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Housing Demand Shifting Toward Central Parts of Cities

commercial-twoAs home prices reach a sustainable pace, a demographic shift in demand is moving toward city centers, according to Fitch Ratings' second quarter 2015  U.S. Residential Mortgage-Backed Securities (RMBS) Sustainable Home Price Report.

After decades of suburban and exurban growth, Fitch reports that a large portion of housing demand is making its way back to central parts of cities.

According to Fitch, home prices have grown 50 percent faster in urban centers than in the larger metro statistical areas (MSAs) since 2000. City centers are expected to continue to experience growth due to the shift in demand, even in regions lacking significant fundamental support, and are currently considered overvalued.

"This demand shift implies that city centers will continue to see growth even where regional prices have been stagnant, such as Atlanta or Chicago," said Stefan Hilts, Fitch Ratings director.

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Source: Fitch Ratings 

Following several years of significant growth, home prices have finally began to settle into to a consistent and sustainable period, Fitch says.

Real prices have grown only 2.8 percent year-over-year, compared with 8 percent in the year prior. Simultaneously, sustainable home price values have grown with the expanding economy, increasing 2.5 percent over the past year, posting the largest gains since the late 1990s.

This demand shift trend is prevalent in nearly every city analyzed, but is particularly strong among growing mid-sized markets, including Nashville, Denver, Portland, and Cincinnati. With increased preference for urban living, one implication going forward is "the likelihood for home ownership rates to remain persistently low and declining as more potential buyers opt to live in cities where rentals dominate," said Hilts.

"Relative growth of the cities continues to accelerate, and Fitch anticipates the trend will continue, with a widespread cultural renaissance driving a population influx into central urban areas that had remained stable in previous decades," Fitch said.

Click here to view the complete Fitch Ratings report. 

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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