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The housing market has been booming during the COVID-19 crisis, but America’s cities are taking it on the chin.

And while big cities like New York and San Francisco, in particular, are struggling with falling prices, values in less densely populated cities such as Phoenix and Charlotte, North Carolina, are holding up fairly well, a new analysis shows.

The study underscores that the spread of the virus and the trend toward remote work are driving the housing market, and may continue to restrain price growth in very crowded urban areas while boosting gains in more suburban areas for some time.

Since the virus began to take a significant toll on public health and the economy in March, many Americans have been fleeing cities for suburban and rural areas both to minimize the risk of contagion and take advantage of remote work policies during the crisis, says economist Troy Ludtka of Natixis, an investment banking firm. Those factors, he says, have bolstered home sales. Analysts believe the teleworking shift will at least partly continue even after the outbreak is over.

Also, many Americans, who are still spending an inordinate share of their days at home despite gradual business reopenings, are hunting for houses with more indoor and outdoor space, according to Redfin, a national real estate brokerage.

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Home prices in New York City have fallen since the pandemic began. (Photo: Eloi_Omella / Getty Images)

Also underpinning strong sales are historically low mortgage rates, says Todd Teta, chief product officer for ATTOM Data Solutions, a real estate research firm.

In the four weeks ending Sept. 20, home sales were up 13.6% annually in U.S. suburbs, 13% in rural areas and 8.8% in urban areas, according to a Redfin study. Home prices rose 16.6% in rural areas, 13.7% in the suburbs and 13.1% in urban districts, Redfin figures show.

In many cases, the most densely populated cities have suffered sharper price declines or very modest increases because of higher contagion risk, according or a Natixis analysis.

“There’s a bifurcation,” Ludtka says. “People are less likely to purchase homes in areas where they may get sick.”

Among 20 cities in the S&P CoreLogic Case-Shiller’s composite price index, 11 fell short of the 2.9% national price gain from March through July (the most recent data available) while nine topped that increase. New York and San Francisco, the two most crowded cities – at 28,000 and 19,000 residents per square mile, respectively – were most affected by depressed prices, the Natixis analysis shows.

In New York, prices fell for three straight months and were down 0.3% in July from March levels, Natixis figures show. In San Francisco, prices dipped in two of the most recent three months prices and were up less than 1% since March.

Among other underperformers, prices edged up 1.5% in Miami (ranked fourth in density), 2.4% in Chicago (ranked fifth), 2.6% in Los Angeles (ranked 10th), and 2.6% in Washington, D.C. (ranked seventh).

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Other measures show even sharper price declines in some areas. Median prices in Manhattan tumbled from $1.7 million in February to $1.2 million in June, according to ATTOM Data Solutions, a real estate research firm.

Meanwhile, less tightly-packed cities fared better than average. From March to July, prices increased 4% in Phoenix (ranked 34th), 3.2% in San Diego (ranked 23rd), and 3.4% in Charlotte (ranked 37th), according to the Natixis data.

“Some of the most popular places to buy a home are in the suburban outlying areas of major cities,” says Daryl Fairweather, Redfin’s chief economist.

Not every crowded city is seeing home prices suffer because of the pandemic and not all cities with more elbow room are prospering, the study shows, since other factors such as an area’s economy may loom larger, Ludtka says.

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Boston home prices, for example, were up 3.1% in the March-July period, though the city ranks third in population density. And prices have increased just 1.8% in Tampa even though the city is a relatively low 46th in density.

But there’s little doubt that the pandemic has upended the real estate market.

In New York, condo and co-op sales had just started to recover in January after the 2017 tax code changes, which curtailed deductions for expensive homes, held down activity, says Martin Freiman, a Redfin broker. Since the crisis began, however, Redfin is handling about 600 sales a month in Manhattan, down from about 1,100 pre-pandemic, and prices have been reduced an average of about 10%, Freiman says.

“Everybody just left the city en masse,” he says. “People just stopped buying homes…You have an open house and no one shows up.”

If companies such as Facebook and Google return to their New York offices to some extent by next spring, Freiman foresees young professionals helping rejuvenate the market. But another fertile buyer segment – empty-nesters looking to patronize Broadway and other city amenities – may be diminished long-term, with older Americans more vulnerable to COVID-19.

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