San Francisco, New York City Home Prices Fall as Listings Linger Much Longer

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Zillow recently completed an in-depth analysis into whether the coronavirus pandemic and resulting explosion in people working from home has kicked off a boom in America's less-dense and typically less-expensive suburban areas.

The rate of newly pending sales -- a leading indicator of completed sales, which are typically reported weeks after an offer is accepted -- has picked up since February in both urban and suburban areas. The slowdown and re-acceleration of newly pending sales during the spring followed almost exactly the same trendline in urban and suburban areas. Those sales are also happening more quickly after a home is listed, though time on market has decreased slightly more in the suburbs since February.

"When you step back and look at the bigger picture, it seems that those writing off urban real estate have done so prematurely," said Zillow economist Jeff Tucker. "There is some localized evidence of a softer urban market, particularly in the highest-priced markets, San Francisco and Manhattan, and an eye-catching divergence in sale prices, but no evidence of a widespread flight to suburban pastures. The primary issue in much of the country is the inventory drought, both urban and suburban, that's failing to meet the surprisingly robust demand from buyers eager to lock in record-low mortgage rates."

A difference in sales price growth is the strongest signal of diverging interest between urban areas and the suburbs. Year-over-year growth in the median sale price has slowed in both, but much more so in urban areas. It's down 9.3 percentage points (now flat year over year) from pre-pandemic to the end of June in urban areas, but down just 3.1 percentage points (from 6.4% to 3.3% growth) in the suburbs. The urban slowdown was driven by coastal markets, especially those in the Northeast.

The median sale price reflects which homes are selling in addition to true value changes, so it is susceptible to composition differences and can be especially volatile when there are relatively few sales like there were for much of the spring, particularly in urban areas. Sales figures are also reported on a lag, so the most recently available data mostly reflects sales that went under contract in May, while many measures were still recovering. The Zillow Home Value Index, which measures the estimated value of all homes across a given geography, shows virtually even acceleration in year-over-year growth between urban and suburban homes.

Homes selling for above their list price or having their price cut can indicate the strength of a sellers' market, potentially capturing bidding wars that drive up the sale price or a lack of interest that leads a seller to lower the price in an attempt to attract a buyer. The year-over-year change in both metrics has moved very similarly in urban and suburban areas, another indicator that the sale price discrepancy may be driven by factors other than buyer demand.

In addition, suburban home listings on Zillow are not getting any more attention than last year relative to listings in urban or rural areas. Homes in the suburbs attract about three times the number of views that urban homes do, but that was true last year as well. Total page views on Zillow were up about 42% year over year in June, spread across suburban, urban and rural markets. The takeaway is that housing demand is high generally, not that buyers are flocking to homes in the suburbs in greater numbers than in past years.

There are regional exceptions to the national trend. In Northeast states, for example, newly pending sales in urban areas slowed more and have yet to recover to the same degree as in the suburbs. Supply, not demand, appears to be holding back the urban recovery there -- significantly fewer urban homes have been added to the market there than in other regions, leading to fewer possible sales. Urban homes in the Northeast have spent less time on the market than those in the suburbs, indicating demand exists for the limited homes that are available.

At the local level, New York and San Francisco present notable counter-examples. According to StreetEasy's July Market Report, inventory has surged in New York City and buyer demand has not kept pace. For-sale inventory in the five boroughs was up 6.1% from the previous year in early August -- it's down more than 25% nationally -- and New York City rental inventory is up 63% year over year. Many sellers have accepted offers well below their asking price, and homes are typically lingering on the market longer than usual, almost twice as long as last year in Manhattan. In the broader New York metro area, the median days to pending was a full three weeks shorter than last year as of the week ending August 1, indicating homes outside of the city are moving quickly. And the city of San Francisco has seen an even bigger flood of new listings -- for-sale inventory was up 97% year over year on August 1 -- while list prices have fallen 4.9% from last year.

One segment of the market that has seen an impact nationally is rentals. Rent prices were stable early this year, but rental demand has been hit by the spike in service-sector unemployment and the millions of young people that have moved in with parents or grandparents. Year-over-year growth in rent prices has slowed overall during the pandemic, and rent prices in urban areas have slowed more than those in the suburbs.