A new Redfin report shows a reversal in urban vs. suburban square footage values.
As remote work continues to draw homebuyers out of urban centers and into quieter suburban neighborhoods, the cost per square foot in suburban homes has officially caught up.
Historically, homeowners looked to suburban real estate to get more space for their money. But with home prices falling more quickly in cities—and more remote workers moving out of urban neighborhoods—those savings have just gone out the window.
Prices falling faster in cities
The faster decline in home prices in cities is also because of how much they increased last year.
Price per square foot in cities nationwide increased by 3.5% compared to a year ago, showing a significant drop from its peak during the pandemic.
That price growth is also quite a bit smaller than the 9.5% increase for suburban areas. In rural areas, price growth also increased 8.4% (to $180 per square foot).
Urban home prices soared in 2021 as homebuyers gravitated back to city centers as the pandemic waned and affluent Americans–motivated by record-low rates–decided they wanted the best of both worlds: Homes with plenty of space for working from home, but located in walkable areas near shops and restaurants. Today’s buyers can’t afford everything on their wish list, so many are prioritizing space over walkability.
Today’s home shoppers are hunting for deals as higher mortgage rates, high home prices, and rising inflation add hundreds to their monthly payments.
Even if they can’t get more space for their money, many are still interested in a quieter lifestyle, not to mention the outdoor space that suburban homes provide for gardening, exercise, entertaining, and relaxation.
It helps that the remote-work trend has solidified from a pandemic necessity to a common arrangement—one many employees prefer to working in an office full-time. For some, remote work has opened the door to employment opportunities they don’t have closer to home.
And for those who don’t have the luxury of moving to “where the jobs are,” remote work has changed everything, including where they choose to live.
Millennials—many of whom are remote workers with young children—are a significant force behind the increase in suburban home values, especially in highly-rated school districts.
Bay Area home prices dropped 6%
In nine of the 91 metros in Redfin’s analysis, the price per square foot declined from a year ago. San Francisco’s urban neighborhoods saw a 6.2% annual decline in their median price per square foot over the 12 months ending September 25.
That’s the biggest price drop of all the metros in the analysis, but even with that, urban San Francisco homes are, by far, the most expensive in the U.S. at $976 per square foot.
Meanwhile, Bay Area buyers who can afford high mortgage rates are negotiating prices down and sweetening deals with concessions not seen since the 2008 recession—like having sellers pay for closing costs or repairs.
Savvy buyers in this market know it’s a good time to negotiate.
Next in line for home price drops:
- New Orleans: -6% (to $187 per square foot)
- Philadelphia: -3.2% (to $188)
- New York: -2.7% (to $557)
- Oakland, CA: -2.2% (to $603)
Urban neighborhoods in Pittsburgh, Boise (ID), Chicago, and Washington, D.C. also saw declines in their price per square foot.
San Francisco, New Orleans, and Oakland, CA, are the only U.S. metros that saw a decline in their overall home sale prices in September.
Florida sees biggest home price increases
Price per square foot increased in Florida’s urban centers—including those hardest hit by Hurricane Ian. Residents whose homes were lost or severely damaged are faced with having to move or spend more to stay in their current hometown.
Despite the high risk of climate-related disasters, Cape Coral, North Port, and Tampa have consistently ranked on the list of markets with the highest growth in home prices.
Always popular with remote workers, retirees, and second-home buyers, these metros are defying the trend of falling home prices in urban areas.
Redfin’s report showed the following increases in price per square foot:
- Cape Coral: +31.4% to $278 per square foot
- North Port: +27.9% to $44
- Lakeland: +25.1% to $201
- Tampa: +22.4% to $272
- Fort Lauderdale: +22.2% to $300
- Orlando: +19.3% to $219
Top takeaways for real estate agents
As home prices continue to go up in suburban neighborhoods, cities will likely see prices—and the value of urban square footage—continue to fall by comparison.
This may be a good time to consider urban neighborhoods, especially for those who have always thought they were too expensive. Plenty of buyers still want the convenience of living within walking distance of shopping centers and other urban attractions.
Outdoor space doesn’t have to be private to add to a home’s value.
Urban neighborhoods will likely see prices–and price per square foot–fall on a year-over-year basis before suburbs and rural areas. House hunters may want to shift their search to urban neighborhoods, where they may find lower prices to help counteract the costliness of today’s mortgage rates. And now that space is just as valuable in the suburbs, it’s less likely that they’ll sacrifice space.
Keep your clients and community informed with data from reports like this one. Get to know what your prospects are looking for, so you can be the agent who alerts them to an opportunity they can’t afford to miss.