U.S. State Housing Market Trends
Real estate investors are familiar with the mantra, “location, location, location.” Knowing your market inside and out is the secret to successful real estate investments and rental businesses.
Your research should begin with an overview of your area’s housing and rental markets, including key trends and indicators. For example, housing costs vary significantly across different states, impacting affordability and investment decisions.
To help you get started, we’ve prepared housing market breakdowns for each U.S. state, found above by selecting your state. As you read through your state’s overview, consider the following key points to research further.
Market Overviews
An important first step when researching any market is to get a broad understanding of the area, its key features, and trends.
If you’re investigating a new state or city that you haven’t spent much time in or maybe even have never visited before, now is the time to learn about that area’s economy, major industries, demographics, and current events. For example, you might learn about increased home construction in Arizona or a recent drop in asking prices in Austin.
For long-distance real estate investors or home buyers moving to a new state, one suggestion for initial research is to scan local news sources in the cities you’re considering buying property. You can learn about everything from energy crises to resource management to nightlife and land development. Real estate is a complex industry affected by many aspects of economy and society, so taking the time to get up to speed about relevant topics can help you form a better idea of the market and make more informed decisions for investing.
Another suggestion is to browse regularly released reports from companies that collect massive amounts of rental and housing data, like Zillow, Redfin, and the National Association of Realtors. These sources provide reliable data and insights about housing market trends, which can be invaluable for understanding median home prices and general market dynamics.
Housing Market Trends
Next, it’s time to dive into more detailed housing market trends for the city or state you’re targeting. There are a handful of key metrics helpful in this process.
Median Home Price
The median home price in a city or state represents the middle value of all housing prices in that area. The median sale price is used rather than mean or true “average” home values because the median is not disproportionately affected by a few very highly priced homes, making it a more reliable figure when evaluating typical home costs in a specific area.
The average home price varies significantly across different states and cities. For instance, the average home price in Manhattan, San Francisco, and Honolulu is much higher compared to the national average, highlighting the heavy financial burden faced by residents in these high-cost areas.
The median home value in a single state will also ebb and flow throughout the year as prices fluctuate. However, tracking this metric over time can give you a good idea of affordability and appreciation in the state.
Number of Homes Sold
Each month, real estate listing sites like Zillow and Redfin compile data about how many homes were listed and how many sold. You can often find further information about these homes, including how many sold above or below their listing price. This information can clue you in about how active and/or competitive the current market is, in addition to factors like housing affordability and other market trends.
Median Days on Market (DOM)
Days on market (DOM) is a measure of the average length of time a home remains listed on the market before being put under contract. A lower DOM (such as Washington’s current DOM of 13 days) signals that there is a highly competitive seller’s market in that state, where buyers must often make higher offers and remove contingencies to secure homes. On the other hand, a higher DOM (such as South Carolina’s current 62-day DOM) signifies a buyer’s market because sales are slower, and sellers tend to have less leverage in deals.
DOM also changes widely from month to month, depending on factors like seasonality and prices. However, long-term DOM trends are a good tool to determine whether your target state is currently considered a buyer’s or seller’s market.
As was the case for home prices, the median is often used for DOM rather than the mean, which can be skewed by outliers, such as extremely high or low days on market. This can provide a broader market perspective, highlighting trends in the U.S. housing market more clearly.
New Supply Statistics
Housing inventory is one indicator of a healthy market. Typically, a market that has around five or six months of housing supply is considered to be healthy. However, if there is a high demand for homes and insufficient or slow new residential construction, a market will have low supply and correspondingly high prices.
Housing supply was predicted to increase in 2024 due to resumed construction after pandemic pauses. This turned out to be true in some states, such as Utah. But the long-term impact of this construction (e.g., an anxiously awaited dip in prices) remains to be seen. While new home construction has increased, the housing shortage persists across the country.
Property Tax Rate
The property tax rate in your new state is also important to know. Tax burden is a factor in your real estate or homeownership calculations each year and shouldn’t be discounted. Although your property taxes will vary depending on the specific area and value of your home, state averages can give you a general idea.
When comparing property tax rates, it’s also important to consider how they measure up against the national average. In some states, property tax rates significantly exceed the national average, impacting overall affordability.
Foreclosure Rate
Both foreclosure and eviction rates can enhance your picture of the local market. People defaulting on their mortgages and rents indicate a market with a high level of unaffordability and/or high cost of living. High foreclosure rates also indicate an expensive housing market where residents struggle to afford their homes. For example, areas like Manhattan have significantly higher median home prices compared to the national average, making it an expensive market.
Hottest Local Markets
Each state has a few “hot spots” for real estate investing. These are popular neighborhoods with appreciating home values, increasing prices, and attractive amenities for residents. For example, in Austin, Texas, the average home prices are around $562,750, while in San Francisco, California, they soar to approximately $1.4 million. Within these cities, there are individual neighborhoods with even higher prices and appreciation. These figures illustrate how average home prices impact both affordability and investment potential.
Locating and learning about these hot markets may help you identify a young market with decent prices now but quickly rising in average value, which is an investor’s ideal market.
Other Factors Influencing Your State’s Housing Market
Beyond real estate factors, your state’s housing market is also affected by a variety of economic, demographic, and environmental factors. Below are a few of them.
Mortgage Rates
Mortgage rates have climbed to record highs over the past several years and remain a major factor influencing where people buy property and when. High mortgage rates are in part responsible for ongoing housing shortages, as current homeowners are less likely to put their homes on the market when doing so would require them to give up the lower rates they secured years ago when they bought their homes.
