Five Hottest U.S. Housing Markets Where Supply Meets Demand

 

After analyzing the country’s top 100 metro areas, Austin, Texas; Denver; Des Moines, Iowa; Raleigh, N.C.; and Salt Lake City stood out as the top markets to watch, exhibiting resilient new-home markets with an assurance of growth for years to come. What sets these five metros apart from other booming tech centers and world-class cities is a capacity to maintain affordability. 

Other markets came close. While cities like New York and San Francisco are still performing strongly, they don’t have the supply to support affordable development for an influx in entry-level buyers. Meanwhile, Dallas is struggling to maintain affordability with its median new-home price jumping 7.22% to $273,400 from 2013 to 2014, and Seattle experienced a median new-home price of $413,200 last year. 

The same demand factor that gives builders in these markets an edge also will be their biggest challenge. A and B lot locations will shrink in supply across the board. Builders also will have to keep up inventory pace as demand increases amid labor shortages. Capitalizing on new entry-level demand and creatively expanding walkable, urban communities into cheaper land areas will help drive continued sales over the next few years. The bottom line? Builders in these five cities will need to find a way to tap into the young buyers who are flooding each of these up-and-coming markets. 

Austin, Texas

Its vibrant live music scene, strong network of local businesses, and recent emergence as a top “foodie” destination have helped make Austin one of the nation’s fastest-growing cities, especially among young people drawn to the city’s proudly eccentric culture. With that booming population, low unemployment, and a diverse economy, Austin will be an ideal new-home market in coming years.

The positive job growth Austin has for the past five years is likely to continue in 2015: A Marcus & Millichap report predicts that Austin will lead the nation by adding 36,000 jobs this year, including robust growth in the leisure and hospitality sectors. And the city’s tech hub—home to major players like Dell, IBM, and National Instruments as well as numerous start-ups and a growing gaming industry—is a steady draw.

The region’s appeal to millennials and significant rent increases are surging demand from first-time buyers, says Eldon Rude, principal of Austin-based 360 Real Estate Analytics. He names entry-level housing the primary area of need, as most of the new stock has been in the move-up price range. That’s also the market where builders will find the greatest land availability, he adds. While some of the most desirable downtown locations face constricted lot supply, areas to Austin’s eastern edge are less crowded.

Denver, Colorado

The city of Denver is home to a revitalization success story that’s been 20 years in the making and that’s why it’s part of BUILDER’s list of 2015’s hottest housing markets. Noticing an influx of young people over the past decade, Denver officials aimed to shape the city into exactly what millennials want: a walkable urban core. The city invested millions in revamping the Lower Downtown area, including an expansion of public transportation across the metro area, offering more park-and-ride stations reaching into suburbs. 

The move toward urbanization has attracted transplants from across the country over the past several years, fueling a 5.6% population growth. With a revitalized downtown and a younger population, startups and entrepreneurs have followed suit and targeted the city, providing a job growth of 2.7% in 2014. Even more, the unemployment rate has remained low at 4%.

Denver has been ranked as one of the country’s healthiest cities, attracting a demographic that wants the benefits of a strong economy and healthy living. Many local home builders offer amenities that focus on community and well-being, with walkability as a major staple.
 
Des Moines, Iowa

It just makes plain old Midwestern good sense that Des Moines, located in one of the first states in the country to pull out of the housing slump, has earned a place on BUILDER’s list of the hottest housing markets of 2015.

Thanks to a stable economy and strong tax base that attracts financial, tech, and insurance firms that bring white-collar jobs by the thousands, the Des Moines housing market began recovering from the recession as early as 2011, while many other metropolitan areas were still struggling. “With the stability in our city, we don’t have the big highs and the big lows so our recovery happened a lot sooner than the rest of the country,” says Dan Knoup, executive officer of the Home Builders Association of Greater Des Moines.

Much of this early recovery was driven by multifamily building, but single-family has made a comeback, too. 2013 was the industry’s best year in a decade, in which metro area home building permits increased 21 percent from the previous year. The HBA is predicting an 8% to 12% increase next year, despite Iowans’ potential distraction from the upcoming presidential caucus, which generally slows sales for a few months, Knoup says. Local firms like Classic Builders Inc. and Jerry’s Homes are thriving in this market, with very little competition from larger production companies.

One potential issue could cloud the industry’s bright outlook: Although this Heartland city is a popular destination for college-educated millennials looking to settle down, growth in entry-level housing is not on the horizon. Land costs are rising in and around the city, and housing developers must compete with the agricultural industry for pricey sites; an April 2013 survey found the average price of high-quality farmland to be more than $11,000 per acre. This leads most builders and developers to focus on move-up projects instead, Knoup says. “A lot of lots are being developed but not at the entry-level price point.”

Raleigh, North Carolina

Potential home buyers—both millennials and baby boomers—are flocking to the state of North Carolina and one of its most vibrant cities, Raleigh, named one of BUILDER’s hottest housing markets for 2015.

The state was one of the country’s top destinations for Americans on the move last year, according to United Van Lines, and Wake County, where Raleigh is located, is growing by about 66 residents a day.

People of all ages seek out this Research Triangle city for many reasons: to attend one of the area’s many colleges; to retire to its temperate climate and proximity to the coast; or for access to its diverse employment opportunities including jobs in technology, financial services, health care, and government.

It’s no surprise that in a boom town like Raleigh, the biggest challenge facing local builders is lot availability, says Tim Minton, executive vice president of the Home Builders Association of Raleigh-Wake County, the largest HBA in the country with nearly 3,000 members. “We have less than three months’ supply out there,” he says. “That’s something I thought we would never see again.”

Salt Lake City

In most areas, millennials can likely find either great job opportunities or affordable housing—not both.

But Salt Lake City is an anomaly in that equation. Young job seekers have flocked to this city, where odds of upward mobility were ranked No. 1 among larger metros like Boston, New York, and San Francisco, according to a study conducted by Harvard and UC-Berkeley economists.

And with 50% of homes being affordable for the metropolitan’s millennial average income of $50,000, according to Trulia, these transplants aren’t leaving. In fact, Salt Lake City’s millennial population is 16.8% of its total population, putting this city in the top 12 metropolitan statistical areas for largest portions of millennial populations.

The largest concern for builders in this area is an impending labor shortage.  An Associated General Contractors of America survey released in January 2015 revealed that although roughly 70% of general contractors in Utah expect to expand payrolls this year, 85% expect to have difficulties in finding and hiring building professionals.

- Kayla Devon, Jennifer Goodman, Laura McNulty, Katie Gloede, Charlotte O'Malley. This article was originally published in BUILDER February 2015.