- The Solar Belt dominates Zillow’s listing of hottest housing markets for the second yr in a row. Tampa, Jacksonville, Raleigh, San Antonio and Charlotte are anticipated to steer the U.S.
- Final yr’s hottest market, Austin, fell to No. 10 this yr.
- New York, Milwaukee, San Francisco and Chicago are anticipated to be the best housing markets in 2022, however sellers may have the higher hand even in cooler markets.
The housing market in 2022 is anticipated to stay scorching total, with lots of the similar tendencies that drove the market to new heights this yr nonetheless firmly in place as we head into the New Yr. However whereas the entire nation’s 50 largest markets are anticipated to develop healthily in 2022 and sellers nationwide ought to count on to stay within the driver’s seat, there could be just one Quantity One – and Zillow expects Tampa to high the listing, with a bunch of comparatively inexpensive and fast-growing Solar Belt markets following carefully behind.
Jacksonville, Raleigh, San Antonio and Charlotte fill out the listing of the highest 5 hottest markets for 2022, every buoyed by a mixture of robust forecasted dwelling worth progress, robust financial fundamentals together with excessive job progress, fast-moving stock and plentiful seemingly consumers. Moreover, these markets have traditionally not been notably delicate to rising mortgage rates of interest or a slowing inventory market – two danger elements for housing and the financial system total because the calendar turns.
The best markets of the yr are anticipated to be New York, Milwaukee, San Francisco, Chicago, and San Jose – every characterised by comparatively fewer new jobs and fewer favorable demographic tendencies than different giant markets, although nonetheless all anticipated to fare simply high-quality on their very own subsequent yr.
Worth Development
Dwelling worth progress in 2021 persistently broke information, each nationally and in lots of native markets. This progress has been fueled by traditionally low mortgage rates of interest, pandemic-influenced selections on the place households wish to dwell, and demographic shifts – each from growing old millennials and retiring/downsizing boomers – which have all mixed to maintain housing demand very excessive. On the similar time, stock of accessible housing has been restricted, as builders play catch-up after years of underbuilding and sellers listing their properties in fewer numbers. None of these tendencies is anticipated to vary a lot in 2022 from 2021, and restricted housing provide coupled with sky-high housing demand is a traditional Econ 101 recipe for rising dwelling values.
That mentioned, lots of the quickest rising markets in 2021 are anticipated to sluggish considerably in 2022, making manner on the high for different markets. Tampa is anticipated to rise from fourth-fastest dwelling worth progress in 2021 to quickest in 2022, Raleigh from third to second and Jacksonville from seventh to 3rd. The fastest-growing markets in 2021, Austin and Phoenix, are anticipated to fall to seventh and eighth, respectively.
Stock & Velocity
Each restrictive provide total – fewer sellers keen to promote, fewer properties constructed by builders – and sky-high demand can each result in low stock. The previous might be self-explanatory, however the latter can be fascinating: When demand could be very excessive, even a good variety of properties available on the market can nonetheless promote in a short time given a excessive variety of consumers, contributing to an total low stage of properties available on the market at any given time even when the tempo of latest listings is wholesome. And when new listings are rapidly snatched up, it’s seemingly which means some consumers had been neglected, both shifting too sluggish to safe a house whereas it was available on the market, or not having the ability or keen to make a aggressive sufficient supply.
We are able to see the place consumers had the toughest time discovering a house in 2021, and so the place there will be the most pent up demand in 2022. The fewest (standardized) itemizing days per dwelling had been in New Orleans, Cleveland, and Kansas Metropolis. These markets are forecast to have much less deceleration than most different markets as properly.
Job Market & Constructing
Whole nonfarm payrolls stood 2.1%, 3.1 million jobs, decrease this November than in November 2019. On the similar time (November 2019 to October 2021), 3.1 million new housing items had been licensed by constructing permits. So nationally, now we have misplaced nearly precisely one job for each new housing unit constructed. Because the labor market recovers, a number of main metros have truly added extra jobs than new items – regardless of the pandemic. Tampa added 0.63 added jobs per new unit, second solely to Salt Lake Metropolis at 0.99 added jobs per new unit. Additionally with job good points had been Phoenix, Austin, Jacksonville, Dallas, Raleigh, and San Antonio.
Demographics
Child Boomers and millennials characterize two huge generations, each very energetic within the housing market. Boomers are hardly exiting the market as they age, staying energetic and buying properties within the Solar Belt as they retire and/or transfer to be nearer to grandchildren and many others. And millennials are simply starting to age into their prime dwelling shopping for years as they hit their early-mid thirties, a time when many People historically start to calm down, begin households and assume in another way about the kind of dwelling and kind of neighborhood they need and want.
The boomer tide within the for-sale housing market is anticipated to proceed to rise for a minimum of the following 8 years; youthful millennials might be hitting first-time dwelling shopping for age at about the identical time, that means the 2020’s might be a interval of sustained underlying demand within the housing market. Yr by yr these results might be felt in another way throughout markets. In 2022, the market with probably the most demographic elevate within the for-sale market is Austin, with a development suggesting the formation of three.4% extra proudly owning households (assuming there are properties obtainable for them to purchase). Orlando follows at 2.8%, after which Tampa at 2.7%. Of the biggest 50 markets, 29 have pure proprietor family progress exceeding 1% in a single yr, the rule-of-thumb charge at which the housing inventory will increase nationally. The markets with the least demographic strain for progress are Pittsburgh, Hartford and Buffalo.
