Demand is the largest contributor to housing price growth. Americans have been moving from large, urban areas in the Northeast to suburban, mid-size cities in the South and West Coast, driving up the price of homes in those fast-growing states. From 2016 to 2017, the population of the South and West grew by 1.0%, five times the 0.2% population growth rate in the Northeast. In 2014, Florida surpassed New York as the third most populous state.
The price of the typical home in the West rose by 8.3% from Q2 2017 to Q2 2018, compared to a price increase of 4.0% in the South, 3.5% in the Midwest, and 2.3% in the Northeast. While 19 of the 25 fastest growing housing markets are in the South and West, seven of the 15 shrinking housing markets are in the Northeast.
In 16 of the 25 fastest growing housing markets, the population grew faster from 2016 to 2017 due to migration than the 0.34% national figure. In all 15 shrinking housing markets, the population declined or grew slower than the nation as a whole due to migration.
One of the main reasons people move is for work. Americans are more likely to move to areas with more employment opportunities, ultimately driving up home prices in areas with low unemployment. In 16 of the 25 fastest growing housing markets, the unemployment rate is below the 3.9% national rate. In 10 of the 15 shrinking housing markets, the unemployment rate is above the national unemployment rate.
While population growth can contribute to economic growth, rising home prices in many housing markets with rapid population growth have reduced affordability for the average resident. Nationwide, the median household income rose 4.7% over the past year as the median home value rose 5.3%. In all 25 of the fastest growing housing markets, the home price-to-income ratio rose faster than the national figure, meaning housing became less affordable. In San Jose, California, the housing market with the most rapid home value growth, the median household income rose by just 6.8% as the home price rose 18.7% — the largest reduction in affordability of any city.
To identify the 25 fastest growing (and 15 shrinking) housing markets, 24/7 Wall St. reviewed the largest and smallest home change in median home price over the 12 months through the second quarter of this year. Single-family home price data for the 180 metropolitan areas reviewed came from the National Association of Realtors. Unemployment rates for metropolitan areas are for July 2018 from the Bureau of Labor Statistics. Data on population change due to net international migration from 2016 to 2017 came from the U.S. Census Bureau.