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Affordability fuels new U.S. housing hot spots

How to prepare for buying a new home
How to prepare for buying a new home 02:56

Silicon Valley cities like San Jose have taken the top spot for the second straight year as the nation's hottest housing market, but some smaller U.S. cities are right on its heels as Americans seek an affordable place to live.

Housing markets this year are expected to heat up in the South and the Southeast, where technology companies and young professionals are moving in search of more affordable housing, according to Zillow. In Jacksonville, Florida, the median home value is $208,200, or one-sixth of what it is in San Jose.

"You're starting to see new pockets of tech cities," said Skylar Olsen, director of economic research and outreach at Zillow.

Rising tides could ruin pricey real estate 02:01

Orlando, which ranked second in Zillow's hottest housing market list, also ranked fifth in most jobs per person, and in a 2017 Kauffman report, it ranked 22nd in the nation for startup activity. Its median home price is forecast to increase by 6.3 percent. 

Other rising housing markets include San Francisco, San Diego, Denver, Atlanta, Minneapolis-St. Paul, Dallas-Fort Worth and Nashville, Tennessee. Five out of the top-10 housing markets are in the South, and six out of 10 were named finalists for Amazon's HQ2.

While Seattle, Washington, will remain a competitive housing market, it didn't make it onto the Zillow list, indicating that growth for the city known as Amazon's first headquarters will taper off.

San Jose still on top

San Jose remains a highly desirable housing market for professionals who are attracted to the region for its robust jobs market. The city has one of the nation's lowest unemployment rates, at 2.5 percent, and according to Zillow, it boasts the most jobs per person in America's 50 largest cities.

While all that demand translates to increasing home prices, the exorbitantly priced listings have led to cooling demand from homebuyers who are fatigued with the market. San Jose's median home price is $1.25 million, and while that number is forecast to increase in the coming year by 12.7 percent, it's likely to start leveling off.

"San Jose can't be going this fast forever," Olsen said.

The median home value in San Jose was $1.27 million in June 2018, up 24.9 percent from June 2017. By November, however, that appreciation rate slowed to 11.2 percent year over year.


Cooling housing market

Overall, the national housing market is expected to slow in 2019, with home prices projected to rise at a low 2 percent, according to Capital Economics. Continued interest rate hikes are expected to shrink the number of mortgage applications, slowing demand for homes and cutting home prices.

"If not for the fact that there are so few homes for sale, outright falls in house prices would be likely," Matthew Pointon, property economist at Capital Economics, wrote in a January housing market update.

"The more things get expensive," said Zillow's Olsen, "the more people have to fall back, until they become affordable again."

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