Until recently, people were attracted to the Sun Belt for its warm weather and lack of a state income tax in Texas and Florida.
During the housing boom that raged from the beginning of the pandemic in early 2020 until just a few months ago, the Sun Belt led the way.
People were attracted to the warm weather, reasonable prices at the beginning of the boom and the lack of a state income tax in Texas and Florida. But next year, things are going to change, according to a commentary from Zillow, the real estate information service.
“While in the grip of the pandemic, the Sun Belt had a strong pull on American movers, easily meeting last year’s forecasts for an aggressive rise to housing market temperatures in 2022,” the commentary said.
“Florida markets dominated the annual appreciation leaderboard in 2022, with Tennessee, the Carolinas and Texas metro areas peppering into the top spots among the 100 largest metros.”
That won’t all go away, Zillow said. “The heat will stay on in the Sunshine State, to be sure,” it said.
Affordable Rents, Home Prices
“But as affordability has become the key driver of both supply and demand in the market, places that still feature reasonable prices are already seeing momentum shift their way, and should have the healthiest housing markets in 2023,” according to Zillow.
That means the Midwest. “Unlike nearly every other region in the U.S., prices in most Midwest metro areas haven’t run up to extremes,” Zillow said.
“Mortgage costs as a share of income are still within healthy, sub-30% levels across Ohio, Pennsylvania, Kansas, upstate New York, Iowa and smaller metros in Illinois, which will allow first-time buyers to take the plunge,” the real estate information service said.
Affordability isn’t the only issue. “Having available houses to choose from is another key component of a healthy market, and the Midwest stands out,” Zillow said. “Inventory isn’t in a massive hole compared to pre-pandemic times, and declines in new listings are smaller than the national average, encouraged by the more consistent demand from buyers.”
Rents, Home Prices Decline
Meanwhile, rents and home prices have been falling around the country for the past few months. For rents, it’s three straight months of declines through November, with a cumulative drop of 1.28%, according to RealPage, which provides services for owners of rental properties. That was the biggest three-month drop since 2010, except for the 2020 covid-lockdown period.
Home prices have been sliding too. The median price for existing-home sales totaled $379,100 in October, down 1.5% from $384,800 in September and 8.4% from a record high of $413,800 in June, according to the National Realtors Association.
“There is very little net new demand for any type of housing right now, despite strong growth in jobs and wages,” wrote RealPage chief economist Jay Parsons.
Given the lofty level of mortgage rates, renting may make more sense than buying now. The 30-year fixed mortgage rate averaged 6.33% in the week ended Dec. 8, up from 3.10% a year earlier.