This is expected to be a complicated year for the housing market. Headwinds such as low consumer confidence levels, a potential recession and expensive housing costs will work against tailwinds like a large backlog of potential home buyers trying to make sense of the market.
Given the dynamic backdrop and based on the information we have today, Zonda forecasts home sales, prices, and starts to be lower in 2023 compared with 2022. However, relative strength and weakness compared with the national forecasts will depend on location. With this in mind, we created our annual top markets list for 2023.
Each year, we approach our list from a different angle. This time, we are looking at the most interesting markets to watch for 2023.
We call these markets the “most interesting” versus the “best” because, while they rank high on our list, they have some question marks related to their success next year.
We created an index to guide the analysis. We wanted to capture the markets with the best combination of affordability and ability and desire to move. These markets have strong fundamentals but are not necessarily expected to have a stellar year for housing demand given other limiting factors.
The inputs to our index include:
Rent vs. own math. This accounts for attainability of the typical mortgage payment relative to typical rent.
Percent of homes that are mortgage-free. We included this to account for the share of homeowners who own their homes outright and could more easily move. Please note, though, the data is dated for a few metros.
Number of new-home projects below $300,000. Homes priced below $300,000 hit an affordability threshold that allows those with incomes in line with the national average to afford a home. As rates remain elevated, lower-priced inventory will stay in demand and markets that have a relatively high share of the overall market could see some outperformance.
Change in typical payment since the beginning of the year. The markets with the largest growth in payments were dinged in the index.
Long-term high-income job growth. Typically, higher-income individuals are more likely to be homeowners. This component highlights potential resiliency in these metros. However, factors such as near-term job losses related to an economic recession, battered consumer confidence or out-of-line absolute levels of affordability.
Zonda’s most interesting markets to watch for 2023:
Atlanta: This city boasts a unique combination of affordable projects in certain parts of the metro paired with strong growth of high-income jobs. These allow for a lower barrier of entry to homeownership than some other large markets. But affordability, especially in desirable submarkets with good schools, is causing the market to slow.
Pros: Diversified economy; variety of things to do; cultural hub; affordable compared with coastal markets.
Cons: Large wealth disparity; early signs of layoffs in entertainment sector; bad traffic with limited public transportation; urban sprawl.
Austin, Texas: This has long been the most dominant housing market in the country, with homes selling through before construction has completed, and wait lists exceeding homes available. But it recently has cooled significantly. Still, we find this market interesting given the employment backdrop.
Pros: Market slowed fast, and builders cut prices quickly, allowing for quicker price discovery than other markets; incredible high-income job growth; culture; lifestyle; relative affordability for migration buyers.
Cons: Market got overheated; speculative buying and building; uncertainty as to where the market goes from here; traffic buildup with limited public transportation; significant multifamily development; mortgage payments much higher than pre-pandemic levels.
Baltimore: This city ranked high due to a lower-than-average change in payment since the beginning of the year. The market lags for high-income job growth, but the variety of employment options from the government and private sector supports housing demand across different price points.
Pros: Resilience related to more stable government jobs; relative affordability compared with Washington, D.C.; great accessibility with three nearby airports and a solid interstate highway system; easy access to things to do.
Cons: Lingering public perception challenges; some safety concerns; lack of new-home supply.
Cincinnati: This metro ranks extremely well in affordability metrics, in both available new homes under $300,000 and the price of ownership coming in cheaper than renting. Layer in an otherwise relatively low cost of living and variety of entertainment options, and Cincinnati stands out.
Pros: Low cost of living; diversifying economy; museums and sports teams; home to several Fortune 500 companies; low crime rate.
Cons: Less desirable weather than some other top markets; minimal rail connectivity; not much growth of high-income jobs.
Houston: This city still presents a strong affordability proposition due to abundant supply, with 268 projects offering homes under $300,000 and likely further downward pressure from the large number of units under construction and slowing demand.
Pros: Relatively easy regulation to help get more homes built; no state income tax; low overall cost of living; land availability; cultural diversity.
Cons: Large number of units under construction; tropical storm/climate risk; heavy dependence on oil and gas industry (though the local economy has diversified); bad traffic with limited public transportation.
Louisville, Ky.: This town stands out for its reasonable cost of living and the market’s “under-the-radar” nature. Its housing market was strong since 2020 but was not making national headlines, as the growth was tamer than in some other markets. As a result, Redfin still considers Louisville to be “very competitive” in the face of the national slowing in the housing market.
Pros: Relatively affordable; more under-the-radar than some pandemic boom markets; reasonable taxes.
Cons: Some extreme weather events; lack of public transportation; high-income job growth slow despite a diverse labor force; higher crime rates.
Miami: Home prices are still appreciating here, despite national slowing. Even with rising prices, Miami scored highest on rent vs. own math and percent of homes owned free and clear, indicating cash buyers and rental prices favoring homeownership.
Pros: New corporate relocations; return of international buyers; migration; beaches; no state income tax; variety of things to do; cultural hub.
Cons: Housing affordability; climate risks; cost of living; bad traffic.
Richmond, Va.: This ranks highly in our index due to relative affordability and a high share of residents who own homes outright. The midsized market has good accessibility to places like Washington, D.C. and Virginia Beach, and offers a moderate climate.
Pros: Good access to interstate highway system; reasonable job opportunities; younger population; moderate climate; more affordable than Washington, D.C., or Baltimore.
Cons: More under the radar; public transit not as developed and accessible as other cities; less job diversity than some nearby cities.
San Diego: Often referred to as “America’s Finest City,” it offers lifestyle, desirable weather, and a mix of urban, suburban and coastal settings that people from across the country. As a coastal market, it suffers from geographic barriers and high regulatory costs. The glaring and longstanding supply and demand imbalance, however, provides a compelling case for longer-term growth.
Pros: Lack of development prevented cyclical oversupply; relatively large share of high-income and high-wealth individuals; becoming a hub for biotech; low homeownership rate offers opportunity for more attainably priced homes.
Cons: Outsized impact of higher mortgage rates given higher home prices; high housing costs mean huge barrier of entry; high local taxes; lack of developable land.
Tampa, Fla.: Red hot over the past couple years, this city will be interesting to watch to see if demand remains. The market has held up relatively better than other migration hot spots, but rapid growth in home prices and high interest rates threaten strength.
Pros: Relatively desirable weather; variety of things to do; no state income tax; diversifying job market; beaches.
Cons: Expensive relative to itself; risk of natural disasters tropical storms.
