For the first time ever, it now costs more per square foot for a home in the suburbs than it does for a home in the city. Redfin has been tracking this data since 2018, and says that the pandemic-inspired migration to the suburbs is still going strong, and that a typical suburban home now costs a dollar more per square foot than its urban counterpart.

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As you know, homes in the suburbs were in high demand during the pandemic because people wanted space to work remotely and a place for their kids to play outside. While demand grew for the suburbs, it weakened for the cities, along with home prices. Although home prices in the city rebounded during the pandemic's aftermath, demand continues for suburban homes, especially among millennials who can work from home and want to raise families in areas with good school systems.

One Dollar More Per Square Foot

The Redfin analysis on the cost of a square foot covers the four weeks ending September 25th in 91 markets. It shows that the cost of a square foot in a typical suburban home was $206 compared to $205 in the city. In more rural areas, it was $180 a square foot. (1)

Those square foot prices reflect year-over-year increases of 9.5% in the suburbs, 3.5% in the city, and 8.4% increase in more rural areas. Overall home prices reflect a similar relationship, with the typical suburban home price up 6.6% to $385,000 and the typical urban home up 2.7% to $310,000. In rural areas, home prices were up about 4% to $333,000.

Prioritizing Space Over Walkability

Demand for suburban homes skyrockets because of the remote work movement, but many people rediscovered the urban lifestyle during the pandemic recovery. Redfin economist Sheharyar Bokhari says many homebuyers were looking for the best of both worlds – a home with both space and walkability combined with low mortgage rates. But now with higher mortgage rates, she says: "Today's buyers can't afford everything on their wish list, so many are prioritizing space over walkability."

She expects urban prices to fall farther and faster because of that priority, but suggests that house hunters keep their eye on urban prices, because they might find a deal, if they are willing to sacrifice the space they get in the suburbs. But the housing market isn't easy to predict right now. Homebuyers need to examine individual markets to find what works best for them. And the Redfin data shows that suburban sales are down more than they are in the cities.

Housing Market Slowdown

Year-over-year, sales have declined about 25% in the suburbs, 23% in the cities, and 19% in rural areas. Average sale to list price is just under 100% for suburban neighborhoods, and a little lower than that for cities and rural homes. The share of homes with price reductions ranges from 6.4% in cities to 7.5% in suburban areas.

The biggest price drops in the nation are happening in the San Francisco Bay Area. The price per square foot is down about 6.2% in San Francisco. New Orleans is second on that list, followed by Philadelphia, New York, and Oakland, California. It's very interesting to note that several Florida cities are among those where prices are still rising by double digit percentages including Tampa and Orlando. It's also interesting to note that of all the 91 markets that Redfin analyzed, only about 10% of them show declines in the price of a square foot.

You can see the complete list by following a link in the show notes for this episode at newsforinvestors.com. We also invite you to become a member of RealWealth if you'd like to learn about markets that still make sense for investors. Just click on the Join for Free button at our website.

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Thank you! And thanks for listening. I'm Kathy Fettke.

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1 -https://fortune.com/2022/10/31/housing-market-redfin-ceo-explains-why-home-prices-are-falling-faster-in-2022/