According to the latest iteration of First American’s Home Price Index (HPI) report, prices increased 0.3% month over month, hitting a 10^th consecutive peak in January. But Mark Fleming, chief economist at First American, appears confident that while more new highs may be on the way, the rate of gains is cooling.

“The pace of annualized home price appreciation peaked in December, as buyers rushed to take advantage of falling mortgage rates,” he explained. “In January, the preliminary estimate of annualized appreciation cooled modestly by half a percent and is likely to slow down further in the coming months. Despite concern that house prices could decline significantly at the beginning of 2023, rate-locked potential home sellers kept supply tight, maintaining pressure on prices. Optimism that mortgage rates will fall in 2024 may incent more homeowners to sell, boosting supply and, in turn, improving affordability for buyers.”

Annual price growth in January was at a rate of 7.2% — down, as Fleming mentioned, by 0.5% from December’s 7.7% peak.

The deceleration in home price gains is evident in First American’s metropolitan-level data. None of the 30 core-based statistical areas (CBSAs) tracked by First American posted a year-over-year decrease in HPI. Of the markets within those CBSAs, Nassau County saw the largest annual HPI increase at 10.7%, followed by Anaheim, California, at 10.2%; Warren, Michigan at 9.6%; and Miami at 9.4%.

But the vast majority of those CBSAs have already left their price peaks in the rearview, Fleming noted.

“While house prices increased in all 30 markets tracked by our index over the last year, this rising tide hides the change in market prices since their peak,” he said. “Measuring the price change in each market from their post-pandemic peak reveals that house prices are below their prior peaks in 23 of the top 30 markets. Notably, house prices are currently 6% or more below their prior peak in six markets, with the largest price declines from peak in Oakland (-13.5 percent); Austin (-9.9 percent); and Seattle (-9.2 percent).”

Fleming projected hope that, after a few turbulent years, discovery of the housing market’s elusive Goldilocks price point isn’t too far at hand.

“While more supply and improved affordability should cool post-pandemic hot house price appreciation, 2024 may still be the year that house price appreciation doesn’t get too cold, but closer to just right.”

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A homebuyer with a monthly budget of $3,000 has gained nearly $40,000 in purchasing power since rates hit their recent Zenith, the Seattle-based real estate brokerage reported. In October, when 30-year mortgage interest rates averaged 7.8%, a $3,000 monthly budget would have bought a $416,000 property. With the current rate hovering around 6.7%, the same budget will buy a $453,000 home.

Put another way, assuming the current 6.7% rate, the monthly mortgage payment on a typical home, valued at approximately $363,000, is $2,545. With an interest rate of 7.8%, the monthly payment swells to $2,713. That’s nearly $200 of relief in just three months.

Even with mortgage rates around three points higher than the lows they slid to during the height of the pandemic housing boom, homebuyers are definitely noting the rate cut and coming to terms with the new norm.

“Bidding wars are picking up as mortgage rates decline and inventory stays low,” said Shoshana Godwin, a Redfin agent in Seattle. “I’ve seen a few homes get 15-plus offers recently, and one got more than 30.”

“Late last year, many listings sat on the market as buyers sat on the sidelines, hoping for rates to drop,” she continued. “Now, buyers are snapping up homes because even though rates haven’t plummeted, people are realizing that the longer they wait to buy a home, the more competition they’re likely to face.”

“Trying to time the market around mortgage rates is probably a waste of energy, as affordability is unlikely to change meaningfully in the next several months,” echoed Daryl Fairweather, chief economist at Redfin. “Instead, buyers should consider their own personal and financial circumstances: What matters most is whether the home meets your needs long term and whether you can afford it. Timing the market mattered in 2021, when we were in a golden window of record-low rates — but that window is closed.”

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AVMs are software-based pricing models that often use public records to estimate the value of a home or other real estate. Commonly known AVMs used by consumers are Zillow’s Zestimate and Redfin’s Estimate, but there are many more of these sophisticated AVMs on the market.

“The difference in predicted home values that consumers see and the accurate values that often take them by surprise could be due to a disconnect between marketing and underwriting goals.”

Today, it’s an accepted norm to show homebuyers or sellers an automated home value that is accurate enough to get their attention. But these values often fail in the level of accuracy needed to be usable for a consumer’s financial transaction. This results in a rude awakening for a seller who expects to list their home at the value they’ve grown accustomed to — or a homeowner who is dreaming about the project they can finance with their current level of equity, only to be approved for a lower loan amount.

