Ed Koch once asked, “Have you ever lived in the suburbs? It’s sterile. It’s nothing. It’s wasting your life.” Of course, these words from the former three-term mayor of New York City should come as no surprise.
But the fact is that a lot has changed for the better about the suburbs and small town real estate over the last 40 years. While the COVID-19 pandemic is creating a shift in where people want to live and businesses want to locate, the flight to the suburbs has been accelerating for quite some time.
Many small cities, suburbs, rural areas are witnessing steadily increasing job and population growth thanks to affordable amenities, good schools, and family-friendly neighborhoods. The benefits of small town living are also helping to increase the demand for good rental property at more affordable prices than major metro areas offer.
Suburbanization is Creating a New Real Estate Wave
Once upon a time, people had to go to where the jobs were. Employers held the power, with good-paying jobs in densely populated metropolitan areas forcing workers to live in places where they didn't always want to be.
Today, the tide has turned, as workers and businesses embrace the massive shift to remote working in lower-cost suburbs, small towns and cities, and rural areas throughout the U.S.
As Forbes recently observed, employees who are currently working remotely because of COVID-19 restrictions are quickly realizing they can work wherever they like. Prominent business leaders and CEOs are offering workers the option of working from home, in some cases forever.
For real estate investors, small city and suburban properties offer a lower barrier of entry to investing, oftentimes with a larger yield. Small places tend to be more business-friendly, with lower taxes and pro smart-growth governments.
10 Small Real Estate Markets With The Biggest Demand
Real estate investors are also seizing the opportunities created by the population drift to lower-cost markets and the work-from-home trend.
To measure the new shift in real estate demand, Roofstock analyzed the most recent data on nationwide single-family real estate (SFR) listing and closing activity for April and May 2020 published by CoreLogic. Nationally, listings are down by 54% and closings are down by 48%, compared to the same period last year (YOY or year over year).
By using these statistics as a benchmark, investors can identify areas of the country where there is an asymmetry between closings and new listings compared to the national average.
For example, an increase in closings without a similar increase in listings indicates more investors are entering the market. On the other hand, markets where listings are growing faster than closings means there is less investor demand.
Based on the CoreLogic data, the top 10 small cities, rural areas, and suburban areas of large metropolitan areas with the largest amount of demand from real estate investors are:
|City||Closings Change from Avg.||Listings Change from Avg.|
|1. Durango, CO||+38%||-6%|
|2. Minneapolis, MN||+35%||+17%|
|3. Boise, ID||+35%||+8%|
|4. Kennewick, WA||+33%||+4%|
|5. Cedar Rapids, IA||+29%||+1%|
|6. Kansas City, MO||+28%||+3%|
|7. Charleston, WV||+28%||-12%|
|8. Richmond, VA||+28%||-4%|
|9. Williamsburg, VA||+27%||-4%|
|10. Virginia Beach, VA||+26%||0%|
A quick look at this data shows how real estate investment is growing in smaller cities such as Durango and Boise, and suburban areas of Minneapolis, driven in large part by the pandemic and by investor focus on affordable property and more predictable cash flows than larger metro areas.
Real Estate Investing Trends in 2020 and Beyond
A recent article from Rice Kinder Institute for Urban Research asks, “If you’re lucky enough to work from home, where will home be after the pandemic?” For almost everyone - including millennials, families, and businesses – the location of choice appears to be the suburbs, smaller cities, and rural areas.
Rice Kinder cites a study from MIT reporting that one-third of American employees have switched to working at home over the past two months, while a recent Gallup poll found that most workers don’t want to go back to the office. The trend toward remote work will profoundly change larger metro areas as people move to exurban locations, and small cities and rural locations.
The shift on where people live and work will also have a significant affect on real estate investing in 2020 and beyond.
Roofstock has conducted a number of in-depth user surveys and learned that, for most people, COVID-19 hasn’t affected their investment strategy. In fact, even though respondents are evenly split on what direction the economy is going in, the majority still plan on investing in real estate in the next 12 months.
However, what has changed is when, where, and why real estate investors are buying today:
12-month investment window
All of the respondents in Roofstock’s surveys indicated they plan on buying rental property over the next 12 months. 56% of all Roofstock users expect to purchase a property, while 86% of the investors who bought at least one home since March 15th of this year expect to buy another.
Focus on small cities and suburbs
While the pandemic hasn’t affected investor strategy, it has changed where people are buying. Nearly 45% of Roofstock users are more likely to invest in small cities or towns, and suburban property, while 37% say they are less likely to invest in large homes in big cities.
Affordable cash-flow property
Investment yield from any asset is becoming increasingly difficult to find. That’s likely one reason the majority of Roofstock investors prioritize recurring returns, with 85% saying cash flow is their #1 goal. Investors who bought since March 15th paid $200,000 or less for their rental property, proving that it’s still possible to find affordable real estate in smaller markets offering solid returns.