Bloomberg Businessweek August 31, 2020 pp30-32 |Economics| “Escape from L.A.” “An exodus from big U.S. cities could push up prices in some suburbs to unsustainable levels”
A confluence of factors around America is driving an exodus from big cities to distant suburbs. The drivers of this trend are; COVID-19 fears of living in tight quarters, the ability to work remotely, paying high urban rents or mortgages, and the-king-of-them-all historically low interest rates. Realtors and mortgage bankers are reporting that city prices for housing are falling. Urban real estate closings are also slowing while surburban demand and prices are rising. As a regional example of this phenomenon, prices for suburban homes 45 miles east of Los Angeles in Riverside and San Bernadino County have just now increased 10.5% to $420,000. “Bidding wars are breaking out again” here, an area known for desert temperatures and homes “that cost a fraction of similar real estate in Los Angeles, Orange, or San Diego counties.”
Given high levels of unemployment, the liklihood of more layoffs, and no promise of ongoing stimulus payments, one might wonder if such enthusiasm is sustainable. For sure, the potential of foreclosure looms. But, as it turns out, timing is everything as mortgage-holders can actually “delay mortgage payments under a forbearance plan for up to a year.” Big banks share the concern of impending foreclosures and have put aside reserves of $35 billion to battle an expected "tsunami of soured loans". Another unknown variable is whether or not companies will continuing embracing remote work. If they don't then long commutes will resume and suburban demand may fall again. Conversely, according to Ralph McLaughlin (Economist at Haus) if the trend away from big cities is permanent, "we may see a new wave of suburbanization like we haven’t seen in decades.”