Editor’s note: This feature originally appeared in the July issue of MReport, out now.
What makes for a “hot” real estate market? Real estate agents know it when they see it, while buyers and sellers know it when they’ve lived through one. A “hot” market can be defined as one where homes are selling quickly, measured by low days on the market, and where the houses are getting a lot of attention from buyers, measured as page-views per listing. In general, these real estate markets tend to be persistent—hot markets tend to stay hot for a while, and cooler markets tend to remain cool.
A Different Beat
A hot real estate market is likely where most homeowners and sellers would prefer to be. It’s comforting for homeowners to know that the area where they’ve invested what’s likely a sizeable chunk of their nest egg is in-demand. Being in a hot market is generally an indication that, if they needed or wanted to, homeowners could sell their home quickly, possibly even for a premium price. However, it’s a double-edged sword for a buyer.
Sure, once you make a home purchase, it’s great to know that the area you are in is in high demand, and because this demand tends to be persistent, it’s not likely to change overnight. However, the process of becoming a successful homebuyer in a hot real estate market can be exhausting and emotionally draining, even more so than the typical homebuyer’s journey.
With homes selling quickly, a buyer will likely have to make significant financial and life decisions faster than they might otherwise choose to. Moreover, in the face of abundant competition, a buyer may have to make multiple offers before they successfully secure a home.
As an industry professional, there are pros and cons as well. Being busy can be a good thing, but it comes with challenges, too. While a hot market might help listing agents, buyer’s agents may find that guiding them through an extra-competitive market requires more patience and expectation management. Additionally, lenders and other transaction facilitators may find a buyer and buyer-agent demands are higher in hotter markets, as stronger offers demand tight timelines.
The Hot and Cold of it
In general, the hottest metro areas in the country are on the West Coast, in the Rocky Mountain states, in Texas, and in the Midwest, although the hottest market in the country in April— Boston—doesn’t fit within any of these categories. Interestingly, as the housing market overall has cooled, the hottest markets in the country have also reflected this trend. Only nine of the top 20 markets are seeing homes sell at least as fast as they did one year ago, and only half of the top 20 markets are seeing more page views per listing.
Having more homes being available for sale is driving the slowdown in page views per listing, even in the hottest markets. In fact, in keeping with the national trend of more homes being available for sale this year, 14 of the top 20 markets have more active listings this year than one year ago. Among those 14 markets, all but three have more newly listed homes hitting the market this year than last year, which is helping to drive up the number of homes for sale.
The three markets with more homes available for sale and a shrinking number of newly listed homes (Colorado Springs, Colorado; Modesto, California; and Stockton-Lodi, California) are cooling relative to last year along with other markets where the number of newly listed homes is growing, but total homes available for sale are increasing even more, as indicated by homes taking longer to sell. Despite this cooling, these housing markets remain hotter than the others across the country.
A for Affordability
Other than the inherent commonalities (homes sell fast and get a lot of views from buyers), these markets also tend to be affordable, especially those that are rising in the ranking list. Taking a look at the most improved markets makes that even more apparent. Four of the five most improved markets have a lower median listing price than the national price of $310,000—the exception being Orlando, Florida, which has a slightly higher median listing price of $312,000.
Additionally, when factoring in the price of homes relative to local incomes, all of these most improved markets see the share of local median income needed to purchase the typical listing is well under the current national average of 30%. All markets, except Orlando, range from just 20-26% of monthly median income needed to finance the purchase of the typical listing.
They are notably more affordable for below-median income families, too. In each of these markets, except Orlando, the household in the 30th percentile of income can afford to purchase 19-32% of homes that are actively listed for sale, compared with just 16% of nation-wide homes that are affordable for the U.S. household in the 30th percentile of income.
What about sub-metro markets? Each quarter, Realtor.com releases data on the hottest counties and ZIP codes in the country, and we do an annual review focused on the hottest ZIP codes in the country. In previous years, affordable, close-in ZIP codes in hot metro markets have dominated the list, as they attract the younger buyers who heat up real estate markets. We’ll soon see if that trend persists.
With home prices in most U.S. real estate markets having now risen for more than seven consecutive years, affordability is a primary concern for homebuyers, especially millennials who are more likely to be first-time buyers. Homeownership rates for the young lag behind those of older households, so younger buyers are less likely to have accumulated home equity as a result of the previous rise in prices.
Nor is it only younger buyers who are concerned about affordability. Investors have tended to purchase homes in the more affordable end of the spectrum, often competing with younger and first-time home buyers for inventory.
We continue to see the dynamic of demand outstripping supply among affordable homes. For sale homes priced at $200,000 or, lower are scarce, with the number declining by 8% from a year ago as of April 2019. By contrast, the number of homes for sale priced above $750,000 grew 11% in the same period. Meanwhile, page views for the lowest-priced homes are high, 1.2 times overall page views, and growing, up 2% from a year ago. This contrasts with page views for more expensive properties, which lag behind overall page views (0.7 times) and declined 1% from a year ago.
Although price growth has slowed recently, to the point where it now lags behind the 3%-plus wage growth seen, home prices remain at an elevated level, and we expect affordability to continue to be an important factor in real estate markets for the year ahead.