Realtor Association Reveals Top 10 Hottest US Housing Markets for 2025

December 15, 2024 TruthUSA

Mortgage rates at 6 percent are expected to be the ‘new normal’ next year.

The National Association of Realtors (NAR) listed housing markets in the United States expected to perform well next year, noting that financing conditions in these regions are “favorable” for buyers.

Among the top 10 housing markets for 2025, the southern United States led with four markets, and the Midwest with three, according to a Dec. 12 statement from the group.

“Important factors common among the top performing markets in 2025 include available inventory at affordable price points, a better chance of unlocking low mortgage rates, higher income growth for young adults, and net migration into specific metro areas,” said Lawrence Yun, chief economist at NAR.

Hottest markets for 2025, according to the company:

Boston-Cambridge-Newton, Massachusetts-New Hampshire
Charlotte-Concord-Gastonia, North Carolina-South Carolina
Grand Rapids-Kentwood, Michigan
Greenville-Anderson, South Carolina
Hartford-East-Hartford-Middletown, Connecticut
Indianapolis-Carmel-Anderson, Indiana
Kansas City, Missouri-Kansas
Knoxville, Tennessee
Phoenix-Mesa-Chandler, Arizona
San Antonio-New Braunfels, Texas

“All areas offer a favorable financing environment—either with lower proportions of locked-in homeowners or lower mortgage rates. In addition, most of these markets outperform the national average in at least six of NAR’s 10 criteria,” the association said.

“Locked-in” refers to homeowners with low mortgage rate loans and are disincentivized from selling properties amid the current higher rates.

The 10 criteria looked at various critical factors which affect property prices in a market. This included home price appreciation, the share of households that hit homebuying age over the next five years, growth in jobs, and the proportion of millennials who rent homes and are in a financial position to purchase a home.

NAR expects mortgage rates to be around 6 percent next year, becoming the “new normal” that triggers more buyers to enter the market. Home prices are predicted to grow by a slower 2 percent rate. Inventory levels are expected to increase.

“Home buyers will have more success next year,” Yun said. “The worst of the affordability challenges are over as more inventory, stable mortgage rates, and continued job and income growth pave the way for more Americans to achieve homeownership.”

Top 10 Markets

The cities of Boston, Cambridge, and Newton, located in Massachusetts and New Hampshire are expected to see “significant benefits from stabilizing mortgage rates,” according to NAR. The region has fewer locked-in homeowners. As such, when mortgage rates stabilize at 6 percent, more owners may be willing to sell, thereby easing the supply situation.

The cities of Charlotte, Concord, and Gastonia in North Carolina and South Carolina have seen “impressive 10 percent job growth over the last five years and strong migration gains,” the NAR said.

“More than 11 percent of the households are set to reach the age of 35 to 40 within the next five years, ensuring sustained demand for housing.”

Housing demand in Grand Rapids and Kentwood, Michigan, are expected to be strong given that more than one-third of millennial renters are financially able to buy homes. Plus, 12 percent of households are calculated to enter “prime homebuying age” over the coming five years.

The cities of Greenville and Anderson in South Carolina are seeing a “strong” net migration rate. The affordability situation is also favorable to buyers, with the average mortgage rate last year “well below the national average,” the association noted.

The financial situation in Connecticut’s Hartford, East Hartford, and Middletown areas is “favorable.” The region had an average mortgage rate of 6.5 percent in 2023, which NAR noted was “one of the lowest among the top markets.”

More than 40 percent of housing stock in the cities of Indianapolis, Carmel, and Anderson in Indiana costs less than $236,000, making the location attractive for young families and individuals seeking to buy their first home. The area also has fewer “locked-in” owners compared to the national average.

Kansas City, which straddles Missouri and Kansas, benefits from two key factors—lower proportion of “locked-in” homeowners and lower average mortgage rate. One in three millennial renters are able to afford homes in this area, NAR said.

Strong migration trends favor Knoxville, Tennessee, with almost 50 percent of new movers seeking to buy a house. Moreover, fewer borrowers in the region have properties with mortgage rates below 6 percent, diminishing the lock-in effect.

The Phoenix, Mesa, Chandler metro area in Arizona is a key destination for people moving out of California, given the region’s “comparatively lower cost of living and housing affordability,” NAR said.

Last year, borrowers in San Antonio and New Braunfels, Texas secured mortgages at rates of 6.4 percent, well below the national average. “This suggests that buyers in the area benefit from a combination of local market dynamics that lead lenders to assess lower risk in this area,” NAR said. The area also has seen strong job growth.

Mortgage Rate Challenge

The average weekly rate on a 30-year fixed-rate mortgage has remained above 6 percent for more than two years, according to data from Freddie Mac. For this year, rates peaked at 7.22 percent in May and had come down to 6.08 percent by late September, only for it to rise once again.

Presently, rates are hovering at 6.6 percent, after declining for the third consecutive week. “The combination of mortgage rate declines, firm consumer income growth, and a bullish stock market have increased homebuyer demand in recent weeks,” said Sam Khater, chief economist at Freddie Mac.

“While the outlook for the housing market is improving, the improvement is limited given that homebuyers continue to face stiff affordability headwinds.”

In a recent commentary, Lisa Sturtevant, chief economist at research company Bright MLS, said it would have “seemed preposterous” to expect homebuyers to be enthusiastic about interest rates being at mid-6 percent. However, “expectations are being reset.”

“For a long time after mortgage rates bottomed out in 2021, consumers’ expectations had been anchored to the notion of a mortgage rate somewhere in the 3s.”

But since interest rates have largely moved around the 7 percent level this year and the chances of rates coming down to 3 percent any time soon is “zero,” prospective homebuyers are now much more open to rates at the mid-6 percent level, she said.

However, “affordability is still a major constraint for moderate-income buyers,” Sturtevant noted. “With home prices expected to rise and rates projected to remain in the 6s through 2025, many of those buyers will still be priced out.”

On the plus side, consumer sentiment regarding housing is improving, according to a Dec. 9 statement from Fannie Mae. In November, a “new record-high share” of respondents said they expect mortgage rates to dip over the next 12 months.

Mark Palim, Fannie Mae senior vice president, said that a growing share of consumers expect to be financially better off next year. In addition, more consumers as well as some of Fannie Mae’s experts predict the growth in home prices to slow down.

This “may help ease some of the affordability burden and incentivize some households, especially those who have been waiting in the wings, to finally act on their home purchase decision,” he said.

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