More than 18 months into the pandemic, the real estate market is still booming. What began in mid-2020 as a rush into the suburbs by newly remote workers looking for more space has turned into sustained, elevated demand across the housing sector, pushing rents and home prices to all-time highs.
Home values in traditionally expensive, largely coastal downtowns have cooled, Zillow finds, as city dwellers moved farther out to find more square footage at less cost. But the opposite is true in several medium-sized cities across the Midwest: Downtowns, where square footage used to cost less than it would in nearby suburbs, are booming, and Midwestern downtowns are now some of the hottest markets in the country.
The best example of this is Detroit, which, just a few years ago, had an extremely depressed downtown real estate market. But between 2019 and 2021, prices in downtown Detroit have nearly doubled, according to Zillow data.
In 2019, a typical property within 10 minutes of Detroit's downtown cost less than $125,000, according to Zillow estimates. In 2021, that same property now costs more than $225,000. That's an 81% increase in just two years. Home values are "just exploding," says Nicole Bachaud, an analyst at Zillow.
It wasn't that long ago that "$100,000 [was] the price of a home in Detroit," Bachaud says. "It's now $100,000 more expensive to buy" in downtown. That kind of change in an area that was so depressed for so many years is "astronomical," she says.
Though Detroit is an extreme example, the phenomenon is visible in other Midwestern cities as well, like Indianapolis and Kansas City. In Indianapolis, the value of property downtown jumped more than 80% in the last two years, from about $78,000 to nearly $130,000, according to Zillow's estimates. Homes in the Indy suburbs, by contrast, only appreciated about 25%.
Prices have also spiked in Kansas City's downtown, rising nearly 60% in the last two years, from $91,000 to $143,000. As in Indianapolis, homes in the Kansas City suburbs only appreciated about 25% in the same period.
The opposite is happening in coastal cities, which have traditionally had more expensive downtowns. In many of those cities, residential properties downtown have lost value in the last two years. In San Francisco, one of the most expensive housing markets in the country, for example, prices for properties within 10 minutes of downtown fell by 2% in 2021 — a stark contrast from the consistent 10% growth that Zillow had tracked since 2017.
The difference, Bauchad thinks, is that no matter where they are, people are searching for deals and prioritizing value. That often means less expensive square footage, especially now that remote work has made it possible for many Americans to feel less tethered to their employers' zip codes.
Video by Mariam Abdallah
In pricey markets like the Bay Area, then, many residents are opting for cheaper places, which are typically found more than 60 minutes away. In the Midwest, however, where demand to live downtown has been softer than in coastal cities, more people are now motivated to relocate to take advantage of lower prices and good bargains.
That relatively sudden demand has pushed home values way up.
Whether you're shopping downtown or looking to buy a place in the suburbs, you're likely going to be paying much more per square foot than you would have two years ago. The median home price has jumped 14% since the beginning of 2020, according to Census Bureau figures aggregated by the Federal Reserve Bank of St. Louis.
If the price hikes and stiff competition don't scare you off, here are some tips for nabbing your dream home in this seller's market.
- Get pre-qualified by your lender. There's a big difference between being pre-approved and being pre-qualified for a mortgage, experts say. Pre-qualification requires a much deeper look into your finances that assures the lender, and by extension the seller, that you're good for the money. "Actually pre-qualifying and having a lender go through all those things is really important," Jeffrey Knipe, a real estate agent and founder of Knipe Realty in Portland, Oregon, recently told Grow.
- Have your lender call the listing agent. Getting pre-qualified is great, but very ambitious buyers will ask their lenders to contact the listing agent, Knipe said. "As a listing agent, I always like the lender to call me and tell me about the client when they're making an offer," he says. "The lender can really help make your offer that much better."
- Write the seller a letter. For particularly tight bidding wars, writing a letter "100% works," Debra Hall, a real estate agent in Northern Virginia, told Grow last fall. Hall sold her own home during the pandemic and got almost 20 offers. She and her husband ultimately sold it to a family who had written them a letter. The family "just reminded us of ourselves," Hall said.
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