The continuing rise of homes in the countryâ€s top metropolitan areas are forcing homebuyers to look at cheaper options. Midsize cities in the South and Midwest offer the biggest bang for your buck. 

Cities like Chattanooga, Tennessee; Columbia, South Carolina; El Paso, Texas and Louisville, Kentucky could soon be some of the hottest housing markets as home prices there are expected to climb. This according to Realtor.comâ€s 2023 housing forecast and economic overview. 

The real estate listing firm also expects to see prices rise in places like Toledo, Ohio and Buffalo, New York, as buyers continue to be priced out of the larger cities. Those who can work remotely are looking to leave those larger cities for more affordable places to live. 

In an interview with CBS†Money Watch, Realtor.com Chief Economist Danielle Hale said, “If you have a remote work job that you can take with you, then it can make sense to move there because you’re going to see your real estate dollar stretch a lot further.” 

According to Realtor.com, Augusta, Georgia is expected to be the hottest housing market in the country. The median home price as of November 2022 is $319,000 and is expected to grow by 5.7% in 2023. Rounding out the top 10 are Buffalo, New York ($240,000, 6%); Chattanooga, Tennessee ($397,000, 8.2%); Columbia, South Carolina ($300,000, 3.6%); El Paso, Texas ($291,000, 5.4%); Grand Rapids, Michigan ($358,000, 10%); Hartford, Connecticut ($372,000, 8.5%); Louisville, Kentucky ($290,000, 8.4%); Toledo, Ohio ($161,000, 6.7%) and Worcester, Massachusetts ($447,000, 10.6%).

According to Zillow, the Midwest in particular is expected to attract more first-time home buyers.

“Having available houses to choose from is another key component of a healthy market, and the Midwest stands out,” Zillow noted in their 2023 predictions released last month. “Inventory isn’t in a massive hole compared to pre-pandemic times and declines in new listings are smaller than the national average– encouraged by the more consistent demand from buyers.”

2022, a year that saw increasing prices in homes and skyrocketing mortgage rates, is over. Cities that were the hottest like Austin, Texas; Boise, Idaho and Phoenix, Arizona have started to cool. 

Itâ€s not unusual for home prices to fall near the end of the year, but prices in the top 100 markets will climb again in 2023, according to Hale.

Charlotte metro area ranked 50th in Realtor.comâ€s 2023 Housing Forecast with a 5.5% year-over-year price change. Homes in the Queen City have a median listing price of $403,852 and spend an average of 55 days on the market, according to Realtor.com.

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The U.S. is seeing itâ€s second biggest home price correction of the post-WWII era with 55% of Americans saying they cannot afford to buy their home in todayâ€s market, according to the CATO Institute 2022 Housing Affordability National Survey.

Mitch Roschelle, Macro Trends Advisors founding partner, told Fox News he attributes the huge correction to Americanâ€s uneasiness regarding the markets and the economy. He said that the “shoe to drop” would be seeing a rise in unemployment that may cause a “leg down” in the real estate market.

“A couple of things are going to cause it to turn in the opposite direction, meaning home prices are going up. One is certainty. And when you don’t know if interest rates are going to go up or not. I think that is what is driving a lot of people away from buying because they just don’t know if rates are going to be cheaper in two months, and they’re just going to wait,” said Roschelle.

He went on to say, “And the other thing is uneasiness regarding the economy. And I think the shoe to drop there would be if we start seeing layoffs, and we start seeing unemployment starting to rise, I think that could be something that causes a leg down in the housing market in a big way.”

Roschelleâ€s comments follow a power shift currently happening in the U.S. housing market away from sellers. 

“Right now, I would say it’s a buyer’s market. I think the power has completely shifted from seller to buyer. Doesn’t mean you don’t see some bidding wars because again, I think statistically across the country, we’re at 3.3 months supply. So that’s still relatively low. So, if there’s a house that hits the market that’s perfect, and it ticks all the boxes for buyers and there are buyers out in the market, I think you could see sporadically bidding wars, but mostly, you know, it’s one or two people chasing that house. And we’re not seeing that. We’re not,” Roschelle said.

The average home price is expected to plummet from its peak at the height of the pandemic. According to Fortune.com the price of homes in the country in October 2022 were 38.1% above March 2020 levels. Roschelle believes that the average price will drop by at least 10% from its peak in 2022.