Misleading information

The difference in predicted home values that consumers see and the accurate values that often take them by surprise could be due to a disconnect between marketing and underwriting goals. There are many business reasons why marketing and underwriting operate in silos. Highly accurate AVMs built for underwriting purposes cost more to produce than a marketing-first approach.

Marketing-based AVMs are often displayed for free to consumers in order to generate leads. Some companies may even go as far as showing a less accurate value as clickbait, hoping the homeowner will become a lead just to fix what they know to be true about their home.

It’s time to rethink this current norm, especially in today’s market where affordability is a challenge for so many. AVM providers have a larger opportunity to reduce friction in housing finance and provide viable alternatives to labor-intensive processes.

“AVMs that harness large amounts of data can perform more calculations than a human in a matter of seconds, and they provide an objective approach to value.”

Known low-quality values ultimately erode consumer confidence, particularly if no context of value accuracy is provided. To make confident decisions involving real estate, both accuracy and transparency are needed to understand a property’s value. AVM solutions need to provide a precise indication of confidence that allows someone to act upon the value with an expected outcome. It matters not only to real estate professionals but to consumers, financial institutions and investors.

Transparent approach

When consumers are shopping for homes or checking the value of their own home on their favorite site, an expectation has been created that an answer will always be available. This helps to create loyalty and confidence for return visits.

Imagine if you typed questions into Google and the searches frequently turned up zero results. Chances are, you would look for a different search option. It’s better to see something — even if it’s irrelevant to your original search — than to see nothing. The human brain wants to see results.

The problem comes when these results are not accompanied by some context of how accurate the model’s prediction actually is. AVMs are typically designed to predict a fair market sales price or an appraised value for a given property. Predicting the outcome before a sale or appraisal has happened can be a powerful tool for gauging the timing of getting a loan, listing a home or making a purchase. Knowing with certainty that a value is accurate, and that there’s a high likelihood it will be within a margin of error for a future sale or appraisal, is what actually empowers consumers to act upon the data.

Telling a friend you are 50% sure you will arrive at their house on time for dinner, versus being 98% sure, will probably change their expectations and actions. A homeowner equipped with the knowledge about the accuracy of an AVM can make informed decisions about their finances. They can better choose the timing to take advantage of their home equity, which might enable them to renovate their home, consolidate debt or send a child to college. Potential buyers with this context can ensure they are financially prepared to purchase a home. This reduces friction in the process and ultimately leads to fewer failed transactions.

With a transparent approach to communicating confidence, there will be an increased need for highly accurate AVMs to be used directly by consumers, instead of today’s two-tiered approach. Valuation accuracy can be the difference between a frustrated, discouraged homebuyer and a well-informed one. The combination of cloud-computing power, more available property data and modern technologies such as machine learning make it possible for AVM providers to increase accuracy while providing confidence in the value prediction.

Increased usage

AVMs are being increasingly used in home equity lending. With increased accuracy, instant results and lower costs compared to an appraisal, AVMs are especially suited for underwriting these loans.

When lenders market to consumers using a highly accurate AVM, they present consumers with realistic expectations. When an AVM is sufficient to satisfy underwriting requirements — typically on smaller loan sizes — it creates a more streamlined lending process and leads to better borrower outcomes.

For conforming mortgages, AVMs are not currently accepted as a replacement for an appraisal, but they can be used by underwriters in tandem with an appraisal to verify a home’s value and flag for overvaluation or undervaluation. AVMs that harness large amounts of data can perform more calculations than a human in a matter of seconds, and they provide an objective approach to value.

Historically, AVMs have been blind to a property’s current condition, which is why pairing them with a physical inspection has been key for using AVMs in lending decisions. Recent advances by innovative AVM providers and AI photo technologies have evolved the approach to include property condition as an input to the model, which produces a more accurate result. As AVMs become more accurate over time, underwriters will be able to rely on them further, and they will be used to determine whether an appraisal is required for the level of risk tied to a specific loan.

Accurate picture

Accurate AVMs can also change the way mortgage servicers interact with borrowers. AVMs help to determine when a homeowner can remove their mortgage insurance, assuring that borrowers aren’t paying for it longer than necessary. Removing the insurance requirement can help a borrower reduce their monthly payment and better understand their current equity position.

