Zillow Predicts Charlotte Will Be 2023’s Hottest Market

The housing market is expected to continue to cool in 2023 as the high monthly cost of a mortgage continues to dampen sales volume.

Of course, this national slowdown will affect the nation’s 50 largest markets in different ways, and some markets appear more likely to navigate these choppy waters than others.

Specifically, Zillow expects Charlotte to be the nation’s hottest housing market in 2023, with Cleveland, Pittsburgh, Dallas, and Nashville filling out the top five. 

Zillow’s list of the hottest markets in 2023 is based on an analysis of forecast home value growth, recent housing market velocity and projected changes in the labor market, home construction activity and number of homeowner households. 

Pushing Charlotte to the top of the list is its forecasted annual home price growth, and Cleveland’s second-place rank can be attributed to its high market velocity and job growth. While Pittsburgh is the only market in the top five with forecasted household declines, it makes up for the drop in owner-occupied homes with the fourth-highest ratio of jobs added per new home permitted. 

The coolest markets of the year are expected to be San Jose, Sacramento, Minneapolis, and Denver. Each of these is characterized by expected annual home value declines and slower housing market velocity – as measured by total listing days on market – than other large markets.

Here’s a closer look at what shot these markets to the top of the list: 

Price Growth

Record-breaking home value growth ended in 2022, fueled in large part by the highest mortgage interest rates seen since 2008, though the story is varied across markets. Some, like Miami, have seen very slight home value declines, with prices even rising in some recent months. Meanwhile, formerly record-setting Austin has seen prices decline 4% compared to last December.

Even the fastest-growing markets of 2022 are expected to see significant slowdowns in the year to come. Nashville had the fifth highest annual home value growth over 2022, but is expected to drop to the eleventh place this year. Tampa, last year’s hottest market, is expected to maintain its spot as the market with greatest home value growth, and Charlotte is close behind.  

Inventory & Velocity

Where last year’s homes were being snatched up at a breakneck pace and sales abounded, this year the flow of new listings has slowed and homes are taking more than twice as long to go under contract. That said, in the markets that are still hot, homes that go pending continue to do so rapidly even as the age of inventory increases.

It’s likely that the markets in which buyers had the hardest time finding a home in 2022 will see relatively elevated demand in 2023, compared to other markets. The markets which had the fewest (standardized) listing days per home in 2022 – in other words, where the homes generally sold the fastest – were Hartford, Cleveland, and Baltimore. 

Demographics

Baby boomers and millennials represent two enormous generations, and both are very active in the housing market. Baby boomers are hardly exiting the market as they age, a departure from previous generations at the same age, and millennials are just beginning to age into their prime home buying years as they hit their early-mid thirties. 

In 2023, the market with the most demographic lift in the for-sale market is Austin, with a trend suggesting the formation of 8.1% more owning households (assuming there are homes available for them to buy). Charlotte follows at 6%, and then Jacksonville at 5.7%. There are nine markets in which there is negative demographic pressure, led by San Jose, San Francisco, and Milwaukee.

Methodology

The final index was based on the following data:

• Forecasted annual home value appreciation in Nov. 2023
• Forecasted acceleration in home value appreciation, Nov. 2022 – Nov. 2023
• Standardized listing days per home, Jan. 2022 – Dec. 2022
• 2-year change in total non-farm employment per 2-year residential building permit total
• Projected change in owner households, 2022 – 2023

Metrics were normalized given the available metro-level data to standard deviations from the mean, with mean and standard deviation weighted based on housing unit counts, and capped at ±1.96 so as not to overly penalize any metro for extreme data points. The final index was reached by taking the average across metrics, with standardized HPA acceleration down-weighted by half.

Inventory and velocity are represented by standardized listing days per home, using published Zillow data for Median Days to Pending and New Listings. To correct for structural regional differences in time on market, we adjust Median Days to Pending using pre-COVID region fixed effects,then multiply by new listings to get standardized listing days, and finally divide by the total number of homes to put metros of different sizes on the same scale.

Job market and building data took the ratio of the change in employment to the total permitted residential structures. Total non-farm employment (seasonally adjusted) comes from the U.S. Bureau of Labor Statistics Current Employment Statistics survey. We used the 2-year change in employment Nov. 2020-Nov. 2022.

Building permit data comes from New Private Housing Structures Authorized by Building Permits (BPPRIVSA), retrieved from FRED, Federal Reserve Bank of St. Louis. We sum over the 2-year period Nov. 2020-Nov. 2022.

To assess the underlying demographic pressure in the for-sale housing market, we used the projected change in homeowner households 2022-2023. This projection accounted for population aging and migration patterns. Data came from the American Community Survey (2018 ACS 5-year sample, 2019 ACS 5-year sample, and 2021 ACS 1-year sample) downloaded from IPUMS USA, University of Minnesota, www.ipums.org.

In the first stage, we used the larger 5-year sample to calculate entry and exit from the population (due to birth, migration, death) by age. For each birth cohort the age-specific outflow was set to be the difference between the cohort’s population in 2021, less in-migration, and the cohort’s population in 2019. The population inflow and outflow divided by the population in 2019 yielded the rate of change entering their 2021 age.

In the second stage, we applied the age-specific rates of population change to the 1-year sample, iterating over 2022-2023. We filtered to ages 18-89 to avoid low population counts and unreliable migration trends at the highest ages. Keeping constant the observed age-specific share of the population who is the head of household of an owner-occupied housing unit (the “owner-headship rate”), we calculated the percentage change in the number of owner-heads expected in 2023, compared to 2022, by age. Summing these changes gave us a demographically expected rate of increase in homeowner households in 2023.

All population and owner-headship counts were smoothed across ages over a 5-year centered window prior to taking rates and changes.

[1] Analysis is applied to the top 50 metropolitan areas by population, but excludes Birmingham, AL, New Orleans, LA, Buffalo, NY, Milwaukee, WI, Richmond, VA, Providence, RI, and Hartford, CT due to lack of data.

Photo Credit: Shutterstock + Zillow

Article Retrieved from Keeping Current Matters