“My 10% to 15% [prediction] is from the peak in 2022, that is where we land in terms of average home prices being down 10 to 15%. Which if we’re talking about the stock market, it would certainly be seen as a correction, but not a bear market. The thing to remember is that from February 2020, home prices went up as much as 40% to where we are today,” Roschelle explained.

You can view the CATO Institute 2022 Housing Affordability National Survey here.

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The index analyzes key housing market metrics to measure whether the countryâ€s 100 largest markets favor buyers or sellers. Last month, the index found that home prices in 98 of 100 were below their peak price from last spring. The markets in Providence, Rhode Island and Salisbury, Maryland were the only markets where home prices have remained at their highest since being set earlier this year. 

In 42 of the major housing markets, home prices are expected to fall further than their 2022 highs by this time next year. Of those 42 markets, 15 are in the South, 15 are in the West which is home to some of the most expensive markets in the country. The remaining 12 are in the Midwest and the Northeast. 

Of the 25 markets with the largest projected median sale price decline, 15 peaked well above the national high of $410,000. In San Francisco and San Jose California, the median sale price peaked at $1.3 million and $1.6 million in April 2022, respectively. 

Through the first nine months of 2022, just over 1.8 million homes have traded hands across the largest 100 markets in the nation. This was less than during the same time frame in each of the past four years. While still low, the supply of homes for sale has grown at a steady pace throughout this year as median days on the market increased to 20 in September. This is up by one full week from a year ago.

The average sale-to-list ratio fell to 99% in September. This measures how close homes are selling for their asking price and itâ€s the lowest level since February 2021 and also down from 100.3% in May when the prices for homes peaked nationwide. 

The co-founder and CEO of Knock, Sean Black, said that based on the findings the shift to a more balanced market is still in its early stages. “We expect that this much-needed reset will persist through much of 2023, and although prices will again begin to rebound they likely wonâ€t return to their peaks for the foreseeable future,” he said.

Black went on to say, “While many drivers of the housing market like demographics and record low unemployment have not changed, the combination of higher rates and home prices have put affordability at the worst levels in 30 years with entry-level monthly payments set to be 34% higher in 2022 versus 2021. The good news is that as prices soften and rates stabilize once the Fed is done with its aggressive rate hike campaign—hopefully, after its meeting in November—buyers will be ready to re-enter the market and sellers will retain the majority of the equity gains theyâ€ve seen in the last two years.”

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According to the latest RE/MAX National Housing Report, home sellers accepted offers below their listing prices on average based on data from August. This is further indication of the housing market rebalancing which is a source of relief for prospective homebuyers who have faced an incredibly competitive market. Out of the reportâ€s 51 metro areas, the average close-to-list price ratio was 99% in August. This means that homes sold for 1% less than the asking price. This is down from 101% in July and 104% in April. 

“Patient buyers were rewarded in August, as prices softened from July. Sales increased as buyers ‘bought the dip’ – which was not the trend many people were expecting. The activity modestly depleted inventory, although the number of homes for sale remains significantly higher than this time a year ago,” said Nick Bailey, RE/MAX President and CEO. “The late-summer burst of activity underscores the housing market’s resiliency. Despite the uptick in interest rates and concerns about the economy, demand remains strong. We’ll see what happens from here, but the August bump in sales was great news for the industry.”

The numbers however still show that it is more expensive to buy a home in Charlotte and has been for over a year. 

The median home sale price in Charlotte went up slightly from July to August per the report. This is up 1.3% from $395,000 to $400,000. The opposite happened with the median listing price. The price dropped 1.3% from July to August– $400,000 to $395,000.

Year over year, both prices have seen significant increases.

According to RE/MAX, the median listing price for the Charlotte metro area has jumped 12.9% in the past twelve months. In August 2021, The price was $349,000 compared to $395,000 in August 2022. The median sales price meanwhile has jumped 16.1% from $344,500 to $400,000 in the same time frame. 

Charlotte had 5,723 active listings in August which is up 77.4% from a year ago. According to the report, there were 3,226 active listings a year ago in August. 