The low cost of AVMs also means that the values of properties in a servicing portfolio can be updated more frequently. This provides better tools that enable servicers to deliver the right options to current borrowers and inform them of additional opportunities to make use of their equity.

Close to 90% of mortgage holders have interest rates lower than 6%. This has created a lock-in effect where homeowners are prone to focus on improving their current property using available equity rather than moving to a different home. Servicers that use accurate AVMs can play a big part in empowering homeowners to understand all of their options and make good decisions.

●●●

It’s understandable that some would see benefits to providing consumers with mediocre information all of the time, rather than great information some of the time. The recent evolution in AVM innovation means that there is no longer a need to compromise.

Machine learning, data availability and low-cost, massive computing power provide the ability to move past today’s two-tier system and focus on giving consumers direct access to underwriter-quality AVM values. This is an exciting development for homeowners and prospective buyers alike. Whether you’re a lender, originator, underwriter, servicer, investor or consumer, it’s OK to raise the expectation of accuracy rather than deal with the norm of missed expectations. And that is good news for everyone. ●

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The CoreLogic Home Price Index (HPI) showed that national home prices reached new heights this past October, exceeding the previous year’s peak by 3%. What’s more, CoreLogic’s 2024 HPI forecast suggests a continued increase in prices that will average about 3% for the year.

Some markets saw even larger price gains over the course of last year. Miami, for example, has barely seen a dip in prices and ranked as the No. 1 large market for appreciation for 17 consecutive months. Prices in Miami increased by 11% last year for cumulative growth of 61% since the onset of the COVID-19 pandemic.

The rate of home price growth was unexpected given the loss of homebuyer purchasing power and declines in affordability brought on by higher mortgage rates. While a lack of existing homes for sale explains a lot of the pressure that drove home prices higher, a migration of higher-income households from more expensive markets to comparatively affordable markets has also played a role.

According to CoreLogic data, cross-metro migration remained elevated in 2023 after picking up pace at the onset of the pandemic. In 2019, 16% of homebuyers came from outside the metro area they purchased in. In each of the past two years, however, this share reached 23%. In other words, one in four homebuyers were from another region.

What’s more important is that the income of an in-migrating buyer tends to be higher (and sometimes a lot higher) than that of a local buyer. In Miami, in-migrating buyers have average incomes that are 59% higher than that of local buyers. The gaps in Phoenix and San Diego are 37% and 26%, respectively.

Although these three metros are interesting examples of already-pricey markets where in-migration added fuel to home price appreciation, the large income-gap differential exists in many other markets. This is particularly true of cities that tend to rank as more affordable and have recently seen considerable in-migration from other parts of the country. As the chart on this page shows, the income gap is at least 60% in Des Moines, Iowa; Grand Rapids, Michigan; and Louisville, Kentucky.

Many of the largest metros for out-migration also rank among the top markets for home equity accumulation. Los Angeles, San Jose, San Francisco, New York City and Seattle have some of the highest numbers of outbound mortgage applicants — and the average equity for a mortgaged home in these areas ranges from about $450,000 in New York to nearly $1.2 million in the Bay Area.

If an in-migrating homebuyer sold a home in one of these locations, they also had a considerable amount of cash for purchasing a new home. As CoreLogic data suggests, all-cash transactions have been on the rise. They comprised nearly 40% of all sales in fourth-quarter 2023, up from 33% in Q4 2019. ●

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Its beauty encompasses ski-ready slopes, alpine lakes, sandy beaches and glittering skyscrapers. And it’s a cultural center, where stars are born and trends are set. But for the average Californian, the cost of living is too high. Only 15% of households could afford a median-priced home as of third-quarter 2023, according to the California Association of Realtors. Consequently, California has the second-lowest homeownership rate among all states, trailing only New York.

More construction is desperately needed, but zoning issues, expensive fees, high material costs and scarce land make it difficult for developers. New zoning rules and approval processes have been implemented since Gov. Gavin Newsom took office in 2019, but most changes focus on multifamily buildings in an attempt to ease the state’s rental affordability crisis.

The number of new homes built reached a 15-year high point in 2022, but demand still isn’t being met. State officials say 180,000 new units per year are needed, with about 123,000 built in 2022. About half of those were single-family homes. The state wasn’t on track to meet that number in 2023. From January through November, 53,000 permits were authorized for new single-family homes.

