Posted by: Richie Bernardo

Whether you’re joining the real-estate business or just looking for a place to put down roots, it’s important to take the temperature of the housing markets you’re considering before investing in a property. Home prices and rental rates vary widely across the U.S. based on supply and demand.

But if you aim for long-term growth, equity and profit, you’ll need to look beyond tangible factors, such as square footage and style. Those factors certainly drive up property values. From an investor’s standpoint, however, they hold far less significance than historical market trends and the economic health of residents.

To determine the best local real-estate markets in the U.S., WalletHub’s analysts compared 300 cities of varying sizes across 21 key indicators of housing-market attractiveness and economic strength. Our data set ranges from median home-price appreciation to home sales turnover rate to job growth. Read on for our findings, a ranking of the cities based on size and expert insight from a panel of researchers. To learn how we ranked the cities, scroll down to our methodology.

1. Main Findings
2. Rankings by City Size
3. Ask the Experts
4. Methodology

Main Findings

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Overall Rank	City	Total Score	‘Real-Estate Market’ Rank	‘Affordability & Economic Environment’ Rank
298	Detroit, MI	34.21	297	293
299	Paterson, NJ	31.83	299	292
300	Newark, NJ	28.52	300	294

 

Rankings by City Size

 

Rank	Large Cities	Rank	Midsize Cities	Rank	Small Cities
				142	Flint, MI (54.62)
				143	Elizabeth, NJ (40.05)
				144	Paterson, NJ (38.99)

Ask the Experts

Economic indicators point to a stable housing market, but does that mean it’s a good time to buy a home? We consulted a panel of experts for their insight. Click on the panelists’ profiles below to read their bios and thoughts on the following key questions:

1. Is now a good time to buy a home? What economic indicators should potential buyers watching?
2. Are foreign buyers driving up the cost of U.S. real estate? Which cities are most affected?
3. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market?
4. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort?
5. In evaluating the healthiest housing markets, what are the top five indicators?

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• Matthew Hurst Assistant Professor of Finance at Stetson University
• Matthew E. Kahn Professor of Economics at University of Southern California, Dornsife College of Letters, Arts and Sciences
• Brendan O’Flaherty Professor of Economics at Columbia University
• Kirk McClure Professor in the Department of Urban Planning at the University of Kansas
• Meagan N. McCollum Assistant Professor in the William Newman Department of Real Estate at Baruch College, Zicklin School of Business
• Edward Coulson Professor of Economics in the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas
• Eliot H. Sherman Senior Lecturer of Finance at Northeastern University, D'Amore-McKim School of Business
• Terrence M. Clauretie Professor Emeritus of Real Estate at University of Nevada, Las Vegas
• Mariya Letdin Assistant Professor of Real Estate at Florida State University, College of Business

Matthew Hurst Assistant Professor of Finance at Stetson University Is now a good time to buy? What economic indicators should potential buyers be watching? Uncertainty about this question has risen lately with some notable economists suggesting that we are seeing a housing bubble. One economic indicator, the rate on the 10-year treasury, is closely linked with the 30-year mortgage rate and therefore directly impacts housing affordability. This metric is at near historic lows and closely correlated with new mortgage applications and refinances. Housing prices as measure by the FRED data series USSTHPI show prices have returned to pre-financial crises levels. Mortgage debt outstanding is also at an all-time high and seems to have accelerated since the first quarter of 2015 due to low interest rates. Even though consumers are using unprecedented levels of debt, the debt payments/disposable income ratios show that most consumers are able to comfortably afford additional borrowings. Rental vacancy rates are the lowest they have been in 20 years and many investors are seeking returns in the real estate space. Increased cost of renting relative to buying usually will result in increased home ownership but in this case we are not seeing it yet. Are foreign buyers driving up the cost of US real estate? Which cities are most affected? Absolutely. Foreign buyers are driving up the demand for premium and vacation houses in coastal and southern areas. European and South American buyers seem to be buying in Florida, Texas, Arizona, and California. Asian buyers are primarily buying in NYC and the west coast. Due to the rule for foreign direct investment, most of these buyers are financially well off and are purchasing houses that average $700K+. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? The CME group has a derivative product that tracks the likelihood the Fed is going to raise rates. Right now the market is pricing in an 18% probability of a rate hike at the September meeting. Increasing the federal funds rate doesn’t necessarily cause a parallel shift in the yield curve. Most likely there will be an increase in the cost of borrowing and house price affordability will decline. Because houses are now less affordable, demand will decrease, and there will be a slower absorption of inventory. Over time you will see greater price concessions but this might take 12-24 months. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? Price. Uncertainty. Life style. Millennials are doing everything a bit slower. They are taking longer to get married (if ever), longer to have kids, longer to find a career, etc. These postponed life events are highly correlated with the decision to buy a house. Additionally, the increased cost of rent, especially in high cost urban environments where Millennials are more likely to live, is slowing the savings rate and therefore they are unable to save enough for down payments. Millennials got caught in the perfect storm. When the financial crisis happened they saw the impact on their parents and for many of them it was a terrifying first financial experience. Second, the financial crisis caused people to postpone retirement, there was abnormal unemployment until very recently and GDP growth has stalled at below 2%. Millennial unemployment rates are higher than national averages and many have adopted a laissez-faire attitude towards material possession and the layer-cake mentality of consumerism. In evaluating the healthiest housing markets, what are the top 5 indicators?

