Now, I’m actually go out on a limb here and say that the “urban” part of Urban Fantasy is actually a misnomer – since urban merely suggests the presence of a city and a lot of Urban Fantasy does not contain an Urban setting while a lot of Classic or High Fantasy can, indeed, be city based.I think this has been the core of the problem with the label "urban fantasy" right from the beginning (yes, even back in my day, when Charles deLint was UF). It is also, perhaps not entirely coincidentally, the main problem with the phrase "urban legend" (I mentioned this interesting parallel in folklore/fiction labelling a couple of posts ago).
In both cases, the word "urban" was chosen for its connotations of modern, new, having to do with the here-and-now. And in both cases, it doesn't fit because neither urban fantasy nor urban legend necessarily occurs in an urban (which is to say "city") setting. And in both folklore and fiction, the word "contemporary" was suggested to replace "urban."
So we end up with "contemporary fantasy" and "contemporary legend." Neither of these is in much use among the general populace. Folklorists prefer "contemporary legend" to the more common-in-popular-use "urban legend" (at least people aren't saying "urban myth" any more). And some writers and readers, realizing that for many people "urban fantasy" is tough women (or sometimes men) fighting vampires and werewolves, have adopted "contemporary fantasy" as something that includes both that and something that maybe could be called "magic realism" (which is a genre with its own rich history, and thus a term that maybe should not be appropriated to a new use--but more on that in a future post).
The issue with using "contemporary fantasy" to refer to this kind of fiction (urban fantasy + magic realism + whatever else) is in the meaning of "contemporary." When someone says "contemporary literature," doesn't it make you think of literature written recently, as opposed to literature set recently? So for someone not familiar with genre distinctions, "contemporary fantasy" probably carries strong connotations of something written by a contemporary author, and not necessarily something with a contemporary setting. And the other issue is that some works that could be included in the same genre (or sub-genre) aren't set in the here-and-now, but may be set in the recent past or the recent future (or possibly even the not-so-recent).
Then there is the whole other issue of overlap with the horror genre (not to mention paranormal romance). Another term I'll look at in a future post is "mythic fiction," but for now I'll leave this here. I hope by the time I've looked at all the various terms and words and sub-sub genres surrounding this type of book I like so much, I'll have come to some sort of conclusion. Or at least organized my thoughts into a less rambling form.