Mortgage rates were expected to ease in the summer of 2024, and so far, this appears to be the case—As of August 2024, mortgage rates have dipped to their lowest since February. However, compared to the national median, local mortgage rates show significant differences, meaning that the effects of mortgage rates on affordability and market dynamics vary from state to state.
Inflation and Cost of Living
Increasing prices for food, housing, and essentials has led to an increasingly serious cost of living crises in many cities. As rents and house prices increase year-over-year, many residents are finding themselves priced out of neighborhoods they would otherwise prefer to stay in. Having an idea of the cost of living in an area you’re considering buying property is an important step to understanding the overall economy and housing market in that region.
Population Changes and Demographics
Employment, migration, and demographic trends also influence the housing market in a state. For many, unaffordability has led to mass flight from expensive hubs like Los Angeles, San Francisco, and New York City towards more affordable alternatives in the Midwest, Southwest, and South-Atlantic regions. Demographic trends, such as an influx of younger families or retirees, can significantly impact the median price of homes, with areas experiencing high demand often seeing a rise in median prices. Additionally, climate-related migration between states has been found to correlate with higher rent prices, which changes market dynamics and influences how real estate investors price their rentals.
Other Factors Unique to the Area
In addition to the above factors, many states have unique factors at play that directly affect the local or regional market. These may or may not be concerns that would turn you away from a market, but they will certainly influence how you make decisions in that market and should be thoroughly researched before moving forward.
For example, Californians must contend with high tax rates and regulations, while in Arizona, developers are struggling to get approval for new homes due to water scarcity. Hawaii is a particularly unique market, where ecological disasters (e.g. wildfires) and shoreline loss are negatively impacting the islands’ wildlife and tourism. Each of these factors has major implications for short- and long-term rental properties in these states.
As you research, you will find that the state and city you’re investing in has its own character and considerations. Below are a few factors you may want to investigate to cultivate a deeper understanding of your unique market:
- Regulatory environment (e.g., zoning, rent control)
- Taxes
- Energy and natural resources
- Climate
- Natural disasters
- Intraregional migration
- Employment
- Public policy
Market Forecast
Every real estate investor and homeowner would like to know their market’s future. Unfortunately, housing markets are generally less predictable than we would like. Nonetheless, there are always trends and signs we can track to make better predictions about what the housing market will be like in three months, one year, and beyond.
Perhaps one of the most key indicators is the median or average home price, which can help predict future market trends. For example, slight differences in average home prices between cities like Los Angeles and San Francisco compared to the national average can illustrate how housing prices have escalated over time on a granular level in a particular region, like coastal California.
When researching your state or city’s housing market forecast, keep in mind that you are reading someone’s best predictions based on data that is constantly changing and may not be
accurate the next day or week. Consider multiple sources in your research, and remember that two analysts may disagree with each other about what data means for the market.
Likelihood of Housing Market Crash
Catastrophizing is rarely smart, but when you’re investing a lot of money into a venture like real estate, you have to consider worst-case scenarios. For this reason, it will benefit you to investigate the underlying conditions that may signal a housing market crash is imminent in a particular market. These conditions include:
- Sharp increase in home prices
- Speculative buying
- Unsustainable demand
Signs that a housing bubble has already formed include:
- Home prices massively outpacing income growth
- Lowering lending standards
- Increased home construction
If conditions are right, a trigger event like an economic downturn or rising mortgage rates can cause the housing bubble to burst, leading to foreclosures, layoffs, and unemployment such as that which we saw in 2008.
Although housing bubbles are relatively uncommon, the housing market’s trajectory at any time can be difficult to predict. Draw on advice from analysts, recent data reporting, and current investors in a market to decide whether the above conditions are significant enough to raise concern.
Rental Market Trends
If you’re a real estate investor, the housing market isn’t the only matter of concern for you. The rental market of a city or state is also important. A state’s rental and housing markets are deeply connected, so understanding both sides will help you achieve the best possible understanding before you invest.
Important things to know about a state’s rental market include general affordability of rent, average rent-to-income ratio, rental demand, and rental supply. These fundamental rental market dynamics shape the market in an area and are hugely predictive of your potential success in investing there.
At minimum, be sure to research the following key trends about your potential rental market:
- Median rent – This will give you a snapshot of how much you can expect to charge for rent, which influences your rental income, net profit/loss, and cash-over-cash return.
- Month-over-month rent change – Are rents increasing or decreasing over time? What is the role of seasonality in this market? Month-over-month rent change will help you answer these questions.
- Year-over-year rent change – This metric gives you a broader picture of how rents are changing over time. Steady climbing indicates healthy rent increases over the years, while rents that stay stable or decline over the years indicate that renters are losing interest in this market.
- Available rentals – The number of available rentals in a market tells you about supply and demand. A high number of availabilities combined with a low occupancy rate indicate that supply outweighs demand and that renters aren’t as interested in the area. Oppositely, a low number of availabilities with high occupancy indicates that rentals are in high demand and often corresponds with higher rents.
Conclusion
Understanding your state’s housing market dynamics should be a priority for every real estate investor and homeowner. Markets are constantly shifting and evolving. While a daily, analyst-level understanding probably isn’t necessary, having a broad overview and being generally aware of factors that influence the housing market can greatly assist in making informed decisions about your next investment.
