Cooling Trend in Hottest Housing Markets as Cities Late to the Pandemic Boom Gain Ground

As cities that were once left behind in the pandemic housing boom show signs of growth, hot markets may be heading toward a downturn. The housing market forecasts are shifting due to factors such as rising mortgage rates, remote work, and limited inventory.

Although some of the strongest housing markets of the past few years may see gains for a while, Goldman Sachs predicts a drop of more than 25%.

San Jose, San Diego, Austin, and Phoenix are expected to experience declines similar to those during the Great Recession, where the S&P Case-Shiller Index reported a national drop in home prices of 27%.

In some of these cities, the growth of the housing market has already started to slow down. For example, median home prices in San Diego only rose by 0.4% in the fourth quarter, and the number of sales dropped 22% compared to the previous year. The shortage of housing supply, which would usually drive up prices, has not materialized due to rising mortgage rates which have deterred many homeowners with low-interest mortgages from selling.

On the other hand, Midwestern cities like Cleveland, Pittsburgh, and Charlotte are expected to see an increase in demand, driven by factors such as job growth and high market velocity. According to Zillow, Charlotte is expected to have the highest annual home price growth among the top 10 markets in 2023, while Cleveland is ranked second due to its high market velocity and job growth.

However, San Jose, Sacramento, Minneapolis, and Denver are expected to be the coolest large housing markets in 2023, according to Zillow’s report.