Are the Best Places to Live the Best Markets to Buy a Home?
Moving to these areas may be a great idea, but know what to expect when you start house hunting.
The U.S. News Best Places to Live ranking breaks down the largest metro areas in the U.S. based on a number of factors, from the viability of the job market to commute times to affordability. But are the cities and metro areas that offer residents all the best still good places to purchase a home?
For many, homeownership remains very much a part of the American dream. A March 2016 survey by real estate information site Zillow found the majority of Americans continue to consider the two linked. But in many of the most desirable places to live or areas with the best job markets, finding the right home to buy can prove difficult and even cutthroat.
We examined the housing markets of the top three ranking metro areas on the Best Places to Live in the U.S. in 2017: Austin, Texas; Denver; and San Jose, California – and while climbing home values nationwide often make it difficult to find a home at a low price point, homebuying in these places appears to be active among both first-time and experienced homeowners.
The capital of Texas takes the top spot in this year’s Best Places to Live ranking after being No. 2 on the list in 2016.
In such a popular city, finding a home could be one of the biggest hurdles for homebuyers. At the end of December, the Austin Board of Realtors reports housing inventory was at two months’ worth of homes on the market, well below the balanced level of 6 1/2 months for the area, as determined by the Real Estate Center at Texas A&M University.
As a result of the low inventory, it’s reasonable to expect continued bidding wars among buyers to drive up the overall median price of homes in the area from its current $262,182, according to Trulia. But in 2017, it’s likely the rapid growth of home prices will slow a bit, says Brandy Guthrie, president of the Austin Board of Realtors and a Realtor for Sky Realty.
“This doesn’t mean a weakening in our market – it just means that it may not be as aggressive as it has been, and it actually gets us back to more of our historical trends that we’ve been following,” Guthrie says.
One reason for this change is more interest in suburban options within the market. Guthrie says suburbs surrounding Austin, like Round Rock, are experiencing growth “because the prices of homes a are little less expensive as you go further out from the city.”
Compared to similar-sized cities such as Nashville, Tennessee, and Sacramento, California, Austin remains relatively affordable, with metro area residents paying an average of just over 27 percent of their income on housing costs (for both rented and owned homes).
But Guthrie notes the Austin area is expected to double in population over the next 10 years – after growing more than 10 percent between 2011 and 2015, according to the U.S. Census Bureau. That's the third-highest growth of the 100 largest metro areas over that period, behind only Fort Myers and Sarasota, Florida. And this growth likely won't help with home affordability. “The local household incomes are not rising fast enough to match the rising home prices right now,” Guthrie says, noting that for now, the suburbs are the best affordable option for people hoping to buy in the area.
Denver’s strong job market and desirable location at the base of the Rocky Mountains means people are moving to the Mile High City in droves. As a result, property values have been skyrocketing.
The Denver Metro Association of Realtors reports home values in the market have increased by 45.5 percent over the past 10 years, and median home prices have climbed by double-digit percentages over the last few years.
Contributing to those significant price increases is a low inventory of homes. Available housing inventory in December was just over 4,000 homes, 69 percent off the market’s long-term average dating back to 1985, says Steve Danyliw, chair of the market trends committee for the Denver Metro Association of Realtors and a Realtor for Danyliw & Associates.
Danyliw recently worked with a buyer who put an offer on a home that received 17 offers over the course of a weekend – all above asking price.
“Looking ahead, the home prices will continue to rise, and inventory is still historically low,” he says, adding there is little expectation for that to change in the near future.
DMAR forecasts slightly smaller growth in the area's median home price increase this year – less than 10 percent – due to the shrinking pool of qualified buyers as prices rise, as well as a natural limit in the price buyers will pay for a home.
“That is going to naturally slow the demand at those higher price points, which should slow down the market a little bit and make it more sustainable and healthy ultimately,” Danyliw says.
[See: 3 Up-and-Coming Places to Live.]
The heart of Silicon Valley and home to more than a dozen billionaires, the San Jose metro area is widely hailed as one of the most expensive in the country. Especially if you’re relocating from a part of the country that doesn’t have a similar median home price – $829,792, according to Trulia – you’re in for a bit of sticker shock.
While there are still first-time homebuyers, the area's starting price point is much higher than in most of the rest of the country, ranging from $500,000 to $650,000, says Sophia Delacotte, a Realtor in San Jose with Intero Real Estate Services.
And affordability is all relative, as the U.S. Census Bureau reports the blended annual household income – accounting for both renters and homeowners – in the San Jose market is $97,744, the highest of the 100 largest metro areas U.S. News ranks.
Similar to Austin and Denver, San Jose offers a low number of available homes on the market, Delacotte says. But she also points to a slight change in the speed of buying in the market.
“Today we have more property that stays longer on the market, despite the fact that we have a lower inventory than last year,” Delacotte says.
Particularly on the higher end of the market – homes above $1 million – Delacotte notes buyers are tired of inflated prices, so properties remain on the market a bit longer, returning the market to a more normal pace as well.