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November 2015

"Incredible Values" Await Commuters

House-hunters who are willing to commute can enjoy unprecedented price discounts according to one real estate consulting firm.

"In my 26 years in the business, the price discount available to someone who is willing to commute has never been greater," remarked John Burns in unveiling an analysis by his colleagues at the firm he founded.

The analysts tested the "drive until you qualify" premise, based on industry thinking that home buyers will get behind the wheel and drive until they find a desirable home in their price range. One industry rule of thumb was $1,000 in savings per mile. "This 'drive until you qualify' discount far exceeds the industry rule of thumb today," according to analysis by John Burns Real Estate Consulting.

The analysts examined data for six markets. In addition to the Greater Seattle area, those markets included Chicago, Los Angeles, Phoenix, Southwest Florida and Washington, D.C.  They found the "commuter discount" occurs throughout the country.

In the Seattle area, the research showed that homes in Bellevue now exceed the prior peak by 9 percent, while homes in Renton (a longer commute to Seattle) remain about 9 percent below peak. "Homes in even more distant Tacoma remain 18 percent below peak," they concluded.

While the closer-in locations typically recover first after a downturn, the recovery in the outlying areas is taking much longer, the Burns firm found. They also reported the price discount for those willing to commute is as big as ever.

Burns said two countervailing demographic shifts are making this trend even more interesting. They are:

  • Fewer drivers. Only 78 percent of 20-24 year olds today drive, down from 93 percent in 1978.  Noting he didn't have the figures for older buyers, Burns commented, "Suffice it to say that more households are opting not to own a car, and Uber will likely exacerbate this trend."
  • More telecommuters. More than one-fourth (26 percent) of workers aged 26-45 say they telecommute, which compares to about 21 percent of those aged 46-55 and 16 percent of workers  aged 56-65. "The Internet has clearly enabled more knowledge workers to live wherever they want," Burns noted, but asked, "So why aren't more people opting for affordable housing on the fringes?

Possible reasons the Burns investigation identified are centered on questions about price appreciation, construction volumes, and homeownership rates.

With regard to price appreciation the analysts wonder if discounts associated with being further from job centers will return to normal, resulting in far more price appreciation in the outlying areas, or if there has been a permanent shift where homes in outlying areas will be valued at a greater than historical discount - "or is the answer somewhere in between?"

The Burns team also raised concerns about a lack of "commuter demand," resulting in low levels of new home construction. "If a permanent shift in relative value between cities has occurred, how big are the negative implications for new home construction volumes?"

Finally, the Burns analysts also raised questions about the implications for homeownership as housing close to job centers remains quite expensive. 

"Affordability still matters," Burns believes, even though his firm's research shows that outlying areas usually correct more in a downturn and take longer to recover, and they believe a growing percentage of people prefer (for many reasons) to live urban. "We expect more price appreciation in outlying areas than in better locations to varying degrees and with some exceptions," he stated.

In addition to consulting services, John Burns Real Estate provides feasibility analysis, due diligence, and market research for home building and real estate clients. The firm also provides monthly forecasts of the housing market at the metro, regional, and national levels.