As the Spring gets into full swing, the housing market remains a bit sluggish. Recent dips in mortgage rates have stoked home buying activity, but the market remains significantly cooler than last year. Home prices continue to soften, as the Existing Home Sales price declined for the first time in over ten years in March.
Economic indicators have shown signs of slowing, a welcomed sign that the Fed’s contractionary policy is having the intended effect. Employment activity has softened as companies slow hiring activity, though unemployment remains near record lows. Homeowners remain in a favorable position as home equity stays near record highs.
The possibility of a recession seems to be front and center for many as employment and inflation show signs of cooling. The Fed raised interest rates 25 basis points in March, noting a possible further slowing in interest rate hikes as existing contractionary measures, and stricter lending policies in the wake of bank failures, may be sufficient to cool inflation. Mortgage rates remain below November 2022 peaks, stoking some buyer demand, though overall activity remains well below pandemic-era levels. Affordability continues to weigh on buyers, even as home prices have lost steam. With today’s typical home price and mortgage rate, buyers are set up to pay 28% more to finance 80% of a home purchase than just one year ago. As a result, buyers continue to zone in on affordable areas as emphasized in previous Emerging Housing Markets releases.
As consumers continue to grapple with elevated inflation, especially in housing, the Wall Street Journal/Realtor.com Emerging Housing Markets Index highlights housing markets that offer shoppers a lower cost of living, including for homes, and thriving local economies that are attractive, but not too crowded. The index identifies markets that those considering a home purchase should add to their shortlist–whether the goal is to live in it or rent it as a home to others.
We reviewed data for the largest 300 metropolitan areas in the United States. The Spring 2023 ranking surfaced the following top areas:
With home prices still elevated and inflation easing but still well above the target level, Spring 2023’s emerging markets lean even further into affordability relative to previous quarters. Home list prices in all but two of the top 20 markets are lower than the median-priced U.S. home for sale, which was $424,000 in March. The lowest priced locale on the list, Springfield, IL, offered 66% savings on the median priced home relative to the national level in March. While the effective property tax rates in these markets are slightly higher than U.S. average at 1.2%, the estimated dollars paid are roughly half as low as we saw in Winter 2022, when lower real estate tax rates could not offset the impact of pricier housing markets.
The median price of the typical home for sale is still higher on a year-over-year basis nationwide and this is even truer among the top markets. As the national housing market softens due to still-high prices and mortgage rates, affordable metros such as this quarter’s emerging markets saw sizable price growth, outpacing the national median. Shifting buyer demand toward smaller, more affordable markets puts upward pressure on prices.
The average increase in listing price was 29% among the top 20 markets compared to 12% nationally for the 12 months ending in March 2023. All of the top markets saw price growth exceed the national rate. Each market saw double-digit price growth except Springfield, OH.
High demand led to less active inventory build up than was typical in the US. The average increase in homes for sale across the top 20 markets was 23% compared to roughly 35% nationwide compared to the prior year. Among the top 20, six saw the number of homes on the market climb faster than the national average, including three of the top five markets: Lafayette-West Lafayette, Ind., Fort Wayne, IN, and Elkhart-Goshen, IN.
Although 17 of the top 20 emerging markets saw an increase in time on market, homes sold on average 12 days faster than the average across the 300 markets ranked for the index (36 vs. 40 days). Additionally, all 20 markets outperformed this national average.
This quarter’s emerging markets are smaller than in the previous quarters with an average population less than half that of the 300-market average. Only one of the top 20 markets has more than a million residents: Columbus, Ohio although Omaha-Council Bluffs, NE-IA comes close and Knoxville, Tenn. isn’t too far behind. The nationwide jobs market continues to register a long-time low in the unemployment rate, and the emerging markets have even better employment trends. Only two of the top 20 markets had an unemployment rate above the 300-market average (3.6%) and on average unemployment in the top 20 emerging markets was just 3.0%. Even though these areas have few out-of-work job seekers, commutes are relatively easy, clocking in at just over 21 minutes compared to nearly 24 minutes on average across all markets reviewed in the index. Typical wages lagged behind the U.S. with an average weekly wage of $1,106 among the top markets compared to $1,174 among the broader market average. But this roughly 6% gap in wages is made up for in the cost of living differential. Prices in the top emerging markets on average are less than 92% of the national price level, and only one market has prices that are slightly higher than the national average. As a result amenity stores thrive in the top 20 areas with nearly 12 such stores per thousand people compared to just 7 among the markets in the broader index.
Following several quarters in which strong demand from outside the local market was the norm for top emerging markets, this spring’s top markets, on average, see a somewhat lower share of out of market shopping activity compared to the average across all markets (69.2% vs. 70.8% overall). While some markets like Manchester-Nashua, NH and Fall 2022 number one market Johnson City, Tenn. attract an outsized share of shoppers from elsewhere, others including Columbus, Ohio and Omaha-Council Bluffs, NE-IA rely more on local housing demand. Reflecting the broad trend of willingness to relocate among home shoppers, both the top emerging markets and broader index markets have seen the share of out-of-market shoppers grow more than 7 percentage points compared to one year ago with the top Emerging Markets seeing a somewhat greater increase in out of market shopping share.