Compared to the national average, Charlotteâ€s median home sale is less expensive. According to RE/MAX, the national average is $410,000. The report notes however that Charlotte is in the top five markets in the country for median sale price increases year-over-year.

The national trends for housing inventory in the report showed Charlotte isnâ€t an outlier, with an active inventory increase of 20% in the last 12 months but down from July by 1.8%.

Rising mortgage rates are expected to help cool the housing market country-wide. “The cumulative effect of this sharp rise in rates has cooled the housing market and caused the economy to start slowing, but hasnâ€t done much to lower inflation,” says Greg McBride, CFA, Bankrate chief financial analyst.

The last time the 30-year rate rose to over 6% was during the 2008 housing crash. The interest rate for a 30-year fixed mortgage is at 7.20% a .16 increase from just a week ago (7.04%).

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At a Federal Open Market Committee press conference in September, Federal Reserve chair Jerome Powell was asked to clarify what he meant when he said the U.S. housing market would “reset.” He answered: “Weâ€ve entered into a ‘difficult correction†that will see the U.S. housing market transition to a more “balanced” market for buyers and sellers alike.”

With that said, he still hasnâ€t addressed if home prices will fall. However at the University of Kentucky this week, Fed Governor Christopher Waller told the audience itâ€s possible we could see a drop in prices. 

“While this [housing] market correction could be fairly mild, I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes,” Waller said. 

This was the first time a Federal Reserve official has acknowledged that the housing correction could see housing prices fall at the national level. Waller also said the home price correction might end up being more of a small trickle down. 

“Despite the risk of a material correction in house prices, several factors help reduce my concern that such a correction would trigger a wave of mortgage defaults and potentially destabilize the financial system,” Waller said. “One is that because of relatively tight mortgage underwriting in the 2010s, the credit scores of mortgage borrowers today are generally higher than they were prior to that last housing correction. Also, the experience of the last correction taught us that most borrowers only default when they experience a negative shock to their incomes in addition to being underwater on their mortgage.”

The Fed acknowledging that home prices could fall comes after many markets are already starting to see the home prices fall. Among the 148 major regional housing markets tracked by the Burns Home Value Index, 98 of those markets have seen home values fall from their peaks this year. In 11 markets, they have dropped by more than 5%

“Prices have even fallen in some areas of the country, especially those that saw the largest increases over the previous two years. And many builders are reportedly cutting their list prices and offering larger incentives,” Waller told the audience.

Two markets are getting hit the hardest by the housing correction. High-cost tech hubs like the San Francisco market is down 7.8% from its 2022 peak while San Jose is down 9% and Seattle is down 6.2%. The other market group are bubbly markets where home prices have reached levels well beyond what local incomes can support historically like Austin which is down 6.2% along with Boise (down 5.3%) and Phoenix (down 4.4%). According to Moodyâ€s Analytics, The Austin and Phoenix market are overvalued by 61% and 57% respectively. Typically markets that are significantly overvalued are the most vulnerable to home price cuts during a housing correction. 

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Since the start of 2022, mortgage rates have more than doubled as the Federal Reserve continues its unprecedented hiking of interest rates to try and tame the rise of inflation. However, the uncertainty of a possible recession and the impact of the rate hikes on the economy has made mortgage rates more volatile. 

“Mortgage rates decreased slightly this week due to ongoing economic uncertainty,” said Sam Khater, Freddie Macâ€s chief economist. “However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential homebuyers.”

According to Freddie Mac, the average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put down the 20% down payment and have excellent credit. There are many buyers though who put down less money upfront or have a credit score that isnâ€t too great who will pay more. 

Each piece of economic data has been scrutinized by investors and analysts alike. They are searching for clues about the Federal Reserves next steps along with the future of the U.S. and global economies. 

The interest rates borrowers pay on mortgages may not be directly set by the Fed but its actions influence them. As investors anticipate rate hikes, they often sell government bonds, which sends yields higher and mortgage rates rise. The mortgage rates tend to track the yield on 10-year Treasury bonds. For the past month, yields on 10-year Treasuries have risen from 3.25% to almost 4% then fell back to nearly 3.75 this week. 

Danielle Hale, Realtor.comâ€s chief economist compares investors†actions to a driver during a dense fog, prone to over-correcting on each turn. 

