Whether you’re looking to buy or sell a home in 2019, it helps to know the landscape of the marketplace. In many housing markets, the trend of a low supply of homes available compared to the number of buyers has been driving prices up significantly in some areas.
Lately, however, this factor could be waning in many markets. There are many real estate markets becoming more affordable, even as prices continue to rise — and many of these are attracting younger, millennial homeowners. On the flip side, many diverse housing markets from across the country are seeing steep increases in price as well as dangerous levels of negative equity.
After thorough analyses of home prices, mortgage affordability, demographic statistics and market health, GOBankingRates identified the top housing markets to watch right now.
From 2013 through 2016, it was more expensive to rent in Chicago. Now, it’s cheaper to rent. Yet, at the same time, Chicago’s housing market is heavily “underwater”; in other words, homes have mortgages with negative equity. In Chicago, 22 percent of homes with a mortgage have negative equity. In total, over 69,000 homes are underwater on their mortgage in Chicago.
Houston is an interesting housing market to watch. Home prices certainly rose over the last five years, reflecting the prosperity of the city’s economy and growing population.
But after big year-over-year surges from 2013 to 2014, and 2014 to 2015, home prices have leveled off. Though the median home price of $297,700 as of October 2018 is higher than last year at the same time, it’s actually less than in October 2015, when it stood at $299,500.
Las Vegas was hit particularly hard by the roller coaster ride and crash of the housing bubble, now a decade old. Since then, home prices have recovered, but have caused a key shift in the housing market.
From 2013 through 2015, it was more expensive to rent in Las Vegas. Then, beginning in 2016 and continuing through 2018, it became cheaper to rent. Now, the gap between the cost to own and the cost to rent is increasing. In 2017, your mortgage payment would have been $1,384 compared to $1,284 a month based on the median rent at the time. In 2018, mortgage payments rose to $1,679 compared to a median rent of $1,299.
From 2013 through 2016, it was always cheaper to own than rent, based on monthly mortgage payments vs. monthly rent. Then, however, in 2017, the market switched, and it became cheaper to rent in Atlanta. You can really see the shift in the numbers.
In October 2016, the median price for an Atlanta home was $275,000, which works out to an average monthly mortgage payment of $1,425, based on 20 percent down and property tax rates. That price was lower than the median rent at the time, $1,489. By October 2017, however, home prices rose to a median of $330,685, making a mortgage cost $1,665 per month vs. $1,551 in rent.
Pittsburgh went through a difficult period in the second half of the 20th century as deindustrialization caused the decline of many wealthy cities in the U.S.
In recent decades, however, the city has turned the tables, especially through the growth of its education and healthcare industries, centered on the University of Pittsburgh. This could be part of the reason why millennial homeowners have been on the rise, with the city witnessing one of the largest increases in millennial-aged owner-occupiers over a two-year period from 2015 to 2017.
Plus, owning a home in Pittsburgh is more affordable now compared to its historical affordability.
Affordability has declined over the years in Orlando. In 2013, the average mortgage payment consumed only 15 percent of household income. By 2018, it consumes over 20 percent as of September, which is actually in line with Orlando’s historical rate of 20.6 percent for the period from 1985 through 1999.
Despite this change in affordability, millennials are increasingly becoming homeowners in Orlando. Owner-occupiers aged 25-34 account for more than 12 percent of total owner-occupied households in the city as of 2017.
The Virginia Beach metro area in general is facing some housing headwinds, but Norfolk is especially noteworthy. According to Zillow’s Market Health Index, it has the worst score out of the 100 largest cities in the U.S.
Negative equity is a serious concern in Norfolk. According to the latest data, a quarter of all homes with mortgages are underwater, which is up from 22 percent as of the first quarter of the year.
Perhaps as a result of this effect on home values, home prices have barely risen in Norfolk. From October 2016 to October 2017, the median list price rose from $199,900 to $210,000, an increase of $10,100. But then price increases decelerated, and from October 2017 to October 2018, the median price increased just $2,000, from $210,000 to $212,000. This slow growth in prices could be why millennial owner-occupiers have significantly increased in Norfolk over a two-year period from 2015 to 2017.
Although Norfolk is struggling, the neighboring city of Chesapeake, Va., is doing quite well. The city has experienced a dramatic increase in millennial homeowners. In just two years, the number of 25- to 34-year-old owner-occupiers rose by more than 1,200 households, which is one of the biggest increases in the country.
Grand Rapids, Mich.
This Michigan city is seeing strong growth in millennial homeowners over the last few years. Owner-occupiers aged 25 to 34 years old comprise over 17 percent of all owner-occupied households in Grand Rapids as of 2017.
Grand Rapids is also quite affordable. According to Zillow’s mortgage affordability measure, the average mortgage payment takes up only about 14 percent of household income, which is better than the average overall and better than its historical mortgage affordability for the period from 1985 through 1999.
Right smack in the middle of Silicon Valley, Sunnyvale is an interesting housing market to watch purely because of its dizzying home prices alone. In October 2017, the median home price reached nearly $1.3 million, higher than even San Francisco. And yet, within only a year, by October 2018, that price had increased by about 15 percent, to a median price of almost $1.5 million.
Several major housing markets in this New England state have gotten noticeably more affordable in recent years. Zillow’s mortgage affordability metric represents average mortgage cost as a percentage of income, and thus the higher the percentage, the worse the mortgage affordability.
In the three metro areas of New Haven, Hartford and Stamford, this percentage has declined over the years 2013-18, meaning less income is spent on mortgage payments in these cities than in the past.
You should definitely keep your eye on housing markets in northern New Jersey, which are displaying interesting signs. Major markets such as Jersey City, Paterson and Newark have seen massive leaps in home prices over the last two years. In fact, Paterson and Newark saw home prices surge by 40 percent or more from 2016 to 2018.
That being said, North Jersey markets are also showing signs of weakness. In Paterson, 29 percent of homes with a mortgage have negative equity. And in Newark, it’s worse, with 32 percent of homes with a mortgage having negative equity.
The Bottom Line on Housing
In today’s housing market, you shouldn’t rush into a decision to buy or rent too hastily. As research has shown, the market picture can change within just a few years.
“Whether you’re just starting to save or you already have a home in mind, it’s important to take stock of your financial picture. Knowing how much you can afford can help you feel more confident during your home search,” said Kathy Cummings, senior vice president of homeownership solutions and affordable housing programs at Bank of America.
Knowing how much you can afford means you’ve got to sit down and crunch the numbers. But the effort is worth it, and it’s easier nowadays than in the past. “Use available resources to inform your homebuying journey — from creating a budget to pre-qualifying for a mortgage to closing the loan. And take advantage of recent advancements like the Digital Mortgage Experience that have streamlined the process — making it simpler and easier to apply on your own schedule and get access to specialists,” said Cummings.
Lastly, an important point to keep in mind when it comes to housing is that, even if buying a home and owning it is more costly than renting, when you own, you build equity in your home, and that means you’re building your wealth. When you own a home, you can increase your own net worth, gain access to more lines of credit and can, later on, turn a profit by selling it at a higher price.
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