Big cities have always been a place of opportunity, and that has been especially true over the last 20 years, as the growth rate was nearly double that of the 1980s. Millions of Americans have moved into the country’s urban centers, causing the period between 2010-2020 to be termed “The decade of the city” by the Brookings Institution. 

That has turned cities like New York, Washington, D.C. and Seattle into thriving hubs of culture and innovation. But in recent years, the trend has started to change. People who moved to the cities in their early 20s are now married and raising a family. They have reached a new stage in life.

At the same time, the cost of living in many major metropolitan cities has increased drastically and made some areas unaffordable. Many residents cannot afford to buy a home, and rent accounts for a significant portion of a person’s income. Rent in Washington, D.C. averages $2,236 per month and the cost in Manhattan is $4,211 per month, according to a recent survey.

That has created a migration to smaller metropolitan areas and small towns. Folks are looking for more affordable places to live and more space than the urban centers offer. Places like Raleigh, N.C. Nashville, Tenn. and Richmond, Va. have seen explosive growth in recent years. In fact, Boise, Idaho was the fastest growing city in the United States in 2018. The city grew 18.2% population from 2010 to 2018 as people fled the west coast urban areas of Seattle and San Francisco.

COVID-19 increases the rate of urban exodus

The coronavirus and the pandemic lockdown quickened that process. Residents of major urban areas experienced the disadvantages to living in a high-density area when a major disease outbreak occurs. They were stuck inside a high-rise apartment or a townhouse with limited space for months, and realized that the high-density of an urban city is the perfect place for a virus to thrive.

Urban dwellers saw the advantages of moving to a place with less density and a larger piece of land.  For example, a recent study that six in 10 Americans would consider moving away from densely populated areas to protect themselves from a potential second wave of COVID-19.

“You see that typical migration when people start having kids, but I think now it’s something you’re seeing just more than ever,” said Caroline Nelson, a broker at Compass Real Estate in California’s Marin County, north of San Francisco. “People that were happy with urban living — this changed everything, because people realized they wanted space.”

In May, online real estate listing company Redfin reported that pageviews of homes in small towns surged 105% when compared to 2019. In rural counties with fewer than 10,000 people, the number of pageviews increased by 76%. City residents were wanted to relocate away from the city, and some believe this could be part of a long-term trend.

“During the first month of the pandemic, interest in rural areas skyrocketed while interest in cities fell, with many urbanites dreaming of packing up and heading for the hills,” said Redfin lead economist Taylor Marr. “Some of that boost in rural areas proved to be temporary, but it appears to be more sustainable in small towns, which may be a more realistic option for those looking to work from home primarily or commute into the office once or twice a week.”

Normally, real estate purchases in urban cores account for 75% of the total purchase volume, but that trend has not continued in 2020. In the spring of 2020, sales in non-urban areas experience significantly more growth than urban areas. The pattern is most noticeable when compared to ZIP codes with the lowest density in the U.S. These areas saw twice as much growth as urban areas.

According to the National Association of Realtors, the buying behavior can be best explained when looking at the various markets around the country that millennials prefer to purchases homes. The buying trend is moving away from the dense urban core and toward either the suburbs or the rural areas of places like Austin, Texas, Dallas, Texas, Salt Lake City, Utah and Indianapolis, Ind.

“Relatively better performance of single-family homes in relation to multifamily condominium properties clearly suggests migration from the city centers to the suburbs,” Yun said. “After witnessing several consecutive years of urban revival, the new trend looks to be in the suburbs.”

Growth in teleworking

Part of the reason that people have the ability to move out of the urban cores is the increased use of teleworking. The trend started well before the pandemic and the lockdown, but the crisis quickened the process. During the lockdown, estimates show that about 50% of the workforce worked from home. Many workers want the opportunity to continue even if their office is reopened. A recent study found that 29 percent of workers expect to continue working from home when the pandemic ends and 27 percent believe they will be able to work at home at least part of the time.

“After the pandemic, we’re going to have a new economy that has a lot more people doing remote work,” MIT professor Erik Brynjolfsson said. “And that’s going to be a very different kind of economy. It makes sense for managers today to think about what kinds of skills they want for that economy of the future.”

Retirement is also part of the trend to move to rural and suburban areas. This has been happening for several decades as the baby boomers retire but the pandemic could increase the trend. The coronavirus impacts older people to a greater extent, and some are concerned about going back to an office in an urban area. As well, many older Americans have lost their jobs, and they are deciding that now is the best time to retire.

Low supply creates problems

The challenge, however, for many people who are looking to move to a less densely populated area is supply. Demand was already tight in many of these areas, but the exodus from the cities could put more pressure on the limited supply. Partially, this is because homeowners are hesitant to put their homes on the market during the pandemic given the huge amount of uncertainty.

“I think it’s the beginning of a secular shift in household behavior,” said Ken Leon, director of equity research at research firm CFRA. “These are residents of high-rise living, in mostly urban markets, who are more actively looking for the suburbs for single-family homes — both for growing families because the millennials are aging and also for safety in terms of COVID-19.”

That has led to many people to build a new home rather than purchase an existing home. Many homebuyers are looking for a piece of vacant land to build a custom home or are interested in moving into a subdivision currently under construction. The growth is particularly strong for people who are first-time homebuyers and looking at the entry-level of the market. Some research has shown that the demand for new construction in 2020 is being driven partially by renters who want to purchase a home outside the city.

“Builders report increasing demand for families seeking single-family homes in inner and outer suburbs that feature lower density neighborhoods,” said NAHB Chief Economist Robert Dietz.

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