

During that same three-month period, most suburban and rural home values also continued to rise at a faster pace. Further, since this data was released, rising mortgage interest rates have slashed buyer purchasing power, reining in home price increases across the board.

But the point is: homebuyers are finally returning their gaze to urban job centers.

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Homebuyers attracted to real estate close to employment centers

Californians go where the jobs are. The remote working trend was an anomaly. The vast majority of workers still go into an office or physical workplace, making the morning commute an integral aspect of choosing a home. The pandemic briefly deviated from this deference to job location, but the long-term picture will see demand continue to focus on urban job centers.

The long-term prospects for urban home values are more solid than areas which can’t rely on jobs, but home values are not set in stone.

Demand may continue to be distorted due to a number of factors, including post-pandemic life and 2022’s economic downturn. Interest rates have increased at a rapid pace and the signs of an undeclared recession are already apparent, characterized by two quarters of declining gross domestic product (GDP).

Still, once the present downturn is behind us — with prices likely to reach bottom around 2025 — expect demand to return to the coastal urban metros where more job opportunities exist.

To meet this demand, more construction is needed in all parts of the state, especially in urban metros. However, construction starts will not rise to meet demand until we reach a reliable economic recovery.

Here in California, expect to see builders meet this timeline by cashing in on legislative incentives passed to combat the housing shortage by building denser, cheaper housing in these high demand areas.

To fully realize these incentives, builders will need to first face down vocal not-in-my-backyard (NIMBY) advocates who seek to retain the “character” of urban neighborhoods, keeping density low and home values high. Winning this fight will usher in more housing for all residents, stabilizing prices and rents and improving residents’ quality of life.

To help, real estate professionals can call for more housing in desirable areas. Attend a local city council meeting and become an advocate for more housing and a more stable housing market.

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