There’s no doubt that the national real estate market has begun to shift downward. Interest rates continue to rise as the Federal Reserve attempts to stymie inflation and slow spending in the economy. The real estate industry is typically slower to react versus the stock or cryptocurrency markets. Additionally, the real estate market was propped up by demand surges caused by the pandemic from mid-2020 to mid-2022. Unfortunately, the party is over. Real estate sales volume and home prices have both declined in the past few months in many cities across the country. Both commercial and residential real estate are experiencing similar declines.

However, when the national real estate market shifts, do smaller cities too?

Values Don’t Drop As Much

Normally, values in smaller cities don’t suffer from massive drops in real estate values unless there was a bubble in that area. If the values soared to extreme all-time highs, there’s a chance that they could drop dramatically as the national real estate market shifts.

However, for smaller to medium-sized cities, like Omaha, values usually don’t plummet as much as in other major cities. For example, major cities like San Diego that experienced huge real estate booms the past few years will likely bounce back down swiftly as macroeconomic turbulence continues. Consult with a local real estate agent if you need to sell a house in a cold or hot market. They are professionals for a reason and can help you sell even when the market turns cold.

Fewer People Selling

Across the board, fewer homeowners are expected to sell their houses as the national real estate market shifts. This is because many cannot afford to move into a new place due to high interest rates. Most of the people selling their homes now will be the ones that are forced to. For example, if someone is moving out of state, they either need to sell their current home or keep it as a rental property. Unfortunately, there will be waves of homeowners that fall behind on payments if their mortgages have adjustable rates. Monthly mortgage payments will continue to rise until the Federal Reserve slows down inflation and lowers rates.

Harder for Landlords

As the cascade of negative macroeconomic issues continues, landlords eventually suffer in smaller cities. Naturally, there is less demand for rental property from potential tenants in smaller towns versus larger cities. People will always want to move to places like California even when the economy is bad. This new influx of renters relieves landlords from the pressure of not being able to find a tenant. When you have a unit vacant for multiple months, it gets challenging to keep up with the mortgage tied to that property.

Evictions also spread like wildfire in both larger and smaller cities. For example, San Diego CA is experiencing a rise in squatters as bad tenants stop paying rent but continue living in their houses. Smaller cities are not immune to squatters either. However, the process of ejecting a squatter varies per city and is typically easier to handle when in a smaller city. The police force is more open to helping landlords in smaller towns where there are strong relationships within the community versus larger cities like San Diego where there are oftentimes larger crime issues to be concerned with.

Smaller vs Larger Cities

Overall, no city is immune to the negative effects of the shifting national real estate market. Whether you own or rent, it’s important to stay on top of the market movements. It could affect you, your tenants, your landlord, and your family. Fortunately, values tend to fall less in smaller towns vs larger cities. If the city you live in experienced a huge real estate boom over the past few years, there’s a chance it could come crashing down without a soft landing.

Alex Capozzolo is the Co-Founder of Brotherly Love Real Estate, a family-run company local to Philadelphia, PA. Capozzolo enjoys educating homeowners on the market and helping them get out of tough real estate situations. Find more of his work on Brotherly Love Real Estate’s blog at brotherlyloveproperties.com/philadelphia-real-estate-blog.