Californians are getting creative to achieve homeownership, despite the challenges and a more expensive mortgage market. Many buyers are choosing to put down more money, with help from family or local downpayment assistance programs. Those who can are paying in cash or buying down interest rates. And many are choosing to “house hack.”

House hacking came to prominence several years ago, and renting out extra bedrooms to help pay the mortgage has become a relatively common practice. But Californians are leading the charge on a different kind of house hacking: the construction of accessory dwelling units, or ADUs.

Zoning changes in 2017 made it much easier to add ADUs to single-family lots in California, and construction of these units grew from 1,100 in 2016 to 20,600 in 2022 — or nearly 17% of all units built that year. ADUs are faster and less expensive to build than traditional homes.

These units can be financed with home equity loans and cash-out refinances. In October 2023, the Federal Housing Administration (FHA) property rehab financing program was updated to allow more ADUs to qualify. Additionally, FHA underwriting will now recognize both existing and anticipated rental income from ADUs to qualify borrowers. California even has a grant program to help lower-income homeowners build ADUs.

This trend may not solve the housing crisis in California, but ADUs can help homeowners afford their mortgage while raising their property value. Even if they’re not being rented, ADUs are a good option for homeowners looking to create multigenerational housing for family members without sacrificing privacy or space in their home. ●

Home sales in California, which slowed significantly in the second half of 2022, rebounded slightly in the second and third quarters of 2023 before falling again. According to the California Association of Realtors (CAR), the seasonally adjusted annual rate of existing single-family home sales in the state totaled 223,940 in November. This was the lowest rate recorded since the Great Recession and represented a 5.8% year-over-year decrease.

Bolstered by a lack of supply, median home prices rose last year. In January 2023, the median price was $751,330, the lowest since first-quarter 2021, according to CAR data. Prices wobbled but rose throughout the year to reach $822,200 in November.

Despite overall growth in home prices, California’s most expensive markets saw the most dramatic declines in the nation, according to a SmartAsset analysis of Zillow data. The Bay Area cities of Dublin, San Francisco, Palo Alto and Fremont were the four cities most impacted, with home values dropping by an estimated 13% to 15% during the year ending in May 2023.

What the Locals Say

The Greater Sacramento market has definitely slowed down in the past year, but it’s still a healthy market, in my opinion. We have a lack of resale homes on the market, but there’s a lot of new home construction in the area. Unlike the Bay Area, we have more land availability, so we have more developers who are taking some of the agricultural lands and expanding out. Our boundaries are pushing out, and we’ve got a lot of opportunity and a lot of growth.

Right now, I would say the majority of homes being purchased are new construction. They have more inventory and there’s more building going on. On the resale side, I would say it’s slowed down, but it’s still a very hot market. If homes are priced right, they’re selling in 10 to 15 days. The market is still strong, but new home construction is stronger than resale.

I’m seeing people from the Bay Area and other states that are wanting to move out of those locations. They want larger homes, larger yards, more community. We have that affordability compared to a lot of major cities in the United States. We have the ability to be outdoors all year round, with accessibility to Lake Tahoe, the Bay Area, San Francisco and Southern California. It’s a lot safer than a lot of other cities, and you have community support and that small-town feel.

3 Cities to Watch

ANAHEIM

Due to its status as an entertainment destination, Anaheim has an economy that differs from many of its Southern California neighbors. Disneyland generates billions of dollars each year for the regional economy. This once-affordable Orange County market saw a 14.2% increase in median home sales prices during the year ending in September 2023, the biggest uptick in the nation. The metro area’s median price is now $1.1 million, while the median price in the city is $875,000.

CHULA VISTA

The San Diego metro area is pricey, with households in nearly every city and suburb paying more than half of their income on major homeownership expenses. The exception is Chula Vista, the bayside city that’s south of San Diego and just north of the Mexican border. On average, homeowners here allocate 48% of their income to mortgage and real estate tax payments, with a median asking price of $725,000 and a median household income of $96,200.

BERKELEY

The Bay Area has seen home values tumble in the past year after prices shot up 36% from 2020 to 2022. Berkeley is no stranger to this phenomenon as the city’s estimated average home value fell by more than 11%, or $183,000, during the year ending in May 2023. But the highly desirable suburb, home to the University of California at Berkeley, was slightly more insulated than some of its more expensive neighbors, which saw prices plummet by as much as 15%.

