The nation’s hottest housing markets were popular during the pandemic and hold onto their popularity even as workers return to offices and lending rates have trended up.
By Patrick S. Duffy|
Edited by Dawn Bradbury
Feb. 14, 2023, at 3:35 p.m.
Now that the demand for housing is showing renewed signs of life amid lower mortgage rates, declining inflation and a reduced risk of recession, it’s certainly an opportune time to analyze which markets are the hottest across the country. While the term “hottest” may no longer mean desperate buyers bidding thousands over asking prices and waiving inspections, it does mean returning to the basics of healthy demand, supply and financing options.
READ: When Will Housing Prices Drop? ]
Because the U.S. News Housing Market Index incorporates so many varied data points, it provides a simple and comprehensive way to rank the covered metropolitan statistical areas (MSAs) from shivering to scorching on a scale of 1-100. Designed to work on desktops and laptops but not on tablets and phones, this interactive platform provides a data-driven overview of the housing market nationwide. Although this particular ranking leverages data from December 2022, the index is regularly updated toward the end of each calendar month.
Key Findings:
- The hottest housing markets include those markets in North Carolina, Colorado and Texas that were also popular during the pandemic, including Raleigh and Durham, Denver and Austin.
- Markets to watch that improved the most between November and December 2022 include Portland, Oregon, Richmond, Virginia, and St. Louis.
- The most resilient markets that improved the most between December 2021 and a year later include Salt Lake City, Dallas and Tampa, Florida.
Hottest Markets Overall
With regional Housing Market Index totals ranging up to 71.7 versus a national value of 64.4, the following six MSAs are the hottest housing markets ranked from first to fifth, with the third highest a tie between Austin and Durham:
- Raleigh: 71.7
- Denver: 67.5
- (Tie) Austin: 67.3
- (Tie) Durham: 67.3
- Phoenix: 66.9
- Richmond: 66.8
Besides benefitting from huge amounts of interest due to the combination of record-low mortgage rates and the desire for more living space during the COVID-19 pandemic, these markets have managed to hold onto their popularity even as workers have returned to offices and lending rates have trended up. Each MSA also offers the lure of big-city amenities without the disadvantages of the largest cities such as New York, Los Angeles or Chicago.
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The Hottest MSA for Housing Overall
The Raleigh MSA has a mix of strengths, including a relatively affordable monthly mortgage payment to income ratio, low unemployment and a healthy ratio of building permits to employment growth. However, continuing low builder sentiment, anemic housing supply and a reduced level of building permits to household growth will mean continued upward pressure on prices until more housing inventory is released to the marketplace. Here’s a deeper look at the various data points regularly tracked by the Housing Market Interface for this MSA:
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Despite its leading position in the country, the overall Housing Market Index of 71.7 for the Raleigh MSA still fell 4.5% year-over-year through December. The three subindexes covering demand, supply and financial are also calculated on the same scale of 1-100.
- Demand HMI: 73.9
- Supply HMI: 48.7
- Financial HMI: 92.6
Learn more about these subindexes and the data points they track.
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The job market in Raleigh is among the strongest in the country, gaining 35,600 jobs year-over-year through December 2022 (a rate of just over 5%) and featuring a low unemployment rate of 3.2%. According to the Bureau of Labor Statistics, most of the recent job gains in the Raleigh area have been focused in the areas of leisure and hospitality, financial activities and professional and business services.
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The median price in the Raleigh MSA rose 8.3% year-over-year to $428,000 compared with a national figure of $388,000. Although up from 1.1 months a year ago, the supply timeline of housing for sale in Raleigh at 2.2 months nearly matches the national level of 2.3 months. In both cases, however, because a healthy supply timeline for home sales is closer to six months, it’s unlikely prices will fall substantially until more supply is released for sale.
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The median rent in Raleigh rose 5.4% year-over-year to $1,744, which compares with a national median of $1,981. Although the vacancy rate of 6.0% has trended down over the past year, it is still slightly higher than the national rate of 5.8%. The vacancy rate is also more than the 5.0% rate generally considered to be equilibrium between supply and demand, thus potentially limiting short-term increases in rents.
