By: Judson Kidd
The Unites States Census Bureau recently released updated population estimates for the first time since 2010, and the results were quite surprising. Despite signs of economic recovery and nearly two years after the technical end of the recession, a reverse trend has developed. The exodus of buyers to the outlying suburbs where homes are larger is over. In fact, the annual rate of growth in American cities and surrounding urban areas has now surpassed that of the suburbs for the first time in over 20 years.
This decrease in population in outlying areas or “Exurbs” is due to various factors. For one, the substantial loss in home values in these areas has buyers looking for property with increased price stabilization and higher short-term ROI potential. With foreclosure inventory nearing the bottom within the I-285 corridor, market sales are on the rise and taking prices along for the ride. Energy costs have a direct impact on this new trend as well. The high cost of gasoline discourages long commutes, and larger suburban homes generally come with higher heating and cooling costs. Finally, young buyers prefer an urban location, and with the emergence of the “Echo Boomers” as the next wave of new home purchasers, this trend is likely to continue.
“The heyday of exurbs may well be behind us,” Yale University economist Robert J. Shiller said. Shiller, co-creator of the Standard & Poor’s housing index, is perhaps best known for identifying the risks of a U.S. housing bubble before it actually burst in 2006-2007. Examining the current market, he believes America is now at a turning point, shifting away from faraway suburbs to cities amid persistently high gas prices.
This re-urbanization is particularly evident in the Atlanta metro area. For instance, from 2000-2010, Cobb, Fulton, Dekalb and Gwinnett counties added an average of 42,779 people per year, while the counties on the edge of the region added an average of 57,425. However, from 2010-2011 the close-in counties added 55,168 people while the edge counties added 21,077. This represents a population increase of 29% for inner counties while the outlying areas saw a 63% decrease. Last year alone, growth in Fulton and Dekalb counties outpaced Gwinnett and Cobb by 26%
According to Carol Coletta, President of CEOs for Cities, the American Dream with respect to home ownership and the traditional suburban lifestyle is changing. This conclusion is based on a 30-year study of people between the ages of 25 and 34 showing that they are more likely to live closer to urban centers than generations past. For example, in 1980 12% of respondents were more likely to live in a city center, compared to 42% in 2010. If you further refine the sample to include only respondents with a college education, the number jumps to 105% more likely to live in an urban environment.
What does this all mean for Atlanta?
As data is already suggesting, Atlanta’s real estate recovery will likely occur from the core of the city outward. This includes increased retail in urban centers to cater to new residents looking for a “walkable” lifestyle. With increased business activity in these areas, the jobs and people will follow. Companies making the decision to move their offices are more likely to settle in urban areas to tap into the young talent making their home there. According to the Federal Reserve Beige Book summary for Atlanta, Commercial Real Estate Brokers continue to report modest improvement in demand, but mostly for Class A space located in urban areas.
This increase in demand will also cause Atlanta inventory levels to shrink even further. The glut of excess Intown housing has been replaced by record low inventory with levels for Condos and Townhomes decreasing 37% in the last twelve months. It’s Economics 101, the increase in demand for urban properties, coupled with shrinking inventory, will cause both sales and prices to rise, further widening the gap between urban vs. exurban pricing and demand. This is already clear when you look at year-over-year sales prices for attached housing, which has risen by 13% from March 2011.
With sales on the rise and inventory steadily decreasing, urban housing complexes will continue to sell-out. Many developments are down to their last remaining units or have run out of inventory entirely. Gallery Residences, Luxe, and Viewpoint have all sold-out and Tribute Lofts are down to only two available units. Increased competition for remaining units will further spur price recovery and eventually lead to the new construction Atlanta so desperately needs.
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Judson Kidd
