New data from Realtor.com and the Wall Street Journal revealed the economy and housing markets are moving through a transition toward a new normal this summer, as consumers maintained an active pace of retail spending —even with surging inflation— as a strong labor market maintained upward movement on wages.
The pressure of rising prices is a prevailing headwind this year, felt by the majority of Americans across the country. The Federal Reserve acknowledged the threat that rising prices pose to consumer spending and economic growth, and has been actively engaged in hiking borrowing costs in order to cool consumer demand. After missing early signals in 2021 by calling inflation “transitory,” the central bank has accelerated its monetary tightening, with a 75 basis point increase at its last meeting —indicating that it will take more aggressive measures in the months ahead.
The economy continues to also feel the impact of global supply chain disruptions due to the ongoing Russian war in Ukraine. The international community maintains a raft of economic sanctions in response to Russia’s aggression. With inflation at a 41-year high, mortgage rates at levels not seen in over a decade, and both home prices and rents at record highs, Americans are feeling rising financial strains this summer, which are reverberating through housing markets.
Regarding demand, rising mortgage rates pushed the monthly payment for a median-priced home to $2,000 in June 2022 from $1,300 a year ago, leading to a noticeable drop-off. Buyers who may have started looking for a home three or four months ago are finding that by the time they find the right home, their budgets may no longer be sufficient enough to buy it.
On the supply side, more homeowners are listing their properties for sale, ready to move forward with pandemic-delayed plans and also take advantage of high prices. With declining competition among buyers, many homes for sale are lingering longer on the market, leading to a growing share of price reductions. In June, the share of homes on Realtor.com seeing price cuts rose to 15% of listings, more than doubling last year’s 7% during the same month.
With the feverish pace of the 2021 market behind, markets are moving toward more balance, and in line with historical trends. Unfortunately, there are not enough homes for all the people who need them, following over a decade of underbuilding.
Within a dynamically changing landscape, the summer 2022 index reveals a growing path to affordability. The top of the list is populated with housing markets displaying solid economic fundamentals, in-demand amenities and lifestyle options, along with a critical dose of affordable homes. The index also identifies markets that experts believe are good areas in which to purchase a home for homeowners and investors alike, with expectations of price appreciation complementing vibrant and diverse communities.
Realtor.com reviewed data for the largest 300 metropolitan areas in the United States. The summer 2022 ranking surfaced the following top 10 areas:
Affordability and High Quality of Life Lead Summer Housing
All of the top 20 markets in the index fall into one of two categories: affordable or outdoorsy. Twelve of the markets had a median home listing price near or below the national median during Q2 of 2022, led by Topeka, Kansas and Jefferson City, Missouri, where the median listing prices were just over $200,000.
While many of these markets have flown under the national radar, the secret about their affordable qualities has garnered much attention. The average year-over-year growth rate for the median listing price among these 12 markets is 21.6%, compared to 16.2% nationwide —a sign that buyers are still active. On the other end of the spectrum are the 8 markets on the coast or in the mountains like Santa Cruz-Watsonville, California and Boulder, Colorado, with median listing prices over $1,300,000 and $850,000.
By definition, all of our top markets are hot markets and price growth is sure to follow. Our featured markets are at different pricing stages, though. In the number one market, Elkhart-Goshen, Indiana, price growth reached a staggering 49.4% in the second quarter of 2022 as the market was the subject of highly-focused demand. Elizabethtown-Fort Knox, Kentucky, on the other hand, just broke into the top 20, and its 3.4% listing price growth rate is the lowest of the markets on the top 20 list.
The average time on market for the top 20 is 22.6 days, compared to 32.3 nationwide. In fact, all featured markets except Eureka-Arcata-Fortuna, California, see listings spend fewer days on market than the national median. The three North Carolina markets are among the metros with the shortest transaction times. Raleigh, North Carolina (11 days), Burlington, North Carolina (15 days), and Durham-Chapel Hill, North Carolina (17 days) have all seen a blistering pace of sales during Q2 of this year, as buyers chased after the relatively low cost of living in the state.
Even with high demand, prospective homebuyers pursuing affordable housing or access to the great outdoors in one of the featured markets are finding the number of options growing. On average, across the top 20 markets in the index, active listing counts were up by 33.2% year-over-year, and the number of newly-listed homes was up by 11.1%. The figures highlight a market moving toward more balance, especially compared to the national active listing growth rate of 4.9% and new listing growth rate of 4.0%. Buying a home is still difficult, with listing prices continuing to soar at the same time that mortgage rates are at their highest point since 2008, and the worst inflation since the 1980s makes saving for a down payment even harder.
Mid-sized Cities Lead the Emerging Pack
The list of top emerging markets continues to highlight mid-sized cities this summer. In the wake of dramatic changes brought about by broader responses to the pandemic, smaller metro areas away from the coasts are thriving. The populations of the Top 20 markets averaged about 402,000 in Q2, less than the 600,000 in our Spring 2022 list, and also less than half of the average for the 300 markets —which was 915,000. In addition, 9 out of the 20 cities at the top have populations below the 250,000 threshold, including this quarter’s leading metro, Elkhart.
For many, the cost premium of living in a city like San Francisco or New York has lost its luster throughout the pandemic. With changing stages of life, as well as lifestyles and budgets, many professionals are looking for better work-life balance, along with a lower cost of living.
Growing Local Economies Boost Housing
As seen in the spring 2022 report, today’s top-ranked housing markets are built on the foundation of a strong local economy. Having a solid employment base is a prerequisite for a healthy housing market, and the Top 20 list highlights metro areas with diversified economies and low unemployment. These metros have a blend of private industries, health care, higher education, along with government agencies and institutions. The strength of local markets is underlined by the 16 out of the top 20 metros which had unemployment rates at or below the national 3.6% rate in Q2 of 2022. Wages in the top markets were also slightly higher than in the entire group of 300 metro areas analyzed. Enhancing the employment picture, especially in a return-to-work age, average commute times in the top 20 cities were slightly shorter than across all metros in the index.
Active and Outdoor Lifestyles are the New Benefit
The spring 2022 report also found that many of the quarter’s top emerging markets were desirable vacation destinations. While the summer list has a slightly lower vacation profile, the Top 20 cities offer what has become a must-have benefit in the pandemic age, and will likely continue beyond: an active outdoors lifestyle. Most of the top are situated in the Sun Belt, offering a milder climate and more sunny days throughout the year. Whether it’s access to mountains in North Carolina, Tennessee, Colorado or Montana, or beach destinations like California or Florida, top emerging markets provide residents with easy access to the outdoors.
These locations are well-suited for people looking for higher quality-of-life, in any generation. For retiring Baby Boomers looking for an active lifestyle, these cities provide good weather, access to lakes, and other bodies of water, forests and other outdoor destinations, all within a lower cost of living framework. For Gen X and millennials caring for children, many of the top markets benefit from a bevy of family-friendly amenities, including good schools, parks, beaches, mountains, and vacation homes. For Gen Z, these locales are home to colleges and universities, along with a large number of employers, as well as lower-priced housing.
To read the full report, including more charts and methodology, click here.