Sources: Bankrate, California Association of Realtors, California Department of Finance, CalMatters, Forbes, John Burns Research and Consulting, KSWB-TV, Los Angeles Times, Office of Gov. Gavin Newsom, Orange County Register, San Francisco Chronicle, SmartAsset, The Real Deal, The Sacramento Bee

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It’s not a large slide by any means, but it’s still the first time since January 2023 that prices have slipped on a monthly basis. Per index data, prices had reached an all-time high in October, but November’s backtrack brings them back to a level consistent with pricing during the summer months of last year.

The dip coincided with 30-year mortgage rates peaking around 8%, tanking affordability even further and pushing potential buyers to the sidelines. With rates eroding by more than 1% since, price weakness may prove transitory as more homebuyers come out from the woodwork to compete for a limited number of listings.

The 20-city composite index, which tracks home prices in 20 of the nation’s largest cities, mirrored the national index in posting a 0.2% monthly decline in November. The more exclusive 10-city index fared slightly better, receding just 0.1%.

Seattle and San Francisco saw the largest monthly declines at 1.4% and 1.3%, respectively.

Notably, despite the monthly drop, prices remain up substantially year over year, due in large part to the nine-month run of price escalation. The national index reported a 5.1% annual gain in November, up from 4.7% one month prior. Some cities continued strong streaks of large annual gains.

“November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with our National Composite rising 5.1% and the 10-city index rising 6.2%,” said Brian D. Luke, head of commodities, real & digital assets at S&P DJI. Detroit held its position as the best performing market for the third month in a row, accelerating to an 8.2% gain. San Diego notched an 8% annual gain, retaining its second spot in the nation. Barring a late surge from another market, those cities will vie for the ‘housing market of the year’ as the best performing city in our composite.”   

Moreover, six cities — Miami, Tampa, Atlanta, Charlotte, New York and Cleveland — logged a new all-time high during November. On the other end of the spectrum, Portland, Oregon, is the only metro where prices are decreasing annually.

Price growth in the expensive West continues to lag other regions at just 3.0%. The Northeast posted the largest gain at 6.4%, followed by the Midwest at 6.3%. However, the gulf is narrowing; the November index saw the smallest gap between regions since the first quarter of 2021.

“The tight disparity speaks to a rising tide across the country, with less evidence of micro-markets bucking the trend,” Luke said. “The days of markets in the South rising double digits with markets in the Midwest remaining flat are over.”

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That’s according to the company’s Real House Price Index (RHPI), which measures the price changes of single-family homes adjusted for how income and interest rate changes affect consumer buying power. The index jumped 11% year over year in November, driven by an annual uptick of 0.6 percentage points in the 30-year fixed mortgage rate and a 7.7% year-over-year rise in nominal home prices.

Adjusted consumer homebuying power, according to the RHPI, decreased 3.3% yearly as median household earnings simply haven’t kept up with gains in prices and rates. Taking the adjustment in consumer homebuying power into account, house prices are 7.7% above their 2006 housing boom peak.

“For homebuyers, holding prices constant, the only way to mitigate the loss of affordability caused by higher mortgage rates is with an equivalent, if not greater, increase in household income,” said Mark Fleming, chief economist at First American. “Even though household income increased 3.4% since November 2022 and boosted consumer house-buying power, it was not enough to offset the affordability loss from higher rates and rising nominal prices.”

Even with mortgage rates remaining heightened for some time now, it’s the impact of persistently buoyant home prices that has stood out to Fleming.

“Nationally, house prices reached their peak in May of last year before gradually declining to a low point in November 2022. Since then, house prices have resumed an upward trend as housing demand continues to outpace supply,” said Fleming. “Despite affordability challenges driven by elevated mortgage rates, November 2023 data indicates that home prices reached a new peak for the tenth month in a row.”

During November, prices had declined from their recent peaks in just 15 of the top 50 markets tracked by First American. And even in those cooling markets, prices have still heated up over the past year.

Take Sacramento, for example. California’s capital is among the cities with starkest price drops between peak to November. Home prices dropped over 8% from April 2022 until early 2023, but home prices in Sacramento have regained an upward trend since. In November, the housing market in Sacramento was overvalued by approximately $217,000, per First American’s data.

Inventory woes, exacerbated by the lock-in effect spurred on by high rates, continue to keep the price needle fixed firmly upward.

“While the general expectation was that a higher mortgage-rate environment would prompt house prices to adjust downward, the lack of housing supply has kept a floor on how low prices can go,” Fleming said.

