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Suburban Sprawl Poised for Comeback

December 14, 2017

By Mike Sorohan 

We've heard the dire predictions about the suburbs: they're "boring" and "unimaginative." Shopping malls are dying. Millennials would rather live in cities.

Not so fast, says Zillow Inc., Seattle. The company predicted a shift toward suburban living next year as low inventory and rising construction costs reach a tipping point, forcing builders and buyers to consider new options--even "old" options such as suburban living.

Next year, Zillow said, current homeowners will look to remodel their homes rather than sell, further limiting inventory, and with limited space to add new homes in city centers, suburban sprawl will make a return. Newly built homes will be designed with both millennials and aging adults in mind, as both generations are looking for similar features.

"We're on the other side of the housing recovery, and the real estate market looks quite different than it did 15 or even five years ago," said Zillow Chief Economist Svenja Gudell. "We have a huge generation entering the market. They really want to be homeowners, and they're faced with an inventory crisis that leaves them with few options."

Gudell said home builders can't ignore this "hungry" market. "We'll start to see a rise in new construction at the more affordable end, instead of all the luxury buildings we've seen lately," she said. "However, builders are also facing high costs, so instead of adding density in cities where zoning laws and land costs often preclude affordable building, we'll see the suburbs grow and expand outward."

Other predictions for 2018:

Inventory shortages will continue to impact the housing market. The lack of homes for sale will remain a top concern in 2018, playing a significant role in rising home prices. Inventory has been falling since 2011, and there are 12 percent fewer homes for sale than there were a year ago. This will be particularly difficult for first-time homebuyers who don't have the capital from a previous home sale to help with the down payment, especially in hot markets like Seattle and San Jose.

Homeowners will choose to remodel instead of sell. Today's homeowners, wary of becoming buyers in such a limited market, will choose to remodel their homes instead of moving, worsening the inventory crisis.

"In most markets around the country, housing has become a game of musical chairs, and nobody wants to be the last one without a seat," Gudell said. "Homeowners who are looking for a change will turn to remodeling and redecorating instead of selling their home and facing the challenges of being a buyer in a sellers' market."

Baby Boomers and Millennials will drive home design. Livable design features that appeal to both millennials and Baby Boomers will be a focus in new construction. Homes will be designed to make living simple and comfortable--for example, with wide hallways that can accommodate both strollers and wheelchairs.

"New homes will be designed to be particularly appealing to the Millennial and Boomer generations," Gudell said. "Wide hallways can make it easier to move in, as well as make it easier to navigate a stroller or wheelchair through the halls. Large drawers will replace cabinets, making it easier to access everyday items that previously were hard to reach."

More entry-level homes. Builders will respond to the demand created by more first-time buyers entering the market and increase new construction of entry-level homes.

Suburban sprawl will return. The suburbs will expand as the cost of land and construction reaches a tipping point in urban areas. Urban living is popular among those looking for close access to job centers and cultural amenities, but building costs and regulations will lead to increased development in the suburbs.

Home price growth will slow. Home prices will grow 4.1 percent, according to more than 100 housing experts and economists surveyed in the latest Zillow Home Price Expectations Survey. Home values are currently growing at 6.9 percent annually.

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