Are the Outer Suburbs Back in Demand?

3487192117_9dde5a5d63_b Village Case single-family development in Purcellville, VA
Flickr Image Credit: Heather Elias

The number of sales closed in Washington’s outer suburbs in 2nd quarter 2016 has steadily risen to 5,433 units from a low of 3,613 in 2nd quarter 2011. The outer suburbs also showed the most improvement of any regional subarea in average days on market, dropping to 47 in the current quarter from 54 in 2nd quarter 2015. Among the outer jurisdictions, Loudoun County led the way with DOM dropping from 53 to 39 during the same period, while Prince William County experienced the largest improvement in average sales price with a 2.0% increase.

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Stubbornly low energy prices in the past year have provided a strong incentive for buyers to look for newer homes further from the city since commutes are not as costly as in the past. Builders are also procuring land further from central cities in search of wider profit margins, as land prices are currently rising faster than construction costs. In these new, further-out locations, builders are catering to the underserved entry-level buyer demographic. This opportunity is especially apparent in the present recovery from the Great Recession, as first-time buyers currently comprise only 30% of the market, compared with the historic average of 40% as stated by Fitch Ratings.

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According to the Joint Center for Housing Studies of Harvard University, another reason homebuyers have begun taking a second look at communities further from the urban core is the lack of affordable housing in the existing inventory in central cities and inner suburbs. In the aftermath of the collapse of the housing bubble, investors purchased a large portion of the glut of affordable foreclosed homes. Instead of selling them as the overall housing market recovered, investors have been renting these affordable homes to households who may not qualify for a mortgage or who simply prefer to rent instead of buy. This has pushed many entry-level buyers to the outer suburbs where new entry-level inventory is being built. In the Washington region, the outer jurisdictions remain the cheapest option, with average prices trailing those of the urban core and inner suburbs.

It is still too early to tell if the recent resurgence of the outer suburbs signifies that the popularity of core urban communities was merely temporary. Moving forward, growth in metropolitan housing markets may not simply fall along the lines of outer suburbs versus inner suburbs and core urban communities as in years past, but rather, properties that are convenient to a variety of transportation, employment, and entertainment options in any subarea will likely continue to perform well. This is especially true as some suburban hubs, such as Tysons and Reston, transform into urban-oriented centers for the inner and outer suburbs.

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