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Why this real estate CEO says homebuyers are heading to sunbelt cities

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Ari Rastegar, Rastegar Property Company Founder, joined The Final Round to discuss homebuyer sentiment after seeing existing home sales soar 24.7% in July and why he says buyers are fleeing coastal cities in favor of sunbelt cities like Austin, TX.

Video Transcript

SEANA SMITH: Welcome back to The Final Round here on Yahoo Finance. Well the coronavirus pandemic is prompting city residents to move out. It's triggered a massive surge in demand for homes. For more of this we want to bring in Ari Rastegar. He's founder of Rastegar Property Company. Ari, there was a big piece in the New York Times this weekend talking about this exodus. New Yorkers, specifically, fleeing to the suburbs. How the demand out there is just insane. The homes are selling way above their asking price. I'm curious, are we making too much of this, the exodus from the major cities? Or is this unlike anything that you have seen before from your time in the real estate industry?

ARI RASTEGAR: I appreciate the question. And I actually think we're not appreciating it as big and profound as it actually is. Our joke has been that New York and California are the land of the flee, and Texas is the land of the free. And what you're finding is the reason why people are going-- there's a macro-economic discussion to be had here at a statewide government level that to do business in New York and California has become obtuse, to say the least. Elon Musk announced recently that he'll be building the largest gigafactory in the world here in Austin, Texas. They bought 1,700 acres, OK? And that is only the sixth of the other companies that are here.

So most people don't know about Austin is that Oracle's second largest office in the world? Austin, Texas. Facebook's second largest office in the world? Austin, Texas. Apple bought 140 acres, that will be delivered in 2024-2025. That will be their second largest office in the world. Google's second largest office in the world is here. They have a 1.2 million square foot office building that will be delivered around 2024. And Amazon's largest acquisition to date in Whole Foods of 13.2 billion, is founded and headquartered in Austin, Texas.

- Hey, Ari. I know you've got the Chamber of Commerce pitch down, OK? I mean, come on. Austin, it's great, right? And I actually really like Austin. It really is a great place. But what's the difference between a big city and a smaller city anywhere? Aren't all cities bad? In other words, if you're in a city, you're in a city. I mean Austin's a billion, a billion, a million people right now. So that's big. It's dangerous in terms of COVID, just as dangerous as any other city. So--

ARI RASTEGAR: No. That's not true. Actually the detriment to Austin is our public transportation. I'm not supposed to say that.

- Other cities besides Austin, by the way. OK?

ARI RASTEGAR: I'm an Austin native. I'm born and raised in Austin. It's my hometown. I'm very passionate about my city, and we owe a lot to the city, as I'm sure you all know. But no, we have not had the COVID cases that some other cities of our size. We just became the 10th largest city the country, surpassing San Jose. So when you look at those COVID deaths, there's only been 324 deaths in Austin from COVID. So in a city of a million, 324 deaths is one of the lowest of any major city in the United States.

- Fair enough.

ARI RASTEGAR: And the reason people are coming here-- I mentioned all those names not to give you just kind of an elevator pitch on Austin, I say that because that's where the jobs are. So when people are starting to think about, do I want to live from home, or am I going to have to work from home, do the Zoom and all the things that we were speaking about earlier, they have to ask themselves, do I want to be in fair weather climate? Do I really want to pay state income taxes? Do I want to have a larger space? Can I have a lower cost of living and still be close to the largest employers in the world? I think the answer is yes.

And we're seeing that houses in Austin are selling within 24 hours. The median home price in Austin went from $280,000 plus to over $350,000 in median over the last 18 months. So that's because people are coming here because there's a place to get a job.

- Ari, as somebody who wants to stay in the city, I will say I hear all of this talk of an exodus and I think, great. That's a huge buying opportunity for me, but I haven't seen the prices come down. So you look at a place like Southern California, you're still seeing bidding wars there. And actually you're seeing-- the amount of days a property is on the market has actually been slashed in half. So when are we going to see that decline? We've heard about San Francisco. You figure the next market in New York as well. We're seeing about these declines, but why aren't we seeing it reflected as drastically? Is that coming a few months down the line?

ARI RASTEGAR: Well, look. There's a few ways to look at it. California, 1.2 million people left California last year. Huge number. 150,000 of them came to Texas. And what you're starting to see on the East Coast is an exodus out of New York into Florida, which also boasts a lot of the same reasons, macroeconomic reasons, why people are in Texas. People leaving California, leaving Illinois, coming down to Texas for the reasons that we're saying.

So look, there's always going to be a reason to be in Southern California. Anybody that visits it-- my wife is from Southern California. I visit there often. It's actually my favorite area in the country to visit, and then and then leave after a few days, because the weather's perfect. You're literally living in paradise. There's always going to be a group of people that want to be in those areas.

- Ari, I guess just to follow up on this, isn't it about the availability of housing too, that there was already a lack of affordable housing even, or just housing in general in some of these cities? And finally we're starting to see a leveling off so, that doesn't necessarily lead to a huge decline in housing prices.

ARI RASTEGAR: Yeah, those cities are roommate-housing cities, as we say, right? And so what you're starting to see is those prices begin to actually come down. Certainly cap rates are starting to expand in multi-family in Southern California for the first time in maybe 30 years. New York City has, last report I read, was 25,000 vacant apartments. These are unprecedented numbers for these types of cities, and the occupants that are in San Francisco, all those major companies are moving down to Texas. Salesforce just signed the largest lease in Dallas history, in Dallas with 495,000 square feet not six months ago.

So the writing's on the wall that people are going to go where the jobs are. And if they can go get an immediate pop in their income simply by moving, have a lower standard of living, and a lower cost to rent-- because I'm still very bullish that people are going to be renting more, certainly millennials, than they are buying-- that's why people want to be there.