As home prices in major cities plummet amid rising mortgage rates, square footage is becoming more valuable in the suburbs, according to a report released Thursday by the online brokerage Redfin.
Redfin found that space in suburban homes was worth more than space in urban homes during September for the first time since the proptech firm started tracking the data point in 2018.
The typical home in a suburban neighborhood was worth $206 per square foot during the four-week period ending Sept. 25, just above the typical urban home which was worth $205 per square foot, according to Redfin.
Urban areas are seeing price growth fall faster than other areas as the market transitions. Urban neighborhoods have seen price per square foot increase 3.5% year over year, still an increase but down from their coronavirus pandemic peaks of growth. Suburban areas, meanwhile, have seen 9.5 percent annual price growth, while rural areas have grown 8.4 percent in the past year.
Moving to the suburbs has traditionally been thought of as a trade-in for more space in exchange for urban amenities like walkability. With higher mortgage rates forcing homebuyers to stretch their budgets, buyers are looking to get as much bang for their buck as possible, leading to them prioritizing space over other features.
“Urban home prices soared in 2021 as homebuyers gravitated back to city centers as the pandemic waned and affluent Americans — motivated by record-low rates — decided they wanted the best of both worlds: Homes with plenty of space for working from home, but located in walkable areas near shops and restaurants,” Redfin Senior Economist Sheharyar Bokhari said in a statement. “Today’s buyers can’t afford everything on their wish list, so many are prioritizing space over walkability.”
One of the reasons price growth is slowing in urban areas is that those areas saw such intense growth over the past two years until they hit a ceiling. Nine of the 91 urban areas analyzed for the report saw prices actually decline year over year including San Francisco, which saw the median price per square foot decline 6.2% year over year in the 12 weeks ending Sept. 25.
Despite charting the biggest decrease, homes in San Francisco are still the most expensive in the country, typically costing $976 per square foot according to Redfin.
With suburban housing prices now matching urban prices in many parts of the country, savvy buyers may be more likely to find a better deal in the city if decreases continue, the report states.
“Urban neighborhoods will likely see prices — and price per square foot — fall on a year-over-year basis before suburbs and rural areas,” Bokhari said. “House hunters may want to shift their search to urban neighborhoods, where they may find lower prices to help counteract the costliness of today’s mortgage rates. And now that space is just as valuable in the suburbs, it’s less likely that they’ll sacrifice space.”