As the housing market inches further toward recovery, a curious dichotomy has arisen between urban and suburban growth. According to Jed Kolko, chief economist at Trulia, while cities are outpacing the suburbs in price gains, the suburbs are leading the way in population growth.
According to Kolko, citing Trulia’s joint Price Monitor and Rent Monitor reports, released Wednesday, asking prices for homes in densely populated (i.e., high-rise-rich) and urban settings are still rising as the spring buying market catches its stride. Asking prices typically lead actual sale prices by about two months, meaning today’s asking prices should be a good indicator of what typical sale prices will be as housing enters the summer.
Trulia found that month-to-month asking prices nationally in urban markets rose 1.2 percent in March. Quarter-to-quarter, prices rose 2.9 percent in March, reflecting three straight months of solid month-over-month gains. Both calculations were seasonally adjusted.
More encouraging is that asking prices are up a full 10 percent since last year, rising in 97 of the 100 largest metros. Only three metro areas—Albany, New York; and Hartford and New Haven, Connecticut, showed a drop in asking prices year-over-year.
It’s the suburbs, however, where population is growing most—something Kolko admits can seem rather strange. After all, he says, “locations with stronger demand should have both higher price growth and more population growth.” And there has been greater demand for urban living since the construction bubble burst in 2009 and badly damaged new home construction in suburban areas. The answer, however, lies in the supply.
“Suburbs can have faster household growth but smaller price gains because it’s easier to build new housing in suburbs than in dense urban neighborhoods,” Kolko said. “New construction accommodates population growth while taking pressure off rising prices.”
It only seems as if cities have the edge in housing recovery, he said, because home prices in high-density high-rise neighborhoods in cities such as New York, Chicago, and San Francisco have risen faster than those for other urban and suburban areas.
It also appears to have the lead because construction recovery has been disproportionately urban. In 2013, apartment building construction hit a 15-year high, but single-family home construction is still considerably below normal levels. That means many dense cities where much of the housing stock is comprised of rental apartments have seen a construction boom relative to their local normal level of construction, Kolko said.
“Population growth since the housing bust has slowed most in the bottom quartile of counties, which are largely rural areas, not suburbs,” Kolko said. “The suburbs are far from over.”