Continuing on last quarter’s deviation from previous trends, Spring 2023 markets have residents who are, on average, somewhat less mobile than residents in the top 300 markets with the share of those moving just 13.1% compared to 13.5% overall. Two exceptions to this trend are Columbia, Mo. and this quarter’s number one market, Lafayette-West Lafayette, IN. In each of these markets, more than 1 in 5 residents live in a different house than one year ago.
This month’s highest-ranked emerging market is Lafayette-West Lafayette, IN, the same as last quarter in our Winter 2023 Emerging Housing Markets Index. Coming in second is the nearby market of Bloomington, IL. Located just a couple hours west of Lafayette, Bloomington is a mid-sized midwestern town is located at the intersection of I-55 and I-74, offering easy access to The University of Illinois’ hometown of Champaign-Urbana, IL to the southeast, the larger town of Peoria, IL to the Northwest, Springfield, IL an hour to the southwest and Chicago, IL two hours to the Northeast. This well-located hub enjoys access to larger metros but offers locals a lower price point.
Home to the corporate headquarters of State Farm Insurance Co., other major Bloomington-Normal employers include Illinois State University and Rivian, a maker of electric trucks that has been ramping up employment in its production facility in the area.
The typical home for sale in Bloomington was listed for $339,000, a 20% discount compared to the national median for March. Listing count slowed significantly relative to the previous year in March, but homes still spent less time on the market than was typical nationally.
More than half of views to properties in Bloomington come from outside of the metro, with particularly sizable out-of-metro attention from the Chicago area. This share increased by 6.1% in Q4 of 2022 compared to the previous year, indicating a pick up in out-of-metro demand.
Coupled with neighboring Normal, IL, locals can enjoy historical sights, as well as the Miller Park Zoo, and the extensive Bloomington-Normal Constitution Trail, perfect for walking, jogging and cycling. The town also hosts the annual Illinois Shakespeare Festival each summer, giving theater lovers an opportunity to gather at the historical Ewing Manor.
There are many familiar places on the list of the top 20 emerging markets: 13 members of the Winter 2022 list, most notably number 1, Lafayette-West Lafayette, Ind. This is the second quarter that this market has held the top spot. Among the markets that have remained on our list are the ever-popular southern locales Burlington, N.C., Johnson City, Tenn., and Knoxville, TN, as well as the midwestern hotspot of Columbus, Ohio, and various small- to mid-sized midwestern cities that offer affordable housing and low costs of living.
Of the seven markets that did not remain on the list from the Winter into the Spring, five tumbled a bit but remained in the top 50. The two biggest movers, Savannah, GA and South Bend, IN, which fell 61 spots and 102 spots, respectively, remained in the top half of areas studied, ranking 69th and 117th this quarter. The markets that departed the top 20 in our index included two Southern markets of Savannah, GA and Kingsport-Bristol, TN as well as Portland-South Portland, ME, and the midwestern markets of Springfield, MO, Rapid City, SD, Milwaukee, WI, and South Bend, IN. As economic conditions have changed since earlier in the year, with mortgage rates rising sharply, these largely affordable markets fell out of favor in exchange for even lower-priced areas.
Taking the places of the 7 descended markets are the six affordable Midwestern locales, plus the Southern metro of Hickory-Lenoir-Morganton, NC. Only two of the markets, Hickory-Lenoir-Morganton, NC and Waterloo-Cedar Falls, IA ascended from within the top 50, while Bloomington, IL, Lebanon, PA, Omaha-Council Bluffs, NE-IA, Janesville-Beloit, WI and Springfield, OH made larger jumps from the Winter rankings to land among the top of our Spring list. Much like the markets that stayed in the top 20, those that joined it tend to be more affordable. With the exception of Omaha, NE and Hickory, NC, these newly added markets are smaller than the size of recently descended markets.
The ranking evaluates the 300 most populous core-based statistical areas, as measured by the U.S. Census Bureau, and defined by March 2020 delineation standards for eight indicators across two broad categories: real estate market (50%) and economic health and quality of life (50%). Each market is ranked on a scale of 0 to 100 according to the category indicators, and the overall index is based on the weighted sum of these rankings. The real estate market category indicators are: real estate demand (16.6%), based on average pageviews per property; real estate supply (16.6%), based on median days on market for real estate listings, median listing price trend (16.6%). The economic and quality of life category indicators are: unemployment (6.25%); wages (6.251%); regional price parities (6.25%); the share of foreign born (6.25%); small businesses (6.25%); amenities (6.25%), measured as per capita “everyday splurge” stores in an area; commute (6.25%); and estimated effective real estate taxes (6.25%).
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Spring 2023 Wall Street Journal/Realtor.com Emerging Housing Markets Index – Realtor.com News
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