Buying a house in the United States is now very difficult. In addition to high interest rates and high housing prices, there are also few listings in the market. It’s generally a seller’s market, and buyers have to navigate through challenges to become homeowners. However, as many buyers have exited the market and sellers struggle to find buyers, some areas have quietly shifted to become buyer’s markets. Surprisingly, these are not remote or economically struggling areas but rather previous hotspots that have attracted a large influx of people relocating. Curious to know where? Let’s explore together.
Simply put, a seller’s market means that sellers have the upper hand, with advantages in pricing, usually resulting from demand exceeding supply, leading to bidding wars. On the flip side, a buyer’s market is the opposite, where buyers have negotiating power, putting sellers at a disadvantage, as supply exceeds demand, prompting sellers to hope for buyers to make offers quickly.
On May 16th, the U.S. Census Bureau released the estimates for population and housing units for 2023. They found signs of population growth in the Northeast and Midwest regions. Contrary to 2022 when cities with populations over 50,000 saw a slight decrease by 0.3% and 0.2%, in 2023, there was an increase by 0.2% and 0.1% in these areas. This indicates that over the past year, many people have moved to the Northeast and Midwest regions, aligning well with the earlier reported trends. These regions, known for lower housing prices compared to the high-priced and high-interest-rate era, are particularly appealing.
However, the most popular region appears to be the southern states! According to Census Bureau data, small cities ranging from 5,000 to 50,000 inhabitants in the South have seen the largest growth among the four major regions. Cities with populations ranging from 5,000 to 10,000 and 10,000 to 50,000 show the highest numbers in the South. In cities with populations exceeding 50,000, the South ranks second after the West, with 255 cities compared to the West’s 295.
Among cities with populations of over 20,000, 13 of the top 15 fastest-growing cities are in the South, with 8 in Texas alone. The top-ranked city is Celina near Dallas in Texas, with a population growth of 26.6%, 53 times higher than the national average of 0.5%. The next three fastest-growing cities are also in Texas: Fulshear City, Princeton City, and Anna City.
Simultaneously, in cities with the highest population growth, San Antonio in Texas added approximately 22,000 people in 2023, surpassing all other cities and reclaiming the top spot in population growth rankings, nearing the milestone of 1.5 million residents.
Moving along the northeast side of San Antonio about 280 miles away is Fort Worth, part of the Dallas metropolitan area, which also saw an increase of over 21,000 residents, steadily approaching the one million mark. Charlotte in North Carolina takes the third spot with an increase of around 15,000 people, entering the league of cities with populations approaching 900,000.
In fact, the cities with the fastest population growth rates in the U.S. are mostly small cities with populations below 50,000, with 8 out of the top 15 cities located in Texas. Apart from Lathrop City in California considered a Western state and Athens City in Ohio in the Midwest, the rest belong to states in the Southern region.
Looking at the sheer increase in population numbers, the top 15 cities with escalating populations mostly consist of medium to large cities, with Texas accounting for 7, Florida for 3, and only one in the District of Columbia, with the rest being in Southern states.
However, attracting a large population doesn’t necessarily equate to a thriving real estate market on the ground. According to a new report from Zillow in May, major cities in Texas and Florida are in the midst of transitioning into buyer’s markets! Contrary to the situation of the remaining 39 major cities, they are either seller’s markets or strong seller’s markets, presenting a stark contrast with Texas and Florida.
Why the differing dynamics in Texas and Florida? To understand this, let’s first delve into how Zillow evaluates market heat: Zillow observes the proportion of rapidly completed housing transactions. If there are many such quick transactions, the market is considered hotter, leaning towards a seller’s market. Additionally, they examine the percentage of listed homes reducing their prices. More price reductions signal a shift towards a buyer’s market. Furthermore, the quantity of listed houses plays a role. More options for buyers tend to lean towards a buyer’s market.
Moreover, a new indicator utilized by Zillow involves conducting surveys with sellers and buyers to gauge their sentiments during transactions, whether it involves bidding wars or negotiating with ease, thereby assessing the market heat for a specific area.
Based on the evaluation of these key indicators, the largest metropolitan areas in Texas and Florida, such as Houston, Austin, San Antonio, Jacksonville, Orlando, Miami, and Tampa, are experiencing a cooling-off in the market. On a numeric scale where 100 represents a sizzling market, these Texas urban centers hover around the fifty levels, while Florida’s are around the forties.
