Market Analysis

The Combination of an Urban Exodus and a Housing Shortage is Fertile Ground for New Real Estate Technologies

A potential change in demand of housing from rentals in urban areas to single family homes away from cities driven by Covid-19 will be coming at a time when the supply of homes is low. This will drive buyers to seek alternative methods of finding homes for sale.  HomeYap will give buyers greater visibility in their quest to find a home.

The overall housing trend since Financial Recession been people deciding to move to the city for work and on a better lifestyle and quality of life.  The economic decline of 2007-2009 naturally led people to urban centers, where work is more prevalent.  As the recovery matured, however, younger workers and people looking towards retirement both sought cities for additional benefits of the city:

1.     Proximity to work/a shorter commute or proximity to social life and culture

2.     Convenience of amenities close by

3.     Being a renter rather than an owner for real estate (apartments) and transportation (Uber and public transportation)

Since an abundance of work and all of the other three elements are more prevalent in cities, this marked a trend toward urban areas.


The recent pandemic crisis will most likely slow down and possibly reverse this trend to move to urban areas and rent a home (apartment), have a short commute, enjoy the many amenities of the city, use public transportation or Uber, and be close to friends. The post Covid-19 world will be a period in which urban areas will represent unsafe proximity to other people and heightened risk of disease.  In order to reduce risk, many people will want to move away from urban areas and live in a situation in which they can have some separation from crowds of people. This will mean an increase demand for single family housing outside cities.


A Harris Poll conducted at the end of April found, “Nearly one-third of Americans are considering moving to a less densely populated area because of the novel coronavirus outbreak, according to a Harris Poll survey released Thursday.  By the numbers: 39% of urban dwellers said the COVID-19 crisis has prompted them to consider leaving for a less crowded place....18-to-34-year-olds were more likely than other age groups to say they’reconsidering a move. Urban residents (43%) were more likely than suburban (26%)and rural (21%) residents to report having recently browsed real estate websites for homes or apartments to rent or buy, per the survey.”


Pandemic– social distancing

The executive director of the Houston-based Urban Reform Institute, Kotkin argues that cities were already in trouble. And in the age of social distancing, he says, dense cities particularly have a lot going against them. "How do you open up an office with expensive real estate if people have to be six feet apart? How are you going to have a city dependent on subways if you're going to have any social distancing at all?" he tells CNN. "People will continue to move more into the periphery and into smaller cities, where basically you can get around without getting on (public) transit."

Empty Chicago Streets

Working Remotely

What's more, she says, another pre-pandemic trend is intensifying: the rise in working remotely.  That could play an even bigger role in reshaping the housing market going forward, says Skylar Olsen, senior principal economist at Zillow.  Already, millennials were increasingly turning to suburbs, smaller cities and places on the periphery because they'd largely been priced out of buying in big cities.  "If we can provide another option like remote work, then people can make new, different decisions,"she says. "Your job and your home used to be tied together in a way that we're all learning they might not have to be."


“Many of those transplants are already angling to buy. Unsure about whether their children's city schools will open in the fall, and enjoying home offices that are more than just a corner of a foyer, the suburbs are suddenly more appealing, brokers said.” New York Times


City Life Changes

Lifelong New Yorker Chloé Jo Davis never imagined leaving her beloved city -- until now.  "If here we are in New York City, and the reasons we're here, the reasons we're willing to sacrifice all the basic sort of life benefits that a lot of people for the art, the culture, the diversity, the neighborhood camaraderie," she says. "And now, without that, what do we have? We're stacked in boxes."


A New York Times article on May 8, 2020 stated, ““For some New Yorkers, it’s time to get out of town for good.  Cooped up and concerned about the post-Covid future, renters and owners are making moves to leave the city, not for short-term stays in weekend houses, as was common when the pandemic first arrived, but more permanently in the suburbs.”  Also…”“…there’s also a sense that in today’s era of social distancing, one-person-at-a-time elevator rides to get home and looping routes to avoid passers-by on city streets has fundamentally changed New York City.”

An empty train sits at a PATH station in Hoboken, New Jersey, on March 16, 2020.


History shows examples of disease altering living choices.  After a cholera epidemic hit the city in the 19th century, for example, people began to move from lower Manhattan to other neighborhoods -- if they could afford to. "You start seeing the marketing of land based upon the experience with disease. ... You start seeing land actually being advertised as healthful or unhealthful." - David Rosner, co-director of the Center for the History and Ethics of Public Health at Columbia University.


A similar pattern evolved after 9/11.  The New York Times stated, “Between 2001 and 2002, Manhattan swung from a net gain in migration of 7,538 new residents to a net loss of 8,171, according to census figures from the website Social Explorer, at least some of which can be attributed to people relocating after the terrorist attacks.”


The trend toward cities that had existed from 2009 to 2016 was already changing.  

People flocked to urban areas after the Financial Recession because that is where the work was.  In the past few years, however, there has been a reversal of this trend.  “…the new Census Bureau estimates documenting annual population change through July 2019 make plain that any decade-wide growth for large metro areas and urban cores is heavily front-loaded from the beginning of the decade, as growth has diminished in recent years.” – Brookings Institute.  The charts below show a slowing of population growth into urban areas and an uptick in the growth of non-metropolitan areas.

The first chart below shows that the move to urban areas has been a constant for the past 60 years.  A closer look at more recent shows that the move away from rural areas accelerated during the financial recession as people needed to travel toward the work centers of the U.S.  Although the growth of urban populations was still greater, the upward turn in rural growth in the past 2 years is evident in the second chart below.  This is the trend that will most like slow or be completely reversed by the pandemic.