1. How quickly a house will sell after listing;
2. How discounted the house is sold from asking price;
3. The number of college educated people moving to a given market per year;
4. Mean/Median wage for careers that a city ‘exports’;
5. When a Whole Foods moves to a given area.

Matthew E. Kahn Professor of Economics at University of Southern California, Dornsife College of Letters, Arts and Sciences Is now a good time to buy? What economic indicators should potential buyers be watching? No. Econ 101 teaches us that at times when uncertainty is high that it is best to sit on the sidelines and rent and wait. Renting has an "option value" (especially for young people) that allows one to delay the costly ownership decision until the uncertainty is resolved. The basis for the uncertainty is the following:

1. Will U.S economic growth accelerate or are we stuck in a low growth equilibrium due to population aging, weak K-12 public education, and expectations of rising taxes to pay down our deficit and to fund generous entitlements for senior citizens?
2. Is China entering a period of lower economic growth and increased capital controls making it harder for its rich to purchase in our coastal markets?
3. Regulatory uncertainty related to local zoning codes. Will developers be able to build more housing in high priced markets?
4. Will the Federal Reserve start to raise the federal fund interest rate? This would reduce the demand for house ownership.

Are foreign buyers driving up the cost of US real estate? Which cities are most affected? Yes. The New York City, Miami, Los Angeles, and San Francisco markets are all inflated due to international buyer demand. As prices rise in these cities, this triggers a series of responses. Developers in those cities build more housing (but are constrained by zoning), some U.S citizens in those cities substitute to cheaper, smaller homes in less desirable areas in those cities. Some U.S citizens choose to live in other areas such Phoenix or Texas. This "cross-city" substitution can mean that other cities that do not attract foreign money are still affected by foreign investment to specific Superstar cities. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? Young people remember the 2008 housing bust. Housing is a risky asset because it is located in a specific local labor market. In a city such as Los Angeles, home prices could fall if the local industry such as Hollywood becomes less profitable due to changes in global entertainment trends and new competition. It is not clear to me that it is socially desirable to increase homeownership rates for young people. Risk-averse people should hold a diversified portfolio and holding a mutual fund of SP500 stocks may offer a higher risk adjusted rate of return than housing right now. As documented by Ed Glaeser, the social benefits of homeownership are not large. Each individual knows his own situation and can judge the private benefits and costs of this decision. So, the "invisible hand" guides choice in this case. Labor economics studies individuals' career paths. Consider a 28 year old college graduate with 6 years of work experience. She may have majored in History in college and now has completed a MBA. As she searches for the right company and industry, she may not be ready or eager to "lock in" to a specific city by buying a house there. A renter has more flexibility and a greater ability to "get up and go" as new opportunities pop up and as uncertainty about her match quality is resolved. So again, uncertainty about one's future and macro uncertainty and local labor market uncertainty all have a synergistic effect of encouraging a young person to keep renting. Renters have the option to move and, in an uncertain world, this migration option is greatly valued. In evaluating the healthiest housing markets, what are the top 5 indicators? So, why is San Francisco so desirable right now? 1. Tech is booming (so job growth in clean high human capital industries). 2. Quality of life is great in San Fran (yes, there is a homeless problem but the area is beautiful with a warm winter temperature and mild summers). 3. Low pollution and a walking safe new urbanist feel appeals to almost all. 4. Due to #1, #2 and #3, great restaurants emerge in these places to cater to these individuals with the cash and the desire to be outside. This is the modern "Consumer City". Brendan O’Flaherty Professor of Economics at Columbia University Is now a good time to buy? What economic indicators should potential buyers be watching? Potential buyers should be asking themselves why they want a house and what it can do for them. They should pay attention to their families and not the macroeconomy. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? The Fed speaks for itself about what it will do; I have no inside information. The Fed has indicated that whatever it does in the coming months is likely to be small, and so it will probably have a small effect on the housing market, if any. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? Why would anyone want to make decisions for the millennials? Owner-occupied housing is heavily subsidized in the US, for no good reason, so there's basically too much of it. That millennials are not adding to this misallocation is not a problem. Kirk McClure Professor in the Department of Urban Planning at the University of Kansas Is now a good time to buy? What economic indicators should potential buyers be watching? I encourage people not to follow price trends. These can change, as we learned painfully in 2008. Rather, they should look at the growth of incomes among homeowners and renters. Ultimately, the value of the homes in any market is directly related to the aggregate income of the owners in the market. Similarly, the value of rental properties is directly related to the aggregate income of renters in the market. The owner-occupied market is less concerning right now. The rental markets are very far into a new bubble. Rents are rising much faster than renters’ income. Rents cannot continue to rise this fast much longer. