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 * Home >
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 * Forecast: The 10 Most Interesting Markets to Watch in 2023

DATA & ANALYSIS

Posted on: January 04, 2023
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BUILDER


FORECAST: THE 10 MOST INTERESTING MARKETS TO WATCH IN 2023


ZONDA HAS RELEASED ITS ANNUAL LIST OF TOP HOUSING MARKETS FOR THE NEW YEAR,
LOOKING AT VARIABLES SUCH AS RENT VS. OWN MATH, NUMBER OF NEW-HOME PROJECTS
BELOW $300,000, AND LONG-TERM HIGH-INCOME JOB GROWTH.

By Ali Wolf
Adobe Stock

2023 is expected to be a complicated year for the housing market. Headwinds like
low consumer confidence levels, a potential recession, and expensive housing
costs will be working against some of the tailwinds such as a large backlog of
potential home buyers trying to make sense of the market.

Given the dynamic backdrop and based on the information we have today, Zonda
forecasts home sales, prices, and starts to be lower in 2023 compared with 2022.
As always is the case with the housing market, though, the relative strength and
weakness compared with the national forecasts will depend on where you are
located. With this in mind, we have created our annual top markets list for
2023.

Each year, we like to approach our list from a different angle:

 * In 2021, we highlighted markets that had relative growth potential driven, in
   part, by strong infrastructure and connectivity. That list was intended to
   capture the impact of changes to housing demand brought on by the pandemic.

 * Last year, our top markets list for 2022 was focused on affordability and the
   entry-level buyer segment given the rapid run-up in prices.

 * This year, we are looking at the most interesting markets to watch for 2023.

The reason we are calling these markets the most “interesting” versus the “best”
is because, while they rank high on our list, they have some lingering question
marks related to their success for the coming year.

Like previous years, we created an index to guide the analysis. We wanted to
capture the markets that offer the best combination of affordability as well as
the ability and desire for prospective home buyers to move in this market. Our
most interesting markets have strong fundamentals, but, as mentioned above, are
not necessarily expected to have a stellar year for housing demand given other
limiting factors.

The inputs to our index are as follows:

 1. Rent vs. own math. This component accounts for the attainability of the
    typical mortgage payment relative to typical rent. Despite historic price
    appreciation and high mortgage rates, there are still markets where
    ownership is cheaper than the cost of rent. We use this as a proxy for
    measuring people’s desire to continue to buy despite the recent decline in
    for-sale affordability.
 2. Percent of homes that are mortgage-free. The dramatic swing from
    historically low rates to pushing above 6% has presented problems for the
    housing market. In addition to the obvious affordability issues, there has
    been a “lock-in effect,” meaning it is increasingly difficult to convince
    new homeowners to trade in their low existing mortgage rate for the higher
    current market rate. We included the percent of homes that are mortgage-free
    in our index to account for the share of homeowners who own their homes
    outright and could more easily move. Please note, though, the data is dated
    for a few metros.
 3. Number of new-home projects below $300,000. Homes priced below $300,000 hit
    an affordability threshold that allows those with incomes in line with the
    national average to be able to afford a home. The share of these homes on
    the market, however, has been steadily disappearing given higher land,
    labor, material, and governmental costs. As rates are expected to remain
    elevated in 2023, lower priced inventory will stay in demand and markets
    that have a relatively high share of the overall market could see some
    outperformance related to sales.
 4. Change in typical payment since the start of 2022. We calculated the change
    in the monthly payment by market, which includes higher interest rates and
    market-specific appreciation trends. The markets with the largest growth in
    payments were dinged in the index.
 5. Long-term high-income job growth. The last decade-plus has seen many metros
    change the makeup of their employment market. Typically, higher-income
    individuals are more likely to be or become homeowners, so we wanted to
    track where there has been the most growth. The inclusion of this component
    highlights the potential resiliency in these metros. Note, though, we expect
    some near-term job losses related to an economic recession that would impact
    employment trends in the short term. Further, high-income job growth can’t
    prevent a housing market from slowing if either consumer confidence is
    battered or absolute levels of affordability are out of line with incomes.
    Even so, we believe this is a useful input to our index.

Putting it all together, the map below shows Zonda’s most interesting markets to
watch for 2023. Just two metros, Cincinnati and Richmond, Virginia, overlap from
our 2022 list, down from six that overlapped from 2021 to 2022.




ATLANTA

Atlanta boasts a unique combination of affordable projects in certain parts of
the metro paired with strong growth of high-income jobs. These two allow for a
lower barrier of entry to homeownership than some other large markets. Even with
that backdrop, however, affordability, especially in desirable submarkets with
good schools, is already causing the market to slow.