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At the moment, the rate of mortgage delinquencies in the Raleigh area of 2.8% nearly matches that at the national level, although these rates could rise in the event of a recession. The rate of foreclosures at 0.3% remains low and matches the national level.
The U.S. News Housing Media Analysis tool interprets the sentiment from over 500 U.S. housing news articles each month. Filters allow you to tailor media results to your region, time period, source or keyword.
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In the case of the Raleigh MSA for the month of January, the most popular keywords include “North Carolina,” “Raleigh,” “Wake County” and “Durham.” Other keywords of note include “apartment,” “price” and “real estate pricing,” suggesting continued interest in households moving to new homes for sale or rent in the City of Oaks.
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In terms of place popularity keywords for January, “Raleigh” is followed by “United States,” “Charlotte” and “Durham.” However, multiple places outside of Raleigh are also included such as “Austin,” “San Francisco,” “Phoenix” and “Atlanta.”
Another U.S. News tool helps to understand and synthesize the large volumes of housing-related media published each month. This system then translates language into “sentiment” at the end of each business week. This information is aggregated into a consolidated, interactive form that you can easily access and understand. Similar to the Housing Market Index but on a more compressed scale, sentiment scores range from -1 to +1. Articles expressing the most negative sentiment earn a -1 and articles expressing the most positive sentiment earn a +1.
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According to the 1,605 articles shown above that mention Raleigh as of January 2023, they have an average sentiment of -0.02. While this is more negative than the overall national article average of -0.00, sentiment is trending up.
[
SEE: 15 Secrets to Selling Your Home Faster. ]
Markets to Watch
Another way to analyze the MSAs tracked by the Housing Market Index is to watch monthly changes. Between November and December 2022, as mortgage rates continued to trend down from their highs in October, areas including Portland, Oregon, Richmond, Virginia, and St. Louis reported increases of over 3.0 points on the main Housing Market Index. By comparison, the national U.S. index fell 4.0 points during the same period, suggesting that these MSAs merit additional attention in the months ahead.
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Most resilient markets
Given the deterioration in housing markets over the past year, a third way to analyze different MSAs is to compare how resilient they have been under pressure from multiple fronts. In this case, where the overall U.S. HMI fell 0.9 year-over-year, it actually rose in Las Vegas due to improvements in housing supply and the ratio of building permits to job growth. Also performing well relative to other MSAs year-over-year include North Port, Florida (-1.4 points to 63.7), Chicago (-1.9 points to 61.4) and Durham(-1.9 points to 67.3).
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Hottest Markets for Housing Demand
The hottest markets for housing demand are led by Raleigh and Durham. These were the only two markets with a HMI Demand score higher than the national median of 68.5. Other MSAs with relatively high demand include Denver, Phoenix and Colorado Springs, Colorado.
- Raleigh: 73.9
- Durham: 69.6
- Denver: 67.6
- Phoenix: 67.0
- Colorado Springs: 66.2
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[
READ: Top Overvalued U.S. Housing Markets ]
Hottest Markets for Housing Supply
The hottest markets for housing supply are led by Miami, Las Vegas and Philadelphia. As opposed to the Demand HMI, multiple markets reported a Supply HMI value higher than the national figure of 48.1.
- Miami: 59.6
- Las Vegas: 56.4
- Philadelphia: 55.9
- Austin: 54.0
- New York: 53.1
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About the U.S. News Housing Market Index
The U.S. News Housing Market Index is the most comprehensive collection of data points for the country’s largest metropolitan statistical areas also easily available for free on the Internet. This data is sourced from a variety of government and private sources and is referenced by clicking the i button next to an interface heading.
The overall index includes three sub-indexes:
The Demand HMI includes government data on employment, unemployment, household growth, consumer sentiment from the University of Michigan, median home sales prices from Redfin, and observed, smoothed housing rental prices from Zillow.
The Supply HMI includes government data on housing supply, rental vacancy rates, construction costs, construction jobs, builder sentiment from the National Association of Home Builders and architectural billings from the American Institute of Architects.
The Financial HMI includes government data on interest rates and access to credit, delinquencies and foreclosures from Black Knight, and ratios of monthly mortgage and rental payments to per-capita incomes calculated by the index. Monthly mortgage payments assume conventional financing with 20% down at the average monthly 30-year fixed rate reported by FreddieMac.
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