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It’s the fifth month of year-over-year increases in the HPI — a streak of gains that’s impacted somewhat by price weakness at the tail end of last year, though Selma Hepp, chief economist at CoreLogic, noted that seasonal gains are still in line with historical averages.

“This continued strength remains remarkable amid the nation’s affordability crunch but speaks to the pent-up demand that is driving home prices higher,” Hepp said. “Markets where the prolonged inventory shortage has been exacerbated by the lack of new homes for sale recorded notable price gains over the course of 2023.”

Yearly appreciation was once again boosted by significant price appreciation in the Northeast. Rhode Island (11.6% annual price growth), Connecticut (10.6%) and New Jersey (10.5%) all saw outsized price expansion year over year; six states in the Northeast Census region posted yearly growth of at least 7%.

Overall, 27 states logged larger annual gains than the national average. Areas in the aforementioned Northeast along with the Midwest and South, where relative affordability has heightened demand, saw the largest increases. On the other hand, price growth in the costly West, where the high interest rate environment can have a disproportionate effect on already expensive property values, remains behind.

Eleven continental states west of the Mississippi had year-over-year home price growth at 3% or less. Two states (Idaho and Utah), along with the District of Columbia, saw home price declines; notably, Idaho and Utah were among the states that saw large price increases during the pandemic as destinations for house hunters leaving expensive markets.

Among metro areas, Miami continues to see the highest yearly increase at 8.3%. Annual gains in Florida’s largest city are moderating after an early fall bump (annual increases the past two months were at 8.8% and 8.5%), but Miami remains the clear-cut leader in year-over-year price growth among the large metros CoreLogic tracks. San Diego was second at 7.7%, followed by Boston at 6.0%.

Many of the fastest-appreciating real estate markets nationwide lagged in price growth during the pandemic, per CoreLogic, but legislative actions like the Inflation Reduction Act and the CHIPs (Creating Helpful Incentives to Produce Semiconductors) Act have helped housing demand by bolstering employment.

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The New England states of Maine, Connecticut, Rhode Island, Massachusetts, New Hampshire and Vermont lead the country in rising temperatures, according to the National Oceanic and Atmospheric Administration. These states have seen an increase of 3 to 4 degrees Fahrenheit since the beginning of the 20th century.

The Gulf of Maine is warming at one of the fastest rates of any body of water in the world in the past five years. In the past few years, blue crabs have been seen with more regularity off the coast of the Pine Tree State.

Rising temperatures could take a toll on industries across the region, according to the Climate Reality Project. Fruit farms could be at risk if unseasonably warm spring weather causes trees to bud early, with crops later lost to frost. Ski resorts support about 44,500 jobs in the region and generate about $2.6 billion in annual revenue. Warmer temperatures could mean later openings and earlier closings for resorts, putting stress on the industry.

The New England fishing industry already sustained a 16% decrease in jobs from 1996 to 2017 due to warming waters affecting the supply of Atlantic cod, shrimp and lobster. Dwindling stocks have forced some boat captains to declare bankruptcy.

About 15 million people live in the New England region. Massachusetts ranks as its largest economy. The Bay State had a gross domestic product (GDP) of $691 billion in 2022, good for 12th among all states. Connecticut ranked No. 23 with $319 billion in GDP. Each of the other states in the region ranked in the bottom half of the nation for GDP size, with Vermont coming in at No. 50 with a GDP of $40.8 billion.

Nationwide, the cost of a home is six times higher now than it was in 1980. Led by the Boston metro area, Massachusetts has witnessed a much higher increase over that time, according to an investigation by The Boston Globe. Home prices in The Bay State are 11 times higher now than in 1980. ●

Home prices in the New England Region were showing signs of heating up last year. U.S. home prices rose by 3.7% in August, according to CoreLogic, but prices in New England posted far higher year-over-year gains.

New Hampshire had the biggest increase in the U.S. with a yearly jump of 9.4%, followed by Maine and Vermont at 8.9%. Rhode Island was fourth at 8.4% while Connecticut tied for fifth at 8.1%.

Massachusetts had four of the nation’s 100 most expensive communities ranked by ZIP code, according to RealtyHop report released this past November. A ZIP code in the Back Bay neighborhood of Boston finished at No. 17 with a median list price of $3.7 million. Connecticut had three of the top 100 most expensive ZIP codes. The vast majority of these pricey locations were in California and New York.

