Key Highlights

  • Robert Shiller, Noble economist, tells CNBC there may be decline in urban home prices
  • Robert Herjavec, Shark Tank investor, tells CNBC there may be “one of the greatest moves to the suburbs” since 1950’s and 60’s

Urban density is out; spacious suburbs and back-to-the earth rural fantasies are in…at least for now.

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Shark Tank investor Robert Herjavec told CNBC’s “Squawk Alley” he recently moved out of Los Angeles into a suburb. And Herjavec is not alone. He said his new home-base suburban area “is on fire.”

New data in major urban areas confirms Herjavec’s predictions that people are preferring to call the suburbs home these days and that these geographic preferences will “be a trend for a while.” Realogy CEO Ryan Schneider told CNBC, “In every urban geography, the web traffic of people and what they’re searching for has changed…to be much more suburban. Even in the urban geographies where that rotation has not happened in the actual housing purchase and sales yet, the consumer searching is going in that (suburban) direction…”

This suburbanization trend is not limited to residential real estate. Hessam Nadji, CEO of Marcus & Millichap, the largest commercial real estate broker in the US, believes businesses and residents are moving out of urban areas because of the pandemic. Nakji said on CNBC’s “The Exchange,” “I think the next 18 to 24 months are going to show a lot of exodus out of central business districts…office vacancy…in the suburbs…has now been absorbed…(and)…there’s a demand for rental homes…(as)…people are fleeing especially hot spots like New York, but…you just have to keep a long-term view on it.”

Nobel­ prize-winning economist and co-founder of the Case Shiller National Home Price Index told CNBC, “I think there’s a risk that home prices in urban areas may decline,” as a result from the COVID pandemic and employees continuing to work from home.

Despite prices of existing homes in 19 big city markets increasing +4% y/y as of April, according to the S&P CoreLogic Case-Shiller National HPI, Shiller believes suburban housing may be a better investment for homebuyers due to lower costs, higher appreciation potential and the uncertainty involved with the coronavirus.

And never, ever forget how demand drives price. According to latest data, 56.2% of Redfin offers on single-family homes faced bidding war competition in June. And where are most single-family homes?

All this being said, Shiller believes it’s still too early to count out urban areas. Cities are survivors; they’ve been around for a long time.

However, Shiller does believe that houses in major markets, like all assets, are “highly priced.” The leveler of all assets (housing, stocks, bonds) may just be the pandemic because of the heightened uncertainty it has caused. And that uncertainty includes where and how we work and where and how we live, at least for now anyway.

CoreLogic’s Home Price Index (HPI) points to declining home prices of -6.6% by May 2021. If this projection comes to fruition, it would be the greatest y/y price drop since September 2009, when home prices fell -7.6% y/y. Markets that CoreLogic believes to be most at-risk are in Arizona and Florida.

The Mortgage Bankers Association recently posted week-over-week purchase application declines. Joel Kan, MBA’s associate vice president of economic and industry forecasting, said, “The weakening in activity is potentially a signal that pent-up demand is starting to wane and that how housing supply is limiting prospective buyers’ options.”

Thanks to CNBC’s multiple venues, Realogy, MarketWatch and Redfin.

Also read: “Storm Clouds” Hanging Over Most COVID-At-Risk Housing Markets, Rent Trends in July 2020, Are Low Rates & Rising Incomes Transforming Housing Affordability?

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