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Small cities in the Midwest have taken the lead in the Wall Street Journal/Realtor.com Emerging Housing Markets Index for the first quarter, indicating a strong demand for affordable homes as the overall market slows down. This trend showcases the resilience of these markets despite rising mortgage rates and economic challenges.
Lafayette, Indiana, topped the list for the second consecutive quarter, followed by Bloomington, Illinois; Elkhart, Indiana; Lebanon, Pennsylvania, and Fort Wayne, Indiana. These cities have become attractive alternatives for homebuyers due to their strong local economies, appreciating housing markets, and desirable lifestyle amenities.
The index, which takes into account housing market indicators, economic data, and lifestyle factors, highlights metropolitan areas with affordable homes, robust local economies, and attractive living conditions. The rapid increase in mortgage rates in 2022 led to a 22% drop in home sales compared to the previous year. Despite price drops in some regions, the eastern half of the US continues to see rising home prices.
The top 20 markets in the index, with populations averaging below 400,000, featured lower median home-listing prices in March compared to the national median of $424,000. These markets also exhibited stronger price growth, faster home sales, and lower unemployment rates. Notably, eighteen of the top 20 markets had median home-listing prices below the national median, according to Danielle Hale, chief economist at Realtor.com.
The Lafayette metro area, with about 225,000 residents, hosts Purdue University and various manufacturing firms, contributing to its strong job market. The area has seen an underbuilding of homes in recent years relative to population growth, leading to higher home prices. The median home-sale price in Indiana's Tippecanoe County, which includes Lafayette, was $283,000 in March, up 13.2% from a year earlier, according to the Indiana Association of Realtors. The national median existing-home sales price in March was $375,700.
Higher interest rates have impacted buyer demand but also influenced supply by discouraging homeowners with low mortgage rates from selling. Nationally, new listings in March fell 20% year-over-year. Sally Curwick, broker associate at Re/Max at the Crossing in Lafayette, said, "There's just not a lot of houses on the market as of today. I call it the one-to-two-day market."
Thirteen of this quarter's top 20 markets were also ranked in the top 20 in the fourth quarter. Some Midwestern markets that entered the top 20 in the first quarter were Bloomington, Omaha, Nebraska, and Janesville, Wisconsin. These cities demonstrate the growing attractiveness of smaller metropolitan areas as buyers search for more affordable options in a challenging market.
In conclusion, small cities in the Midwest are dominating the emerging housing markets as buyers seek affordable homes amid rising mortgage rates. These markets offer a combination of strong local economies, appreciating housing markets, and desirable lifestyle amenities, attracting buyers even as the broader market cools down. The resilience of these small cities suggests that they may continue to gain popularity in the housing market, providing more accessible options for homebuyers in the United States.
This story was first published in the Wall Street Journal
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