The urban-suburban divide that helped define the housing market’s early pandemic boom has continued to shape its downturn and inventory rebalancing, according to an Intel analysis of hyperlocal data.
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It’s been a rough few years for brokerages in densely packed employment centers.
As if it’s not enough that urban housing markets missed out on some of the windfall from the early pandemic housing boom, their suburbs have continued to outperform them in sales, new supply and price support amid the ensuing transaction downturn, an Intel data analysis of thousands of ZIP codes suggests.
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This analysis contributes to a deeper understanding of how the U.S. housing market’s replenishing supply of inventory, long hoped-for by real estate agents, has been a mixed bag for the brokerage world.
It also highlights how a split in buyer-seller dynamics is more than just a regional story — it’s an in-market divide that’s deeply felt within the nation’s most prominent metro areas.
The full list of insights is available to Intel subscribers.
Intel’s approach
For this analysis, Intel analyzed ZIP-code-level data from Realtor.com for each of the nation’s largest metropolitan population centers. The ZIP codes were then placed in buckets according to government definitions of the rural and suburban areas that surround a metro’s urban core, and the urban core itself.
This exercise might not match everyone’s definition of suburb.
By the government’s definition, municipalities like Beverly Hills, Pasadena and Long Beach, for example, are not treated as suburbs but are instead considered part of the Los Angeles urban core.
You have to reach as far out as Santa Clarita — which has a significant share of residents who brave an hour-plus southeast commute into L.A. — to see a significant population center categorized as a high-commute suburb by this government definition.
Still, the suburbs that are considered part of a metro’s “urban core” likely share some of the dynamics of the outer suburbs and exurbs, in addition to some dynamics of more densely packed downtowns and neighborhoods further in.
An urban-driven rebalancing
A couple weeks ago, Intel explored the stark regional split that has divided the country as its housing markets rebalance in favor of buyers.
Markets throughout much of the South and West of the country have rapidly reached a point where they are more buyer-friendly than they had been before the pandemic. Markets in the Northeast and Midwest, on the other hand, are rebalancing more slowly, and remain more seller-leaning than they were before the pandemic.
This week’s analysis reveals that another split is occurring within individual markets.
- The urban cores of major metro areas have seen activity levels on the typical listing drop by 21 percent year-over-year, outpacing the 17 percent decline in metro suburbs over the same period.
- This leaves outflow activity in urban cores 15 percent lower as a percentage of total listings than it was before the pandemic, compared to a 5 percent decline in suburbs.
At first glance, we might expect this to mean that this fast-paced rebalancing of urban-center markets implies that big cities are also leading the way in new-listing inflow. But interestingly, that’s not the case.
- Urban core ZIP codes have notched 8 percent growth year-over-year in the number of new listings coming online, but that only brings them just within 19 percent of their prepandemic new-listing levels.
- Meanwhile, commuting suburbs have seen new-listing inflow that’s 10 percent higher year over year. And because their new-listing activity had already weathered the pandemic years better than urban cores, these suburbs are now just outside of 7 percent below where they stood before the pandemic.
So what does this all mean?
For dense urban population centers constituting a great bulk of real estate activity in the U.S., the Great Rebalancing has been caused by an unhealthy combination of depressed sales activity that’s been outpaced by a still-tepid boost in new inventory.
This has allowed big-city markets to rebalance in favor of buyers without experiencing a particularly robust recovery in new-listing opportunities for brokerages.
The suburban boom, revisited
There’s no doubt that urban and suburban markets alike have cooled.
But if dense urban employment centers have undergone a more passive rebalancing in the last few years, their in-commuting suburbs have done so in a way that’s allowed them to remain hotter for longer, and produce more returns for the real estate industry.
- Total listing outflow — a metric that tracks closely with pending-sales trends — is up 6 percent year-over-year in suburbs, compared to only up 4 percent in the major urban centers they feed into.
But this understates just how much better off suburban housing markets are in terms of transaction levels.
- Even in this down market, listing outflow in suburbs is now back within 15 percent of pre-pandemic norms for the group of markets Intel reviewed.
- Urban cores, on the other hand, still lag their pre-pandemic outflow levels by 25 percent.
New construction has doubtless been part of the picture.
Far-out suburbs tend to have more undeveloped land to build out, and often come with fewer local hurdles to clear on zoning and permitting. This ensures a steadier access to one key source of new supply.
But that’s not the only reason why the suburbs are still faring better than their urban counterparts.
- List prices in high-commuting suburbs remain 52 percent higher than where they stood before the pandemic housing era reshaped the real estate market. Low-commuting exurbs remain on an even higher perch, at 61 percent above normal price levels.
- But the fact that urban pandemic price gains of 39 percent have failed to keep up with their outlying communities despite weaker new-inventory trends suggests that suburbs simply remain hotter in the eyes of buyers and sellers.
For brokerages, the bottom line is clear: The suburban and exurban growth patterns that were so game-changing in the early pandemic — as remote work reshaped people’s choices of how to work and where to live — remain partly intact, even as the market has cooled.
To examine this, Intel used a rough estimate of the potential commission pool available to brokerages. The estimate used listing outflow levels as a rough proxy for sales, then multiplied that value by the typical list price for each area.
- Brokerages only had about 4 percent more potential commission revenue to earn this spring from deals in urban areas than they did in pre-pandemic years. That wasn’t even close to making up for the value lost to inflation in that time.
- But even after their own substantial dip in sales activity, high-commuting suburban communities produce 29 percent more in potential revenue for brokerages than they did before the pandemic struck, roughly double the rate of inflation in that time.
