Smaller is better? Emerging Housing Markets Study 2023 – DS News
The fall season is expected to offer a little respite for homebuyers as temperatures drop, according to the latest news Wall Street Journal (Wall Street Journal)/Realtor.com Emerging Markets Housing Index. After a slow summer market due to widespread unaffordability, mortgage interest rates reached their highest level in more than two decades in October, rising to 7.57%. Home prices also increased compared to last year, according to the report.
Prospective homebuyers face not only rising housing costs, but also a scarcity and diminishing housing supply. Many homeowners are stuck with mortgage loans at rates lower than current numbers, making them reluctant to sell their homes. As a result, for-sale inventory declined significantly, and existing home sales stalled as a mismatch between homebuyer demand and for-sale inventory constrained the market. New construction was a welcome alternative over the summer, but higher mortgage rates weighed on buyer activity and construction sentiment, and new home sales fell 8.7% in August.
Some homebuyers facing high housing costs are choosing to withdraw from the market altogether. However, even with increasing affordability challenges, the tension between reduced buyer demand and perhaps reduced seller activity is keeping upward pressure on prices. After slight declines this summer, the national average listing price has returned to above the previous year’s levels over the past two months and registered 40% above pre-pandemic levels in September. Homes spent a longer day on the market than a year earlier in September, but time on market was still two weeks less than before the pandemic. Although housing activity has slowed nationally, demand in affordable areas is keeping inventory conditions tight, price growth strong, and time to market fast.
Today’s homebuyers face high inflation rates, scarce home inventory, and persistently high home prices, making home buying difficult for many. The Wall Street Journal/Realtor.com Emerging Housing Markets Index highlights housing markets that offer home shoppers a lower cost of living, including townhouses, and thriving local economies that are attractive but not too crowded.
Top 10 Emerging Housing Markets for Fall 2023:
- Topeka, Kansas (population 231,783)
- Elkhart-Goshen, IN (206,890)
- Oshkosh-Nenah, Wisconsin (170,718)
- Fort Wayne, Indiana (426,076)
- Lafayette-West Lafayette, Indiana (226,452)
- Racine, Wisconsin (195,846)
- Manchester-Nashua, New Hampshire (426,594)
- Concord, New Hampshire (156,020)
- Columbus, Ohio (2,161,511)
- Johnson City, Tennessee (210,256)
Homebuyers are getting more for less in some markets.
Home listing prices began rising again annually in August, driven in part by competition among homebuyers for scarce inventory. While the cost of purchasing a home has stabilized or decreased in some areas, lower-priced areas have gained popularity, resulting in accelerated price growth. Despite the rise, prices in 15 emerging housing markets in the fall were below the national average of $430,000 in September. The housing market has not yet made significant strides toward affordability, and as a result, emerging markets in the fall of 2023 will continue to rely heavily on affordability directly or relatively. The lowest-priced area on the list, Springfield, Ohio, offered a 54% savings on the median-priced home compared to the national level in September.
Demand for housing continues to outpace inventory as price growth and for-sale listings decline.
Although homebuyers are drawn to these areas because of low prices and positive quality-of-life metrics, they face low inventory, high prices, and a fast-paced market. The median price of a typical home for sale was slightly higher than last September nationwide, but these top markets are still seeing significant price growth year-over-year and relative to pre-pandemic levels. While the national market has seen prices slightly below or above last year’s level over the past few months, this quarter emerging markets continued to attract interest due to their affordability and attractiveness, keeping price growth strong.
Overall, mortgage rates have risen more since the last quarter, increasing pressure on homebuyers to obtain an affordable home.
The average listing price increase was 19% among the top 20 markets compared to 9.5% nationally for the 12 months ending September 2023. All major markets, except Springfield, Ohio, saw price growth exceeding the national average. Compared to pre-pandemic levels, home prices rose 69% in the third quarter of 2023, while prices nationally rose 47%.
High demand in emerging markets meant homes were selling quickly, preventing the inventory buildup that the country had seen. Inventory rose an average of 8% annually in the top 20 markets during the 12 months ending in September, lagging the 34% increase in the 300 largest metros in the same time frame. A scarcity of inventory has kept upward pressure on home prices over the past few years, as buyer demand has outstripped some supply. Compared to pre-pandemic levels, top emerging housing markets saw for-sale inventory decline by 62% on average, exceeding the national decline of 47%.
As homebuyer demand continues to outpace limited inventory, home prices have risen, and the market has accelerated. On average, homes spent 35 days on the market in the third quarter of 2023, roughly three weeks fewer than the same quarter in 2017-19. Nationally, that difference is just 13 days, as homes will spend 46 days on the market in the third quarter of 2023.
The most important housing markets are falling behind emerging markets:
- Portland-South Portland, Maine (Rank: 22)
- Akron, Ohio (23)
- Milwaukee-Waukesha-West Allis, Wisconsin (26)
- Norwich-New London, CT (27)
- Bloomington, IL (29)
- South Bend-Mishawaka, IN/MI (34)
- Columbia, MO (53)
- La Crosse Onalaska, Wisconsin/Minnesota (58)
- Sioux City, IA-NE/SD (64)
Mid-sized markets are gaining increasing popularity.
Only five of the 20 markets on this month’s list have populations of more than 500,000 people. These mid-sized metro areas are on average 46% smaller than the 300 largest metro areas in the United States. These less crowded areas also see commute times that are 5.4% lower than the national average. The largest metros on this quarter’s list are Columbus, Ohio, and Hartford-West Hartford-East Hartford, Connecticut, with populations of 2.2 million and 1.2 million, respectively. Interestingly, these two largest markets, along with three others on the list, are the state capital.
These small markets are not only desirable because of their low prices and quick commutes; It also boasts a stronger than average job market. On average, the unemployment rate is 3.2% in these markets, 0.4 percentage point lower than the 300 metro area average. The report also found that the US labor market continued to expand, adding an unexpected 336,000 jobs in September. Despite strong hiring activity, the unemployment rate rose to 3.8%, making these strong labor markets even more attractive. Only Elkhart-Goshen, Indiana, and Canton-Massillon, Ohio, have unemployment rates higher than the national average, at 4.3% and 4.0%, respectively.
Larger metros, such as Denver, Seattle, Dallas and Portland, Oregon, are among the list of metros that fell the most in this quarter’s rankings. Instead, looking at the markets that rose the most in this quarter’s rankings, we see the emergence of popularity for smaller metros. Among the biggest climbers among the top 50 emerging housing markets are Jackson, Michigan, Trenton, New Jersey, and Monroe, Michigan, each with populations of less than 400,000. Typical wages were roughly equal to the broader market average. However, homebuyers in these areas benefit from the lower cost of homeownership and the overall lower cost of living. Prices in the largest emerging markets average 94% below the national price level, although four markets have prices slightly above the national average, with Santa Maria-Santa Barbara, California, having the highest cost of living.
The highly priced area of Santa Maria-Santa Barbara, California, attracted a whopping 3.2% of its listing views from overseas shoppers, indicating that global housing demand is putting pressure on already high prices. International viewership increased 0.3 percentage points year over year in Santa Barbara, outpacing the slight increase in international viewership among the top 300 metro areas. For comparison, the average international viewership was less than half (1.3%) that of Santa Barbara.
Overall, this increase in viewership from home shoppers outside the metropolitan area underscores buyers’ desire to search more broadly for affordability. This quarter’s markets saw a larger share of non-metro viewing than the previous quarter, demonstrating the increasing push shoppers are feeling to seek affordability as mortgage rate pressure increases.
To read the full report, including more data, charts and methodology, click here.