“Signs that we are closer to the end of the tightening cycle – such as a surprisingly steep decline in job openings – tend to cause rates to slip, while rates bounce higher on signals like robust activity in the services sector,” said Hale.

Rates may have lowered slightly this first week of October but the average interest rate for a 30-year fixed-rate loan is still more than double what it was at this time in 2021.

Last year, a home buyer who put down 20% on a $390,000 home with the rest financed through a 30-year fixed-rate mortgage at an average interest rate of 3% had a monthly mortgage payment of a little less than $1,500.

Today, that homeowner buying the same house with an average rate of 6.66% would pay a little over $2,000 each month in principal and interest. Thatâ€s around $500 more each month. 

“While rate increases are needed to tame inflation and alleviate the burden it places on household budgets, higher borrowing costs have caused consumers to think twice about major purchases like homes and cars,” said Hale.

Those still looking to buy may have a little more breathing room.

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For the first time in nearly three years, home prices declined 0.77% from June to July according to Black Knightâ€s Home Price Index. Black Knight is a mortgage software, data and analytics firm. While the drop may be small at less than 1%, it is the largest single-month decline in prices since the beginning of 2011. This is also the second-worst July performance dating back over 30 years, behind the 0.9% decline in July 2010, during the Great Recession.

The sudden rise in mortgage rates this year aided an already expensive housing market in becoming even less affordable. The price of homes rose abruptly during the first year of the pandemic because demand was strong while supply was historically weak with record low mortgage rates.

Currently, housing affordability is at its lowest level in 30 years. According to Black Knight, buying a house requires 32.7% of the median household income to purchase the average home using a 20% down payment with a 30-year mortgage. This is about 13% more than the median income required entering the pandemic in 2020 and much more than both of the years before and after the Great Recession. 23.5% is the 25-year average. 

“Weâ€ve been advising for quite some time that the dynamic between interest rates, housing inventory and home prices was untenable from an affordability perspective, and at some point, something would have to give,” said Andy Walden, vice president of enterprise research and strategy at Black Knight.

He went on to say: “Weâ€re now seeing exactly that, with Julyâ€s data providing clear evidence of a significant inflection point in the market. Further price corrections are likely on the horizon as we move into what are typically more neutral seasonal months for the housing market.”

Historically, prices rise on average 0.4% between June and July due to the market being heavily weighted by families buying larger homes. Most families prefer moving during the summer when the kids are on summer break.

Home prices were still 14.3% higher in July than they were a year prior. This is more than three times the historical annual price growth. However majority of that growth took place in the beginning of 2022 before interest rates increased. The average rate on a 30-year fixed mortgage began this year around 3%. Each month it slowly climbed before sharply rising to over 6% in June. Right now interest rates are around 5.75%

More than 85% of major markets have seen prices come off their peaks through July. The top 5 cities seeing the steep decline in pricing over the last few months were San Jose, CA at 10%. Seattle, WA was down by 7.7%. San Francisco, San Diego, and Los Angeles saw price drops by 7.4%, 5.6% and 4.3% respectively. 

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Some homebuyers are backing out of deals as the housing market slows, allowing them more room to negotiate while others are being forced to back out of contracts due to higher mortgage rates that are making the homes no longer affordable. 

“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” said Redfin Deputy Chief Economist Taylor Marr. “Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”

Marr went on to say: “Rising mortgage rates are also forcing some buyers to cancel home purchases. If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan.”

The housing market has cooled recently as the Federal Reserve boosted interest rates in an effort to thwart inflation. This has allowed potential homebuyers more freedom to seek concessions from sellers. At the same time, the higher rates also make the home less affordable. Buyers did catch a small break last month when the average 30-year fixed mortgage rate fell to 5.3%. It was the largest one-week drop since 2008.

“When mortgage rates shot up to almost 6% in June, we saw a number of buyers back out of deals,” said Lindsay Garcia, a Redfin agent in Miami. “Some had to bow out because they could no longer get a loan due to the jump in rates. Buyers are also more skittish than usual due to economic uncertainty.”