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? The Fed will need to raise the rates at some time, if only to have room to maneuver in the future, should the economy go back into recession. I do not see much near-terms threat from a Fed interest rate increase. Mortgage rates are at historic lows, and the Fed will not raise interest rates by enough to push mortgage rates up to historic norms. The mortgage rates will continue to be low for some time. The barrier to people getting loans is not the interest rate; it is the FICO score requirements. Only people with good credit can get loans, and many people do not have credit scores that make them eligible for loans. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? Millennials are in Mom’s basement due to several forces. 1. They do not have the income to make loan payments. They need to have income after student payments to leverage a loan. 2. They do not have savings for a down payment because they have not been earning much and Mom and Dad were either tapped out sending the kids to college or the parents lost their savings during the recession. 3. With no income, the kids do not have a credit history to allow them to leverage a loan. (5. Also, we have a generation of youngsters who want their first home to be as good or better than Mom and Dad’s home. Expectations may be too high.) In evaluating the healthiest housing markets, what are the top 5 indicators? Jobs, jobs, jobs, jobs and jobs. We have 455 metropolitan markets in the US. A few are at the Bottom (Detroit, Youngstown, Akron, etc.) A few are at the top (the so-called ‘Sexy Seven”: Boston, New York, DC, Miami on the East and Seattle, San Francisco and LA on the West). All the rest are in the great middle. The Sexy Seven are the places with the jobs, the income and the urban environments where the “creative class” wants to live. This makes their housing markets hot. But hot is not necessarily healthy. A healthy market keeps the growth of the housing stock in close correspondence with the growth in households. Adding too many or too few has negative consequences. By far, most markets are adding units faster than household formation. This is unhealthy because it hastens the demise of older homes and older neighborhoods, causing blight. A healthy market will see prices (rents and home values) grow in close correspondence with the growth in aggregate income of households. By far, rents are rising faster than renters’ incomes, which is creating a national bubble with the potential for huge waves of evictions. The ownership markets are a little better. The ratio of Value-to-Income has come down from its bubble-induced peak of 2007, but it has come down only partially. We have a long way to go to return to the Value-to-Income ratios that we experienced in the 1990s, when housing markets were much healthier in most parts of the country. Meagan N. McCollum Assistant Professor in the William Newman Department of Real Estate at Baruch College, Zicklin School of Business Is now a good time to buy? What economic indicators should potential buyers be watching? Deciding if now if a good time to buy is a personal question that every potential buyer should evaluate based on their own profile. First, consider where you are looking to buy. Of course, housing markets vary significantly across the US. Some markets have shown considerable strength, while others are still feeling effects from the crisis. Next, potential buyers should consider how long they plan to live in a house. Although interest rates are still low, transactions costs from buying and selling real estate can cut into financial benefits to homeownership if you buy and sell in a short period of time. Another important point about low interest rates - most people cite the mortgage interest tax deduction as an important reason for buying a home, but in today’s low interest rate regime, the lower amount of interest you are paying directly affects how much this tax deduction can benefit you. It’s definitely worth calculating beforehand how much a benefit (if any) you will see in your taxes before basing a decision on buy on a tax break. Are foreign buyers driving up the cost of US real estate? Which cities are most affected? Foreign buyers are undoubtedly having an influence in US real estate markets. While in the past these buyers have been most interested in high end properties in cities like New York, Miami, Los Angeles, etc., there’s been a recent shift in foreign buyers to purchasing less-pricey properties in areas other than major US cities. Often, these buyers can have different motivations than the average buyer; for example, these purchases may be made primarily as an investment instead of as a primary residence. More often than not, foreign buyers are purchasing homes in all cash transactions, which can give them an edge over other buyers that need to secure financing. To the extent that these buyers make up a significant portion of a local market, they can push prices higher. In most markets though (outside of high-end luxury properties, where their influence can be quite high), their influence is still relatively small compared to other factors. