- A Zillow economist said the Midwest could be the hottest housing market of 2023 because it’s affordable.
- Buyers can look at cities like Chicago, Indianapolis, and Cleveland where prices have stayed flat.
- “Buyers who can afford it should consider taking advantage of current conditions,” the economist said.
Home buyers dismayed by rising prices in coastal states like California and New York for 2023 may find themselves buying homes in the Midwest next year, says a senior economist at Zillow.
Orphe Divounguy told Insider that the Midwest’s relative affordability makes it an attractive destination for remote workers looking to buy a home next year, even if mortgage rates remain high. According to Divounguy, one of the motivating factors for these buyers is that remote work has opened up the possibility of many people leaving high-tax areas.
Regional heavyweights such as Chicago, Indianapolis, Cleveland, Cincinnati, and Columbus, Ohio could benefit from this trend, Divounguy added, adding that home prices are relatively more affordable for tenants looking to step into home ownership than in cities like San Francisco.
For example, Zillow’s Home Price Index, which measures monthly property price changes, shows that the median price of homes in Chicago is just over $314,000, which is roughly $43,000 below the national average. Meanwhile, data shows that more than 54% of homes in Chicago are selling below list price, compared to 34% in San Francisco and 48% in Boston; which means that Chicago’s housing market is not as competitive as in coastal states.
“When we talk about hot markets in the Midwest, we’re not talking about strong home value growth and certainly not the record growth we’ve seen in some regions in 2021,” Divounguy said. Said. “We’re really talking about the Midwest having a healthier balance between buyers and sellers, which causes more volatility.”
Midwest offers a more balanced market for home buyers to compete
In other words, Divounguy argues, Chicago and other midwestern metropolises provide a counterweight to the more speculative and unregulated markets elsewhere and offer value through their stability and accessibility. Buyers who expect a big stock gain in a few years may be disappointed, but those who just want and are ready and willing to own a home will find they have options in the midwestern U.S.
The Midwest also offers the chance to experience reputable cultural offerings such as the Art Institute of Chicago, the Milwaukee Museum of Art or Cleveland’s West Side Market, one of the oldest indoor-outdoor markets in the country.
Throughout the pandemic, low interest rates and federal stimulus dollars have helped ignite a home buying spree that hasn’t been seen in years. In contrast, intense competition for homes drove prices to record highs, essentially crowding out many prospective home buyers who didn’t have the upfront cash and qualifications to compete. At the same time, banks and investment firms began buying homes in developing cities like Phoenix, Arizona and Las Vegas, Nevada to monetize the hot housing market of the pandemic, further adding to the housing crisis.
But the Federal Reserve’s aggressive rate hikes to curb inflation have caused housing prices to plummet again in some of the country’s hottest markets. Divounguy said that while they may not get a better mortgage rate until late 2023 at the earliest, this offers buyers an opportunity to take advantage of current market conditions and find an affordable home.
“This is a much friendlier market for buyers who are much less likely to face bidding wars, have more time to consider their options, and more negotiating power,” Divounguy said.
Buyers are already looking for new markets to buy homes
Data from Redfin shows that many home buyers are already looking for a more affordable market to buy in. % in the third quarter of 2019, according to a report by Redfin.
According to the report, home buyers in expensive markets such as Denver, New York City, and San Francisco routinely searched for homes in cheaper midwestern markets. For example, more than 31% of Redfin.com searchers in Denver wanted to shop elsewhere, and Chicago was the place where they searched the most out of state.
But prices in the Midwest can vary significantly. For example, Zillow suggests that a typical home in Chicago’s Lincoln Park neighborhood costs roughly $539,000, while a home in the South Shore neighborhood goes for $168,000. But there is value to be had elsewhere. A typical house in Zillow, Milwaukee costs $181,000, St. Louis suggests that buyers should expect to spend $176,500.
“Buyers who can afford it should consider taking advantage of current conditions,” Divounguy said. Said. “This is a challenge for many households, even in the relatively affordable Midwest. But waiting for this market may not be the best approach for buyers who are ready and able to afford it right now.”