Sun Belt and West Dominate Emerging Housing Markets

Predicting future home price appreciation has been a generally easy thing: it’s going to happen. But with headwinds of high prices, the need for large down payments, rising mortgage rates, and increasing construction and land costs, location could become a much bigger and different factor than it has been.

The Wall Street Journal and Realtor.com Spring 2022​ Emerging Housing Markets Index suggests that a combination of “key housing market data, as well as economic vitality and lifestyle metrics” points to areas of the Sun Belt and West that will “offer a high quality of life and are expected to see future home price appreciation.”

There were a number of trends among the top 20 emerging housing markets. One is the general locations, a topic that frequently comes up. U.S. migration patterns to the Sun Belt have been an obvious factor since at least 2016, with Brookings Institution showing data from the Census Bureau. In 2020, west and south were where people were moving, according to U.S. News. Last year, the two regions were expected to be the big areas of retail development.

Another commonality is size, with many of the top ranked being mid-sized metro areas. Although some larger cities placed well, “mid-sized metros remain a driving presence, with the average population size in the index’s top 20 markets at about 600,000,” as the report noted. Out of the top 20 cities, nine had populations below 250,000, including the number one ranking Rapid City, South Dakota.

The areas that did best also included strong local economies “with a mix of private industries, health care, higher education and the presence of government facilities and institutions.” The business environments tried to be attractive to corporations, professionals, entrepreneurs, and families, with “a noticeable share of small businesses complementing a thriving ecosystem of regional, national and international companies.”

Many of the locations were vacation destinations or a strong focus on outdoor activities, attractive to both families, young professionals, and people moving into retirement. They also tended to have more affordable housing pricing. Of the top 20, eight had median prices below the current $405,000 national average. “Relative affordability is the defining feature of many leading metros, such as Topeka, Kan., Elkhart and Fort Wayne, Ind., Yuma, Ariz., and Columbia, Mo., which deliver median prices below $320,000,” said the report. However, housing prices weren’t an absolute barrier. A few more expensive cities kept the average among the 20 above the national median price.