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? If economic indicators such as increased new job creation and lower unemployment rates continue to show strength, then an increase in interest rates by the end of the year is not out of the question. However, as we’ve seen in the past several years, the Federal Reserve is being very cautious with any rate hikes; even if there is an increase in rates in the coming months, it almost certainly will be a very modest one. Any modest increase in rates shouldn’t affect the housing market that much. However, the housing market does react to sentiment, so if there is a growing consensus that rates are headed upwards in the near future, we might see an uptick in purchase or refinance activity as mortgagors try to beat any rate hike by locking in today’s rates. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? I would broadly characterize Millennials’ hesitation to enter into the housing market into two categories: financial and social. First, on the financial side, many Millennials are still underemployed, relative to other generations at the same age. Although some who are currently “sitting out” of the housing market may qualify for mortgages, they don’t want to stretch their budget to do so, having seen the effects of overextending financially to achieve homeownership first hand, during the crisis. On a related note, many Millennials have displayed an aversion to other forms of consumer debt, such as credit cards. By not applying for and using credit cards, they may not be developing a sufficient credit history to qualify for a mortgage at today’s low rates. Of course, other debts, such as large student loan payments, also keep some Millennials away from the housing market. On the social side, some of the traditional markers of homeownership, like family formation, are lagging. Millennials are marrying and having children later and at lower rates than previous generations, which can be a drag on homeownership rates. In regards to increasing homeownership rates for this cohort, we should consider if it is really a bad thing that Millenials are owning at lower rates than previous cohorts? Since housing is an important store of household wealth, the answer is only yes if Millenials are not building wealth and engaging in meaningful savings behavior in other ways. Assuming that we wanted to increase homeownership in this cohort, I would say the keys to doing so are 1) decreasing fear of participation in financial markets and 2) reshaping the market and available housing stock to cater to preferences expressed by Millenials (such as more flexibility, smaller spaces/yards-shift away from “McMansions”, low maintenance, etc.) Edward Coulson Professor of Economics in the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas Is now a good time to buy? What economic indicators should potential buyers be watching? Depends on the locality. Buyers should look at the price rent ratio and the available supply of units. Are foreign buyers driving up the cost of US real estate? Which cities are most affected? It is very hard to tell the extent to which foreign buyers are affecting markets, but they certainly have a presence. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? The rate of pass-through from the short run T-bill rate to the 30 year fixed rate mortgage is very imperfect, but even so, the impact on monthly payments of 30yr FRM is likely to be minimal. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? It depends if we are talking about the housing market or the ownership market. The former is because the recession lowered the ability to form independent households. The headship rate of all age groups has fallen since 2000. The millennials only slightly more so then Gen X groups. As for home-ownership, much the same story. All age groups have reduced ownership, millennials maybe more than most. Eliot H. Sherman Senior Lecturer of Finance at Northeastern University, D'Amore-McKim School of Business Is now a good time to buy? What economic indicators should potential buyers be watching? I think there are several things to consider in deciding whether or not to buy a home today. Because interest rates are very low, earning a reasonable return on investable funds is more difficult than in what were more normal interest rate environments. This also relates to your third question, as I expect the Federal Reserve to raise interest rates soon, and more than once. That suggests that it is a good time to buy. During the financial crisis and in a couple of other periods in recent memory, housing prices declined, and did so precipitously, raising risk concerns. However, I do not think that is a significant risk if the local economy in a particular market is strong. Housing prices are rising in many markets, again suggesting now is better than waiting. Housing is, in many cases, a better investment than some other choices. If a prospective buyer is planning to remain in an area for several years, probably approximately 5 years, which should amortize any points and closing costs, it is reasonable to expect at least a modest increase in prices, although not as sharp as in the pre-crisis years. However, and this relates to your fourth question, Millennials and other groups are more mobile, both in terms of employment and in terms of geography, so the expected time in an area is important. Overall, I believe investing in a home is probably a good decision and now is a good time. Rents are very high in many places, particularly in the Northeast and in much of the West Coast, and, while house prices are high, comparing rent, in which one creates no equity either through the principal payment or price appreciation, to the mortgage payment, the mortgage payment is often lower than the rent payment. Are foreign buyers driving up the cost of US real estate? Which cities are most affected? I think foreign buyers are less of a factor in housing prices today than they were just a short time ago. With economic issues in Latin America, Europe and Asia, foreign buyers, while present, are not as influential regarding price or availability, except, perhaps, at the highest price levels. They do have an impact in Boston, New York, Miami, and possibly San Francisco. More influential, I think are affluent American buyers, including those in the technology and biopharmaceutical industries. