New data maps an exodus from the country’s most densely populated cities during the COVID-19 pandemic.
MYMOVE, a media firm and U.S. Postal Service affiliate, analyzed change of address data from February to July 2020 and found a 4% increase in total moves compared to the same period the year prior. While 4% may not sound like much, especially when cities have been experiencing urban migration for years, the highly concentrated nature of the trend means the negative effect on the multifamily property market is palpable.
Take Manhattan for example. Almost 111,000 residents vacated the city in the first six months of the pandemic, according to MYMOVE. That’s the equivalent of the entire city of Antioch, Calif., or Cambridge, Mass., relocating in a matter of months. It’s also a five-fold increase over 2019, when just 18,887 people moved out of Manhattan. After Manhattan and Brooklyn, which lost an additional 43,006 residents from February to July, the cities that lost the most movers include Chicago, San Francisco, Los Angeles, Naples, Fla., Washington, D.C., Houston, Philadelphia and Fort Myers, Fla.
MYMOVE suggests this migration is motivated by the density of these cities and associated risk of viral spread. It’s also likely due to the high cost of living — people who lost their jobs or got furloughed may no longer be able to afford urban rents, while others may simply not want to pay the price. Living in a city during a pandemic eliminates much of the value of urban living, such as restaurants, cultural offerings and ease of travel. Moving to the suburbs or smaller towns means people have more space to live and greater freedom from strict lockdown mandates. Plus, with record low interest rates, many renters are capitalizing on the opportunity to buy a home in a smaller market.
What does this mean for the real estate market?
First is a redistribution, at least temporarily, of investment opportunity to states in the middle of the country, the Southeast and the Southwest. In particular, small cities in Texas dominated MYMOVES’ list of top cities that gained residents during the pandemic. These cities included Katy, Richmond, Frisco, Georgetown, Leander and Cypress. One in 10 young adults ages 18-29 moved during the pandemic, according to Pew Research data. Pew credits this to the closing of college campuses and job losses. Some of these younger movers may have returned to live with their families, or may be seeking more affordable rent in smaller cities, particularly as work from home trends continue.
Second is a marked drop in demand for rental units in major urban centers. This means multifamily properties are not likely to generate as much revenue in the immediate future, and could make for riskier investments if demand does not bounce back after the pandemic. However, investors with high risk tolerance may choose to take advantage of low interest rates and slowed demand in urban areas.
Lastly, these two trends are likely to continue throughout the duration of the pandemic. Experts do expect demand for rental properties to bounce back after the pandemic, though perhaps slowly given changes in remote work and lifestyle.
What does this mean for private lenders?
This means there may be a higher demand for rental loans in secondary markets, as tenants move away from urban centers. It also means there will be competitive pricing for financing, but lenders with experience making long-term rental loans (or even short-term rental acquisition loans) may have an edge with clear underwriting guidelines already in place. This may also mean an increase in loan defaults on loans where the primary collateral is urban, multi-family property in areas where tenants are leaving. If you have any questions about different loan products, or how to navigate potential defaults, our experts at Geraci can help. Please reach out and we would be happy to discuss your business strategy with you.