Homebuying Migration to Suburbs & Exurbs is an Opportunity for CUs

There’s a lot of homebuying and selling taking place in the U.S. suburbs and exurbs, and the COVID-19 pandemic has only intensified the situation. Why is this trend great for your credit union’s mortgage business?

A June 2021 study published by Freddie Mac (“Rural Home Purchases Outpaced Urban Purchases Through the 2010s”) reveals why. The findings from 2010 – 2019 just might debunk some myths while also handing you new insights about urban homeowners who are either trading-up or trading sideways into the suburbs or rural areas:

• This migration trend to the suburbs and exurbs was gaining speed before COVID-19. Home purchases in rural regions are outpacing urban purchases, with rural home transactions up three percent from 2010 – 2019, suburban purchases up two percent, and urban purchases down by five percent. However, households aren’t necessarily moving too far from the advantages that cities offer.
• The share of homebuyers with a greater-than-80-percent LTV is higher in rural areas with 71 percent. This is followed by urban areas with 68 percent and suburban areas with 66 percent. Also, the share of mortgages with a DTI greater than 43 percent is highest in the suburbs and lowest in rural areas as rural property values are lower than in urban and suburban areas, so DTI ratios are also lower.
• Mortgage applicants in the suburbs showed the highest median income. This was followed by applicants in urban cities and rural areas. Incomes and mortgage loan amounts increased the most in urban cities from 2010 – 2019, while loan amounts remained the lowest in rural areas compared to both urban and suburban regions.
• There’s an increasing, steady shift toward conventional loans in all three regions. Meanwhile, the share of Federal Housing Administration (FHA) loans declined in all three areas as well. Also, the share of Farm Service Agency (FSA)/Rural Housing Service (RHS) and Veterans Affairs (VA) loans has proven to be the highest in rural areas.
• The rural market for homes is now bigger than the urban market. Since 2012, the number of home purchases in rural areas have been higher than in cities. However, when you enter-in suburban areas, these regions still have the highest absolute volume of total home purchases across all three regions.
• Most rural home sales activity takes place in proximity to adjacent metropolitan cities and suburbs. It suggests that while people may be leaving cities, they are not moving too far from city-living. If this trend continues, it could mean a higher share of home purchases in rural areas that lie within the shadow of metro areas over the next few years.
• There’s a distinction between homebuyers under the age of 45 versus those over 55, as well as racial differentiation. The younger group chooses to live in urban and suburban areas, while the older group is choosing to go rural. Also, the share of non-Hispanic white borrowers is largest in rural areas at 75 percent, followed by 59 percent in suburban areas and 51 percent in urban areas. However, the share of Hispanic homebuyers has increased in all three areas between 2010 and 2019, a huge mortgage opportunity.

As members move from urban areas to more rural and suburban neighborhoods, credit unions can expect a change in loan product demand and diversified member qualifications. By understanding these changes your credit union can better serve members by providing the mortgage products that help them meet their financial goals.