Stats:

 * Rent vs. own: The typical mortgage payment is $12 less expensive than
   renting.

 * Percent of homes that are free and clear: 26.9%

 * Number of new-home projects below $300,000: 57

 * Long-term high-income job growth: 48.5%

 * Payment change since the start of 2022: 72.6%

Pros: Diversified economy; a variety of things to do; a cultural hub; and
affordable compared with coastal markets.

Cons: Large wealth disparity; early signs of layoffs in entertainment sector;
bad traffic with limited public transportation; and urban sprawl.

What our experts say: “Despite a slowdown in activity in recent months, the
Atlanta metro market remains resilient and fundamentally sound. New tech- and
media-centric industry expansion, complementing consistent corporate and
institutional anchors, has spurred steady innovation and investment.
Additionally, the region retains its attractiveness to potential future
residents given its highly recognized quality of life and ongoing relative
affordability. While prospects for 2023 will likely be tempered by generally
prevailing economic conditions and cautious sentiment, Atlanta is poised to
weather the storm and preserve its position as a top metro in which to live and
invest.” —Andrew Wilson, principal, Zonda


AUSTIN, TEXAS

Austin has long been the most dominant housing market in the country, with homes
selling through before construction has completed and wait lists far exceeding
the number of homes available, but it recently has cooled significantly. Still
though, we find this market interesting given the employment backdrop.

Stats:

 * Rent vs. own: The typical mortgage payment is $953 more expensive than
   renting.

 * Percent of homes that are free and clear: 28.8%

 * Number of new-home projects below $300,000: 32

 * Long-term high-income job growth: 119.4%

 * Payment change since the start of 2022: 56.8%

Pros: Market slowed fast, and builders were willing and able to cut prices
quickly, allowing for quicker price discovery than other markets; incredible
high-income job growth; culture; lifestyle; and relative affordability for
migration buyers.

Cons: Market got overheated; speculative buying and building; uncertainty
regarding where the market goes from here; traffic buildup with limited public
transportation; significant multifamily development; and mortgage payments much
higher than pre-pandemic levels.

What our experts say: “Austin was at center stage nationally as the housing
market rocketed higher 2020 and 2021 and remains at center stage as one of the
markets declining most sharply in 2022. While employment growth remains strong,
negative sentiment and affordability concerns have weighed heavily on the
new-home market since the spring. The tech outlook is murky over the short term,
but the growing presence of companies like Tesla, Apple, Samsung, Oracle,
Facebook, etc., are long-term tailwinds for the market.” —Bryan Glasshagel,
senior vice president, Zonda


BALTIMORE

Baltimore ranked high on our index primarily due to a lower than average change
in the payment since the beginning of the year. The market lags for high-income
job growth, but the variety of employment options from both the government and
private sector supports housing demand across different price points.

Stats:

 * Rent vs. own: The typical mortgage payment is $168 more expensive than
   renting.

 * Percent of homes that are free and clear: 28.7%

 * Number of new-home projects below $300,000: 3

 * Long-term high-income job growth: 26.1%

 * Payment change since the start of 2022: 63%

Pros: Resilience related to more stable government jobs; relative affordability
compared with Washington, D.C.; great accessibility with three nearby airports
and a solid interstate highway system; and easy access to things to do.

Cons: Lingering public perception challenges; some safety concerns; and lack of
new-home supply.

What our experts say: “Baltimore continues to deal with a dearth of new-home lot
inventory. During the COVID period, metro Baltimore’s lot inventory fell to 6.5
months, one of the lowest lot supplies in the country, and community count fell
by 63% to 83 projects. Due to low inventory levels, we expect 2023
sales-per-project to remain high due to lack of new-home options. We also think
prices will be more stable than national trends. If you own entitled land in
metro Baltimore, you are in pretty good shape.” —Dan Fulton, senior vice
president, Zonda


CINCINNATI

Cincinnati ranks extremely well in our affordability metrics, in terms of both
available new homes under $300,000 as well as the price of ownership coming in
cheaper than renting. Layer in an otherwise relatively low cost of living and
variety of entertainment options, and Cincinnati stands out as an interesting
market to watch for 2023.

Stats:

 * Rent vs. own: The typical mortgage payment is $127 less expensive than
   renting.

 * Percent of homes that are free and clear: 33.3%

 * Number of new-home projects below $300,000: 47

 * Long-term high-income job growth: 18%

 * Payment change since the start of 2022: 66.8%

Pros: Low cost of living; diversifying economy; museums and sports teams; home
to several Fortune 500 companies (including Proctor & Gamble, Kroger, and Fifth
Third Bank); and low crime rate.