Looking at the data, it becomes apparent that metropolitan areas beyond the South exhibit deep red or orange high ratings, pointing towards a seller’s market. Even cities like San Francisco, which previously suffered population loss, now boast heat levels reaching 111, once again emerging as one of the hottest cities.
Why have the real estate markets in Texas and Florida undergone such transformations? In essence, these results come as no surprise; it’s a balancing act of the market. After experiencing rapid escalation in the past, it’s only natural for a correction to occur, bringing the market back to its normal levels. Cities that witnessed substantial population losses in recent years also need an upturn, especially following the abnormal market performance during the pandemic era, moving towards a gradual return to normalcy.
Hence, the high prices in Texas and Florida are now causing discomfort for potential buyers, as the heat in the market wanes. Only genuine, capable buyers remain as the hot money retreats, distinguishing those truly capable of making purchases. Beyond high housing prices, the soaring interest rates that erode buyers’ purchasing power, the persistently high home insurance costs, and the associated property tax rises due to high housing prices are collectively dampening local buyer confidence.
Once demand significantly decreases, the number of lingering properties in the market will continue to rise, leading to a surge in properties listed for sale at reduced prices.
At the end of April, Redfin’s housing report revealed that housing supply on Florida’s west coast is skyrocketing, with sellers adjusting their prices downwards.
Erin Sykes, Chief Economist at Nest Seekers International, asserts that now is the time to head towards the southern regions as the available housing inventory continues to increase, offering buyers more choices and stronger negotiation leverage. Sykes mentions that recent transactions in their area have seen prices discounted by 10% to 20%, a remarkable drop!
Another factor contributing to the increased housing supply is the abundance of new constructions in Texas and Florida. The relatively relaxed construction regulations in these states enable swift building processes. A Florida homeowner shared that during his trips to Orlando, even the most remote regions surprised him with the number of newly built houses.
Particularly in Miami and West Palm Beach, the number of newly built apartment units in the market is staggering. However, many of these units come with price tags exceeding $2 million. Nevertheless, the challenging aspect lies in the affordability of these expensive properties, especially in times of high interest rates and inflation. What’s lacking in the market isn’t high-end luxury homes but rather affordable, economically suitable housing. If this situation isn’t rectified promptly, the surplus of high-priced properties staying unsold could adversely impact overall housing prices, potentially leading to distressed selling in the high-end market and affecting mid-range housing prices significantly.
A quick check on Realtor.com for discounted properties shows that Miami has 1,278 properties currently undergoing price reductions, ranging from thousands to hundreds of thousands of dollars. Concurrently, there are 8,436 properties listed for sale in Miami, indicating a reduction ratio of approximately 15%. When shifting focus to San Antonio, Texas, 3,306 properties are being discounted out of a total of 13,747 listed properties, resulting in a remarkable reduction ratio of 24%!
Comparatively, in cities categorized as seller’s markets, taking San Jose as an example, only 139 properties are being reduced in price out of a total of 1,406 listed properties, with a reduction ratio of about 9.8%. Moving on to the bustling city of Buffalo in New York, there are 107 discounted properties out of a total of 1,193 listed, yielding a reduction ratio of around 8.9%, outclassing San Jose!
According to Redfin’s overview of the real-time housing market in the U.S., during the four-week period ending on May 19, the median sales price of homes nationwide rose by 4% annually. However, mortgage rates also increased, while transaction volumes saw noticeable declines. Fortunately, with new listings and a rise in available housing stock, standing at 3.2 months’ supply, the market tilts towards a seller’s market. Notably, the percentage of homes being discounted reached 6.4%, marking the highest level since November 2022, signifying sellers feeling the strain of sluggish sales, resulting in more willingness to lower prices.
When analyzing cities, like we did previously, San Antonio and Fort Worth in Texas portray the largest price reductions, with median sales prices dropping by 1% and 0.6%, respectively. In contrast, West Palm Beach, Florida, exhibits a 12% appreciation in prices. Hence, it’s crucial to note that not all metropolitan areas in Texas and Florida are experiencing price drops, with distinctive market dynamics prevailing in different regions. However, it’s worth bearing in mind that statistical variations can occur based on different data sets.
Moreover, the cities witnessing the most substantial increase in new housing stock include San Jose, Montgomery County in Pennsylvania, Phoenix, Seattle, and San Diego. It’s evident that the resurgence of heat in the Western housing market is strikingly different from before and marks a notable shift! ◇