The problem of urban exodus is compounded by a housing shortage.  The potential increase in demand for single family homes away from urban areas arrives at a time when the housing supply has been constrained by two main factors:

1.     A decline building -A huge decline in new homes being built that was caused by the Housing Crisis and subsequent Financial Recession of 2008-2009.

2.     A huge increase in institutional home buying - Institutional Investors, Hedge Funds and Overseas buyers acquiring large amounts of residential housing during and after the 2008-2009 crisis as rental properties.


The table below shows U.S. Annual Housing Starts and Population from 2007 to 2018.  Using the average housing starts from 1970 to 2007 (37 years) of 1,590,832 per year, we have calculated the deficit of homes built each year from 2007 to 2018.  The cumulative 12-year shortage, as defined by the previous 37 years, is 7.6 million homes or about 4.7 years of construction.  Of course, as far fewer homes were being built, the U.S population continued to grow. While the shortage grew to 7.6 million homes, the U.S. population grew by 28 million people from 2007 to 2018.  

The decline in U.S. Housing Starts, with continued increase in population is also shown in the chart below


At the same time that 7 million Americans lost their homes to foreclosures, Blackrock, Blackstone, Goldman Sachs and other large institutional and overseas investors took advantage of the melee and bought billions of dollars of housing between 2011 and 2015.  Realty Trac’s Darren Bloomquist, said that “Foreclosures were soaked up largely by investors, who were buying up properties as rentals… we saw a lot of the hedge funds and big private-equity groups get into this business.” Bloomquist said they were taking advantage of cheap housing and the fact that people who lost their homes still needed a place to live.

  • Blackstone spent $7.5 billion acquiring 40,000 houses in two years to create the largest single-family rental business in the U.S – South China Morning Post 2013
  • In 2013, Colony Capital, a Los Angeles-based investment firm, was spending $250 million each month [to buy homes]and already [it] owned 10,000 properties – New York Times 2013
  • Between 2011 and 2017, some of the world’s largest private-equity groups and hedge funds, as well as other large investors, spent a combined $36 billion on more than 200,000 homes in ailing markets across the country. In one Atlanta zip code, they bought almost 90 percent of the 7,500 homes sold between January 2011 and June 2012 – The Atlantic 2013
  • Data to March 2013 on 25 metropolitan areas compiled by Radar Logic show institutional investors accounted for 12% of home purchases, up from 9% a year ago.  You say 12% doesn’t sound like that much?  Stripping institutional investors from the statistic, home purchases actually declined on a yearly basis. – Forbes 2013
  • Blackrock, the world's biggest money manager, and private-equity firm KKR have gained a majority stake in Home Partners of America, a single-family rental company backed by mortgage-backed securities pioneer Lew Ranieri. - Keefe, Bruyette & Woods 2012


The Federal Reserve reported in 2012 that this new activity by large investors was drastically different than past practices and could have serious consequences for the real estate market,

“In 2012, several large firms began purchasing single-family homes with the stated intention of creating large portfolios of rental property. We present the first systematic evidence on how this new investor activity differs from that of other investors in the housing market. In the aftermath of the financial crisis and Great Recession, the supply of vacant homes far exceeded the demand for owner-occupied homes. This severe imbalance presented a unique opportunity for investors to purchase large numbers of single-family homes, often at distressed prices. In 2012, a handful of large private-equity-backed investors began purchasing single-family properties with the stated intention of creating portfolios of rental property that would be substantially larger than any previously-seen holdings of such property.1”

The amount of institutional buying of residential buying can be confirmed by the number of cash buyers.   The prevalence of cash buying is consistent with large institutional buying.  Goldman Sachs shows that 60 percent of all 2013 home sales are being driven by cash buyers.  “Analysis estimates that around 20% of all homes sold before the housing crash were “all-cash” sales” (WSJ 2015). As the FED report states, “Buyers paying cash at the time of purchase have at least two major advantages in the housing market: they can purchase property at foreclosure auctions, where the price discount can be substantial, and home sellers prefer bids that are not contingent on the approval of mortgage financing.”

Indeed, this large buying in order to rent did have huge consequences.  Frank Nothaft an economist with Corelogic stated that from 2006 to 2014, the stock of rental units in the U.S.increased 33%; from 9 million to 12 million units. These are homes that are now no longer available for people to buy. Susan Wachter, a real-estate professor at the Wharton School in Philadelphia, “The housing market has recovered,” she said. “Housing finance has not recovered.”  Those higher prices may make investors and current homeowners more willing to sell.  But said that’s only half the equation.  She says many people who might consider buying or trading up are still struggling to get a mortgage. Renting may be the new normal.”


In a 2016 article, the New York Times explained, “Wall Street’s latest real estate grab has ballooned to roughly $60 billion, representing hundreds of thousands of properties. In some communities, it has fundamentally altered housing ecosystems in ways we’re only now beginning to understand, fueling a housing recovery without a homeowner recovery. “That’s the big downside,” says Daniel Immergluck, a professor of urban studies at Georgia State University. “During one of the greatest recoveries of land value in the history of the country, from 2010 and 2011 at the bottom of the crisis to now, we’ve seen huge gains in property values, especially in suburbs, and instead of that accruing to many moderate-income and middle-income homeowners, many of whom were pushed out of the home ownership market during the crisis, that land value has accrued to these big companies and their shareholders.”


Now, the country emerges from the worst pandemic in a century with consumers looking to move away from cities, which have been the epicenter of the crisis.  These consumers will face a housing shortage brought on by the double barrels of a decade of under building and a market with large institutional landlords who do not want to sell.  Buyers will have to use every tool at their disposal to find homes for sale.  This environment is ripe for new technologies to allow these buyers to find homes more easily.



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The HomeYap Team

Our team of experienced market and housing experts and researchers.