Goldman Sachs Says Urban Flight To Last For Years
Goldman Sachs expects the exodus from cities to weigh on shelter inflation. Goldman's Jan Hatzius told clients that it could take years for urban vacancies to normalize.
Hatzius' note, titled "Inflation Signal, Healthcare Noise (Hill)," had some excellent commentary on the urban exodus, aligning with our thoughts from last July when we said city dwellers fleeing metro areas could last for the next 18-24 months.
Here's what he told clients:
We expect a waning drag from urban flight on shelter inflation by next year. However, we don't expect upward pressure from this channel (relative to the pre-crisis period), because we believe it is the level of rental vacancies that is the primary determinant of shelter inflation.
We also expect at least some of the suburban relocation to prove permanent. The advent of work from home and the fact that second homes represent less than a third of 2020 home sales growth suggest it could take several years for urban vacancy rates to normalize—even with the relatively quick return to full employment that we forecast.
... and there it is: "several years for urban vacancy rates to normalize." The hope and hype of urban revivals in a post-pandemic world could get squashed as suburbanization becomes more permanent - hybrid work for white-collar workers is pushing this trend into hyperdrive.
Last month, in a note titled "Rental-Exodus Sparks Surge In Single-Family Housing Starts & Permits," we continued to outline the supporting trends of booming starts and permits for single-family homes as folks sought shelter in suburbia.
While the boom in the suburbs is still intact but could be experiencing some headwinds, especially with rising mortgage rates, housing recoveries in major metro areas will likely wane as housing supply tops demand.
Hatzius shows rents in suburban zip codes are experiencing upwards pressure due to the exodus. Meanwhile, downtown and high-density zip codes are seeing downward pressure.
Because of the social-economic chaos last summer across major metro areas, violent crime surging, and hybrid work trends due to the pandemic, the shift to suburbia will become more permanent. It will take people some time to realize that the economy will never return to pre-COVID times - a lot of structural changes have already happened in a short period.