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The top 10 hottest housing markets are expected to be spread across the South, Northeast and Midwest this year, according to an analysis by real estate marketplace Zillow. But a “hot” market isn’t always great for would-be buyers.
Buffalo, New York, made the top of the list, as the area is slated to see increased job growth compared to the number of approved construction permits for new homes.
“In markets where you’re going to have a ton more job creation than there is housing supply, you’re likely going to see homes move faster, stronger home value appreciation,” said Orphe Divounguy, a senior economist at Zillow.
The list is based on an analysis of home value appreciation, how long it takes to sell a home and job growth relative to housing supply. That’s important information that can help you decide where you may want to look for a home — and places you may want to avoid.
What a ‘hot’ market means for buyers
“Market heat” refers to the level of competition among buyers; when you have more buyers than sellers, you have a hot market, Divounguy said.
“These are areas where competition will be stiff among homebuyers,” he said. “The hottest market doesn’t necessarily mean market health.”
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Market growth in some areas may not correlate to newly created jobs.
Florida, for instance, is attracting baby boomer residents who are seeking warmer, tax-friendly places to retire, said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.
The claim that “the biggest share of homebuyers are baby boomers looking into warmer climates is a trope, but it’s a trope that’s true,” she said. “They’re looking into warmer areas, favorable tax conditions and better housing affordability.”
Baby boomers are also the generation that holds most of the wealth and some of them are going to be cash buyers as they can tap into their home equity.
Where the housing market is cooling
Meanwhile, home values are expected to decline this year in the “coolest markets,” or places that will be less competitive. These places are New Orleans, Louisiana; San Antonio, Texas; Denver, Colorado; Houston, Texas; and Minneapolis, Minnesota.
“It’s a matter of affordability as well; if a market has gotten less affordable … you’re likely not going to see that type of heat in the market,” Divounguy said.
Denver, for instance, was a popular attraction for homebuyers during the pandemic, but it has turned into an area where affordability was constrained.
“Denver had a massive population flow,” Lautz said. “Finding the new Denver will be important to buyers.”
Millennials will also be major buyers; most are in their prime home buying age and some have reached their peak earning potential.
Unlike baby boomers who are looking for favorable areas to retire, this cohort may be seeking employment opportunities or the ability to work remotely in new areas.