What the Locals Say

I’m in the northeast corner of Connecticut in Windham County. Massachusetts and Rhode Island are 10 to 15 minutes away. What’s happened is people are coming from Rhode Island and Massachusetts because they’re finding that they’re going to have more of a chance to buy a home here, even though it’s still competitive.

There were 386 new listings in the county in October 2023 and 277 of them sold right out of the box within seven days. That’s how fast they were going. They call us the quiet corner, but it hasn’t been so quiet. In 20 years of doing this, it was a wild run and it’s still busy. Our numbers are not where they were last year, but they’re still really close. People have cash. I don’t know where it’s coming from. All appraisals are coming in solid. They’re not coming in under asking price. The comparables are still there.

People don’t care about the rate. If they’re older and smarter, they’ve already been through it. They say, ‘When I owned my first home, I paid 13%,’ so it doesn’t bother them.

It comes in spurts. One week, everything’s happening. The next week it slows down. In October, in this little area, we closed 20 loans. That’s pretty good in this market. Once we start seeing rates in the 5% or even low 6% range, people are going to go crazy and start refinancing.

3 Cities to Watch

Boston

The largest city in Massachusetts continues to struggle in the wake of the COVID-19 pandemic. As of spring 2023, foot traffic in the two ZIP codes that make up the city’s Financial District was down 48% from pre-pandemic levels in 2019, according to University of Toronto researchers. And the regional office vacancy rate stood at 19.1% in January 2023, the highest in 20 years, according to The Boston Globe.

Manchester

This area was originally called Harrytown before being renamed as Manchester in 1810. Affordable housing is a top issue for New Hampshire, but the state is hampered in providing it. Much of the land that allows for single-family homes is already built upon. In Manchester, there are concerns that changes to density, such as allowing for accessory dwelling units, could encourage the creation of short-term rentals.

Stamford

The second-largest city in Connecticut has nearly 135,000 residents. Stamford was already home to three Fortune 500 companies: Charter Communications, credit card provider Synchrony and United Rentals, the world’s largest equipment-rental company. It recently gained a fourth with the arrival of tobacco giant Philip Morris, which relocated its headquarters and brought some 200 jobs from Manhattan.

Sources: Axios, Boston Planning & Development Agency, Choose Stamford, Climate Reality Project, CT Insider, Federal Reserve, HuffPost, Maine Public Radio, Manchester Journal, MassLive Media, New Hampshire Employment Security, Stamford Advocate, The Boston Globe, The Josiah Bartlett Center for Public Policy, The Providence Journal

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North Carolina (8.5%), Virginia (7.2%) and Maryland (6.5%) each eclipsed the national average of 6.1% growth during the year. West Virginia was the lone outlier in the region as its population shrank by 3.3%. It joined Illinois and Mississippi as the only states to experience a net loss last year.

The Atlantic Region also encompasses Washington, D.C. After bottoming out at the turn of the century with a population of 572,000, the nation’s capital saw a significant boom over the next 20 years. Even after a slight decline since the onset of the COVID-19 pandemic, the District of Columbia still has 672,000 residents.

North Carolina has the region’s largest economy at $716 billion, ranking No. 11 among all states. The Tar Heel State is known for legacy industries such as textiles, tobacco and furniture making, but it’s also on the cutting edge of 21st century advances in aerospace, biotechnology and financial services.

Virginia has the nation’s 13th-largest economy at $663 billion. The Old Dominion features a diverse array of business sectors from defense and data storage to food processing and logistics. A number of key projects are underway in Virginia, including a $9.8 billion wind farm off the Atlantic coast that’s set to power 650,000 homes and businesses; a multistory Amazon warehouse that will supply 1,000 jobs in Virginia Beach; and an $87 million infusion by Wells Fargo into its existing Roanoke customer service center.

With nearly 650 residents per square mile, Maryland ranks No. 5 among all states for highest population density and has a robust economy that is the nation’s 17th largest ($480 billion). The Old Line State has some 12,500 farms and a plethora of well-known food makers and distributors such as McCormick and Co., Perdue Farms, Pompeian Inc. and Domino Sugar.

In South Carolina, population centers like Columbia, Charleston and Greenville power an economy valued at $298 billion. Due in large part to its favorable tax incentives, the Palmetto State is becoming a hub for the burgeoning electric vehicle (EV) manufacturing industry. Within the past year, EV companies have struck four major deals totaling more than $6 billion to build plants across the state.