Cons: Less desirable weather than some other top markets; minimal rail
connectivity; and not much growth of high-income jobs.

What our experts say: “Over the past decade, downtown Cincinnati has experienced
a large revitalization with microbreweries, farm-to-table restaurants, and
entertainment venues. This is on top of the already vibrant riverfront scene
anchored by the Cincinnati Bengals and Reds stadiums. Cincinnati is a more
under-the-radar market with the city investing in its own success and is a great
place to raise a family.” —Cameron McIntosh, vice president, Zonda


HOUSTON

Houston still presents a strong affordability proposition due to the abundant
supply, with 268 projects offering homes under $300,000 and likely further
downward pressure related to the large number of units under construction and
the slowing demand backdrop.

Stats:

 * Rent vs. own: The typical mortgage payment is $25 more expensive than
   renting.

 * Percent of homes that are free and clear: 40.8%

 * Number of new-home projects below $300,000: 268

 * Long-term high-income job growth: 39.1%

 * Payment change since the start of 2022: 71%

Pros: Relatively easy regulation to help get more homes built; no state income
tax; low overall cost of living; land availability; and culturally diverse.

Cons: Large number of units under construction (Houston had over 20,000
under-construction units as tracked by Zonda, ranking second among major metros
behind Dallas); tropical storm/climate risk; heavy dependence on oil and gas
industry (though the local economy has diversified); and bad traffic with
limited public transportation.

What our experts say: “New-home price appreciation in Houston lagged behind
other Texas markets since the start of the pandemic, but an increasing
percentage of builders are lowering prices and/or increasing incentives to move
product today. While pricing pressure will likely stay in place in the Houston
market for some time, the metro, like the rest of Texas, will benefit over the
long term from a friendly business climate and relatively low cost of living.”
—Glasshagel


LOUISVILLE, KENTUCKY

Louisville stands out because of the reasonable cost of living and the more
"under-the-radar" nature of the market. Louisville’s housing market was strong
since 2020 but was not making national headlines as the growth was tamer than
seen in some other markets. As a result, though, in the face of the national
slowing in the housing market, Redfin still considers Louisville to be “very
competitive.”

Stats:

 * Rent vs. own: The typical mortgage payment is $22 less expensive than
   renting.

 * Percent of homes that are free and clear: 33.4%

 * Number of new-home projects below $300,000: 35

 * Long-term high-income job growth: 21.8%

 * Payment change since the start of 2022: 65.3%

Pros: Relatively affordable; more under the radar than some of the pandemic boom
markets; and reasonable tax environment.

Cons: Some extreme weather events; lack of public transportation; high-income
job growth has been slow despite a diverse labor force; and higher crime rates.

What our experts say: “Louisville is in an economic renaissance with new
business creation, consistent job growth, and billions of dollars of new capital
investments. For residents, Louisville offers many of the benefits of larger
cities including history, the arts, and entertainment but at a lower price and
with less congestion. This traditionally more affordable metro still offers
new-home communities priced under $300,000, and those willing to relocate are
taking notice. In fact, some potential homeowners are finding other Southeastern
markets increasingly expensive and are realizing Louisville is a great choice
instead.” —Frank Dix, vice president, Zonda


MIAMI

Home prices are still appreciating in Miami despite the slowing seen nationally.
Even after accounting for rising prices, Miami scored highest on both rent vs.
own math as well as percent of homes owned free and clear, indicating the
presence of cash buyers and rental prices favoring homeownership. Both of these,
plus corporate relocations, could lead to further mobility.

Stats:

 * Rent vs. own: The typical mortgage payment is $360 less expensive than
   renting.

 * Percent of homes that are free and clear: 46.5%

 * Number of new-home projects below $300,000: 3

 * Long-term high-income job growth: 45.1%

 * Payment change since the start of 2022: 85.4%

Pros: New corporate relocations; return of international buyers; migration;
beaches; no state income tax offering additional affordability; variety of
things to do; and a cultural hub.

Cons: Housing affordability; climate risks; cost of living; and bad traffic.

What our experts say: “Despite national economic headwinds, the housing market
in Miami continues to remain hot. Strong domestic and international migration,
limited developable land, and noteworthy financial firm relocations and
expansions continue to fuel housing demand in South Florida.” —Kristine Smale,
senior vice president, Zonda


RICHMOND, VIRGINIA

Richmond ranks highly in our index due to the relative affordability in the
metro and a high share of residents that own their homes outright. This midsized
market has good accessibility to places like Washington, D.C., to the north and
Virginia Beach to the southeast and offers residents a moderate climate.