Dangers
There are two giant recognized danger elements for housing markets in 2022. First, mortgage rates of interest are anticipated to rise in 2022, making dwelling loans dearer for aspiring consumers. On the margin, this is able to prohibit the stock accessible in the costliest markets, probably driving up competitors for the lowest-priced properties in these markets or eradicating them from consideration altogether. Traditionally, dwelling worth appreciation within the following markets has robust adverse correlation with rates of interest — so if rates of interest go up, these markets are prone to sluggish probably the most: San Diego, New Orleans, Washington DC, Los Angeles, San Jose and San Francisco.
Second, forecasts on the efficiency of shares are extremely large, with analysts’ 2022 year-end targets starting from -7% to +13%, slower progress in any case than what we’ve seen within the final 2 years if not declines. A slower inventory market would imply consumers are bringing comparatively much less to the desk for a down fee in 2022. This may most have an effect on markets the place there are numerous first time consumers or the place extra consumers are getting into from decrease value areas, bringing much less fairness from their earlier dwelling. (Or if housing is handled as an asset it might imply a substitution to housing within the subsequent few months. What follows addresses solely the draw back danger.) Within the following markets, progress has robust constructive correlation with inventory market returns — so if the inventory market falters subsequent yr, we’d count on dwelling worth progress in these locations to sluggish disproportionately: Phoenix, Las Vegas, Cincinnati, Hartford, St. Louis, Miami, Cleveland, Los Angeles and San Jose.
Methodology
The ultimate index was based mostly on the next information:
- Forecasted annual dwelling worth appreciation in Nov. 2022
- Forecasted acceleration in dwelling worth appreciation, Nov. 2021-Nov. 2022
- Standardized itemizing days per dwelling, Jan. 2021-Nov. 2021
- 2-year change in whole non-farm employment per 2-year residential constructing allow whole
- Projected change in proprietor households, 2021-2022
Metrics had been normalized given the obtainable metro-level information to plain deviations from the imply, with imply and customary deviation weighted based mostly on housing unit counts. Customary scores had been capped at ±1.96 in order to not overly penalize any metro for excessive information factors. The ultimate index was reached by taking the typical throughout metrics, with standardized HPA acceleration down-weighted by half.
Dwelling values and anticipated dwelling worth progress had been taken from revealed Zillow Dwelling Worth Index and Zillow Dwelling Worth Forecast information obtainable on the time of study (information by way of November 2021 and forecast information by way of November 2022 was the most recent obtainable).
Stock and velocity are represented by standardized itemizing days per dwelling, utilizing revealed Zillow information for Median Days to Pending and New Listings. Just like a metric of stock, it will seize each the variety of properties and velocity of sale. Nevertheless, markets differ structurally such that point on market isn’t all the time immediately comparable for gauging relative market warmth. To right for these variations we modify Median Days to Pending utilizing pre-COVID area mounted results. Then we multiply by new listings to get standardized itemizing days, after which divide by the whole variety of properties to place metros of various sizes on the identical scale.
Job market and constructing information took the ratio of the change in employment to the whole permitted residential buildings. Whole non-farm employment (seasonally adjusted) comes from the U.S. Bureau of Labor Statistics Present Employment Statistics survey. We used the 2-year change in employment Nov. 2019-Nov. 2021.
Constructing allow information comes from New Personal Housing Buildings Approved by Constructing Permits (BPPRIVSA), retrieved from FRED, Federal Reserve Financial institution of St. Louis. We sum over the 2-year interval Oct. 2019-Oct. 2021.
To evaluate the underlying demographic strain within the for-sale housing market, we used the projected change in home-owner households 2021-2022. This projection accounted for inhabitants growing old and migration patterns. Knowledge got here from the American Neighborhood Survey (2018 ACS 5-year pattern, 2019 ACS 5-year pattern, and 2019 ACS 1-year pattern) downloaded from IPUMS USA, College of Minnesota, www.ipums.org.
Within the first stage, we used the bigger 5-year pattern to calculate entry and exit from the inhabitants (on account of start, migration, loss of life) by age. For every start cohort the age-specific outflow was set to be the distinction between the cohort’s inhabitants in 2019, much less in-migration, and the cohort’s inhabitants in 2018. The inhabitants influx and outflow divided by the inhabitants in 2018 yielded the speed of change getting into their 2019 age.
Within the second stage, we utilized the age-specific charges of inhabitants change to the 1-year pattern, iterating over 2020-2022. We filtered to ages 18-89 to keep away from low inhabitants counts and unreliable migration tendencies on the highest ages. Retaining fixed the noticed age-specific share of the inhabitants who’s the top of family of an owner-occupied housing unit (the “owner-headship charge”), we calculated the proportion change within the variety of owner-heads anticipated in 2022, in comparison with 2021, by age. Summing these adjustments gave us a demographically anticipated charge of enhance in home-owner households in 2022.
All inhabitants and owner-headship counts had been smoothed throughout ages over a 5-year centered window previous to taking charges and adjustments.
[1]On the time of publication, the Zillow Dwelling Worth Forecast solely lined the interval ending November 2022. All through this piece, this information for the primary 11 months of 2022, however not the complete yr, is used ass a proxy for full-year 2022 information.