West Virginia’s $97 billion economy ranks in the bottom quartile of all states. The aforementioned population loss isn’t helping the Mountain State’s fiscal health, but there are bright spots. A five-year forecast released last year by West Virginia University economists called for slow but steady job growth through 2027. Several key developments are underway, including the expansion of a Toyota production plant, GreenPower Motor Co.’s new factory to build clean-energy school buses, and Berkshire Hathaway’s renewable- energy microgrid that will power a 2,000-acre industrial park. ●

Zillow data shows steady and sustainable home price growth across the Atlantic Region over the past year. As of September 2023, annualized price growth was in the 2% to 3% range for most of these states, with Virginia leading the way at 4%.

The opposite trend occurred in Washington, D.C., where prices dropped 2.9% year over year. After peaking at $650,617 in June 2022, the typical home value in the nation’s capital stood at $614,146 this past September (a 5.6% decline).

According to real estate brokerage McEnearney Associates, the 5,200 sales in D.C. through the first nine months of this year were down 23% compared to the same period in 2022. Notably, however, sellers were more willing to offer concessions as the average subsidy reached $3,031, up from $2,026 during the first nine months of last year.

Personal finance website WalletHub recently ranked the North Carolina cities of Cary, Durham, Raleigh and Charlotte among the nation’s 30 best real estate markets. The analysis was based on metrics like affordability, price forecasts, the percentage of homes built since 2010, and the shares of mortgages that are delinquent or seriously underwater.

What the Locals Say

I would say that South Carolina is affordable. It’s expensive no matter where you are with inflation and things like that, but real estate taxes here are significantly less for residents. For nonresidents, it’s a different tax rate. It’s about encouraging people to make this your primary place of residence, not just using it as a vacation destination. South Carolina is also one of the most flexible states if you have a service-connected disability. If you’re a veteran with a 100% disability rating, you pay zero real estate taxes.

With mortgage rates nearing 8%, you could get sucked up into negativity quickly, like quicksand, and never get out of it. My team, we just don’t get too caught up in a lot of the noise and the negativity. We understand it. We’re watching it to be knowledgeable of the market, but we’re not feeding into it. There’s a difference. We’re not letting that control our day and our next move. I think there’s a lot of lenders that need to hear that message: Just focus on what matters and reconnect with the client for what they need.

The overall prices to build homes and get the finished product have gone up, but we’re seeing more homes that are catered to support the starter family. We’re seeing a lot of mid- to upper-level new homes but not what we would consider luxury-class or very high-end homes. These are homes for families. These are everyday, hardworking families that need a home. It’s important enough for the family to make that a priority over something else that might not be as important.

3 Cities to Watch

Charlotte

The Queen City added more than 15,000 new residents during the year ending in June 2022, census figures show, good for the fifth- largest numerical increase among U.S. cities. This growth also made Charlotte the 15th- largest city in the country with a population of nearly 900,000. With a presence in the NFL, NBA, Major League Soccer, NASCAR and the PGA Tour, Charlotte rates as the third-best city for sports business behind only Dallas and New York, according to the Sports Business Journal.

Virginia Beach

Virginia’s largest city (455,000 residents) anchors the Hampton Roads metro area and its population of 1.8 million. The area has relatively affordable housing, with a median value of $318,300 for owner-occupied units, roughly on par with the national average. Virginia Beach is a magnet for tourism: Visitor spending topped $2 billion for the first time in 2021, surpassing pre-pandemic levels by 8%. Tourism supports 31,000 jobs and generates $295 million per year in tax revenue for the city.

Wheeling

As the heart of West Virginia’s Northern Panhandle, Wheeling has a metro-area population of 136,000. It benefits from a strategic location along Interstate 70 between Pittsburgh and Columbus, Ohio. Major employers include WVU Medicine, WesBanco and professional services firm Williams Lea. Hundreds of millions of dollars are being infused into public and private projects in the city’s central core, including a $17 million rehab of a historic suspension bridge and $32 million in streetscape improvements.

Sources: City of Virginia Beach, Manufacturing Dive, McEnearney Associates, North Carolina Department of Commerce, Reuters, Sports Business Journal, U.S. Bureau of Economic Analysis, Virginia Economic Development Partnership, WalletHub, West Virginia University, Wheeling News-Register, Wisevoter, WorkForce West Virginia, World Population Review, Zillow

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