The metro area with the most pending sales to fall out of contract was Las Vegas, NV at 27.2%. Newark, NJ saw the lowest pending sales to fall out of contract– 2.6%.. In order to be included, the metro area must have had at least 1,000 pending home sales in June 2022. 102 metro areas made the list. Charlotte came in at number 76 on the list with 11.6% of pending sales falling through.

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“More people are opting to live alone, and rising mortgage-interest rates are forcing would-be homebuyers to keep renting,” said Redfin deputy chief economist Taylor Marr. “These are among the demand-side pressures keeping rents sky-high. While renting has become more expensive, it is now more attractive than buying for many Americans this year as mortgage payments have surpassed rents on many homes. Although we expect rent-price growth to continue to slow in the coming months, it will likely remain high, causing ongoing affordability issues for renters.”

In some cities around the country, rent is up over 30%. Nashville, Seattle, and Cincinnati all saw 30% increases while Austin, Texas saw a whopping 48% increase. According to Redfin, this is the largest increase for any metro area since the data started getting collected in 2019. 

The top 10 metro areas with the fastest-rising rents year over year were Austin at number 1, followed by Nashville, TN; Seattle, WA; Cincinnati, OH and Miami, FL to round out the top 5. Fort Lauderdale, FL; West Palm Beach, FL; New York, NY; Nassau County, NJ and then New Brunswick, NJ finished off the top 10. 

The rent growth in Portland, OR fell below 30% for the first time since the beginning of the year which caused it to drop out of the top 10. Only three of the 50 most populous metro areas saw rents decline in May from the year prior. In Milwaukee, WI, rent fell 10% while Kansas City, MO and Minneapolis, MN saw a decrease of 3%. All three metro areas also saw decline in rent in April too.

Closer to home, the median monthly rent in Charlotte is a little over $1,800 a month in May. That is 8.7% higher than the same time a year before.

An indicator of affordable rent is if someone is able to spend no more than 30% of their income on housing. In order to be able to afford rent in the Queen City, that would mean a person would have to make about $73,000 a year.

The housing market having low inventory and increasing interest rates makes renting less expensive than buying for most. Currently Charlotte has about 81,000 units that are considered affordable. However, according to officials in the city, Charlotte needs an additional 32,000 available units in order to meet the demands.

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In hot markets like San Jose, Chicago and Phoenix, “for sale” signs are more prevalent. The volume of U.S. monthly home sales have hit double-digit declines recently. This is according to estimates from the National Association of Realtors. The number of homes sold was down 19% in May compared to May of 2021 according to Zillow. And according to some preliminary data, it looks like the decline continued in June.

“This yearâ€s buyers are just much more savvy, and they deserve to be because theyâ€re going to be paying more to purchase the home,” said Daniel Valdez, an agent with eXp Realty in Sacramento.

Even with this slight slowdown, itâ€s given little relief to buyers. The combination of high interest rates and inflation, many would-be buyers are forced to walk away.

Some sellers are mindful of the huge gains of the 2020 and 2021 housing market, which brought the average listing price up more than 40%, and are reluctant to lower their prices or expectations. 

“The marketâ€s cooling off, but that cooling has happened on the backs of buyers getting discouraged, on buyers being forced out of the market,” said Jeff Tucker, a senior economist at Zillow. “People who thought they would join the party are being greeted by absolute carnage as far as affordability right now.”

Record low interest rates helped fuel the surge in housing prices in 2020 and 2021 but the Federal Reserve reversed course earlier this year after inflation spiked. Higher rates means higher borrowing costs. The 30-year fixed-rate mortgage is up 2.9% from a year ago. That coupled with a battered stock market and higher costs for food and fuel, makes it even harder for buyers to save up for a down payment. The result is would-be buyers are out which leads to fewer deals. 

Rachel Payne, a public school teacher in northern Virginia, told The Washington Post that she gave up on her search recently after her dream home fell through. She and her fiancé, a professional poker player, put in an offer of $1.05 million on a four-bedroom house in the Belle Haven neighborhood of Alexandria, but the seller wanted to waive an inspection. A move Payne thought to be too risky. A week later, she says it sold for the same price.

“What we are seeing today is that buyers do, in fact, have a limit,” Wolf said. “Prospective home buyers have gotten to the place that they are either intentionally stepping out of the housing market as they wait and see what happens next, or are forced out of the housing market given the higher costs of homeownership.”

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