Stats:

 * Rent vs. own: The typical mortgage payment is $177 more expensive than
   renting.

 * Percent of homes that are free and clear: 35.6%

 * Number of new-home projects below $300,000: 19

 * Long-term high-income job growth: 25.7%

 * Payment change since the start of 2022: 68.2%

Pros: Good access to interstate highway system; reasonable job opportunities,
particularly in banking and education; younger population; moderate climate; and
more affordable than Washington, D.C., or Baltimore.

Cons: More under the radar; public transit is not as developed and accessible as
other cities; and less job diversity than some nearby cities.

What our experts say: “Richmond has long been an attractive place to live for
its strong culture, solid and diverse economy, and beautiful community designs.
The work-from-anywhere trend has expanded Richmond’s market depth for new homes
and that will likely continue into 2023 and beyond. This attractive market is
not a secret—we are seeing major acquisition activity from new entrants into the
Richmond housing market and expect that trend to continue.” —Fulton


SAN DIEGO

San Diego, a place often referred to as “America’s Finest City,” offers
lifestyle, desirable weather, and a mix of urban, suburban, and coastal settings
that attracts tourists and new residents from across the country. Like other
coastal markets, San Diego suffers from geographic barriers and high regulatory
costs that inhibit new developments. The glaring and longstanding supply and
demand imbalance, however, provides a compelling case for longer-term growth for
residential building, multifamily construction, and remodeling.

Stats:


 * Rent vs. own: The typical mortgage payment is $1,495 more expensive than
   renting.

 * Percent of homes that are free and clear: 27.2%

 * Number of new-home projects below $300,000: 0

 * Long-term high-income job growth: 29.1%

 * Payment change since the start of 2022: 63.9%

Pros: Lack of development prevented cyclical oversupply; relatively large share
of high-income and high-wealth individuals; becoming a hub for biotech
employment; and low homeownership rate offers an opportunity for more attainably
priced homes.

Cons: Outsized impact of higher mortgage rates for home buyers given higher home
prices; high housing costs mean huge barrier of entry; high local taxes further
the affordability crunch; and lack of developable land.

What our experts say: “Many of the forces that contributed to rapid price
appreciation over the past two years remain in place and are helping buoy the
market against headwinds—most notably is low inventory. With just 62 active
new-home communities, San Diego County is benefiting from continued low levels
of new-home supply. Extending into the resale market where there is just two
months of detached resale supply, low supply conditions make this a very
different market cycle compared with the mid-2000s.” —Stephen Carr, vice
president, Zonda


TAMPA, FLORIDA

Tampa has been red-hot over the past couple of years and will be interesting to
watch in 2023 to see whether demand remains. The market has held up relatively
better than some other migration hot spots, but the rapid growth in home prices
combined with high interest rates threaten the strength.

Stats:

 * Rent vs. own: The typical mortgage payment is $94 less expensive than
   renting.

 * Percent of homes that are free and clear: 42.2%

 * Number of new-home projects below $300,000: 24

 * Long-term high-income job growth: 56.3%

 * Payment change since the start of 2022: 82.9%

Pros: Relatively desirable weather; variety of things to do; no state income tax
offers additional affordability; diversifying job market; and access to beaches.

Cons: Expensive relative to itself; and risk of natural disasters and tropical
storms.

What our experts say: “Tampa has been one of the top-performing markets over the
past several years, largely due to strong high-income job growth fueled by
company relocations and accelerated migration from the Northeast and the
Midwest. While some submarkets of Tampa are experiencing higher inventory levels
and pricing pressure, areas close to the urban core along primary transportation
corridors continue to outperform.” —Smale

ABOUT THE AUTHOR

Ali Wolf

Ali Wolf is the chief economist for Zonda, the largest home building prop tech
company in North America. As head of the economics department, Ali manages and
analyzes the content for Zonda, runs special research projects, acts as a go-to
advisor for the nation’s largest home builders, and presents nationwide covering
topics across the housing market and wider economy. Ali is the creator of
Zonda’s proprietary indices, including the New Home Pending Sales Index and the
New Home Lot Supply Index. Prior to joining the Zonda team, Ali worked for
another consultancy firm and was a researcher for both the Canadian and UK
Parliaments. Ali holds a Bachelor’s Degree from The Ohio State University in
Economics and a Master’s Degree from the London School of Economics in Real
Estate Economics and Finance.


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KEYWORDS:

Subject:


ECONOMIC CONDITIONS


RENTS


HOUSING TRENDS


HOUSING DATA


INTEREST RATES


MORTGAGES AND BANKING


AFFORDABLE HOUSING



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