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? Yes, I think the Federal Reserve will raise interest rates, soon, and possibly more than once. Our economy is strong and strengthening, unemployment is low and wages are rising, although generally only modestly. They are, however, not falling, so overall marketplace optimism is strong. I do not think one or two interest rate increases will have more than a momentary impact on the demand for housing or on house prices. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? Part of the reluctance of Millennials to invest in housing relates, I think, to the level of student debt that this group is carrying and all the negative publicity about the high debt levels. Some of this is translated into tighter lending criteria by, particularly, traditional bank lenders. The financial crisis mortgage disaster has affected the perceptions of lenders and borrowers alike, making the whole process more challenging. As a result, many prospective home buyers are reluctant to seek a loan, fearing rejection and the negative consequences of rejection, and many banks and bankers are downplaying mortgage lending. The latter is also exacerbated by the very low interest rates. Banks are reluctant to lock in long-term, very low interest rate, particularly because interest rates are expected to be raised in the near future. One thing that concerns me is how limited financial understanding seems to be among many younger adults. It is one of the reasons I personally promote financial literacy any time I can. In evaluating the healthiest housing markets, what are the top 5 indicators? I think the healthiest housing markets reflect strong overall economic activity, low unemployment and strong hiring statistics, available housing inventory (which is increasing somewhat after a very tight period), active lending availability actively promoted (a factor that is still currently lagging), and increased personal financial management acumen (which needs to be fostered by banks, educational institutions, and the media). These responses are entirely my own opinions, and do not, in any way, reflect the opinions or positions of Northeastern University or the D'Amore-McKim School of Business at Northeastern University. Terrence M. Clauretie Professor Emeritus of Real Estate at University of Nevada, Las Vegas Is now a good time to buy? What economic indicators should potential buyers be watching? Well, the obvious thing is the current price of houses versus the long-term trend and what factors affect future prices. For most of the post-war era, house prices have increased at a steady pace that reflects inflation (in building costs, wages, etc.). One noticeable exception was the period from 2000 to 2014. From 2000 to mid-2006, house prices increased at many times the normal rate. Subsequent to the housing bubble bursting, prices dropped dramatically below the long time trend. Since their low point in 2012 they have increased steadily until the present, when they are now on that long-term trend line. In predicting future house appreciation, one must consider housing affordability. At the peak of the housing bubble, housing affordability was at an all-time low and homeownership rate was at an all-time high. These two factors combined meant that there would be a very small pool of new buyers sufficient to keep prices high -- so without this pool housing prices collapsed. Now, since 2012 house prices nationally have risen 7.70% annually (Case-Shiller index) while the median family income has increased only 3.30% annually. As a result, housing affordability is declining for most Americans since 2012. In the second quarter, 2016 house price appreciation rate nationally was the lowest since the second quarter of 2014, an annual rate of 4.69%. Of course, price appreciation varies by state and metropolitan area. In my opinion, house price appreciation is likely to continue to slow. This does not mean, however, that potential homebuyers should delay a purchase, for several reasons. First, interest rates at present are at historically low levels. The July average rate on 30-year fixed rate loans was 3.44% with one half percent points. This is the lowest rate in four plus decades. Buying now may lock in a low rate loan. Second, there is some variation in the regional house price volatility. Prices have increased the most in Mountain and Pacific regions and least in the Middle Atlantic and New England area. There are several tips for first-time homebuyers that are, in my opinion, valuable: First, consider retaining a buyer’s broker. The seller’s broker has an incentive (and duty) to get the highest price for the listing. Buyer’s brokers will research the local prices, evaluate the quality of the neighborhood, gauge the motivation of the seller and negotiate the best price. In regards to the quality of the neighborhood, the homebuyer should research the homeownership rate in the area. Low levels of homeownership (high levels of rentals) do not bode well for neighborhood quality. Second, determine the expected length of time you are going to occupy the residence, if possible. Lenders charge points on the average length of time a loan is outstanding. So if the expected length of time in the property is short-term, say less than seven years, do not buy the loan rate down with points. If the expected length of time is long, say more than a dozen years, consider buying the rate down with points. Third, if possible, deal directly with the lender (bank, savings and loan, credit union) and not a loan broker. Because of problems in the past, with brokers encouraging over-appraisals of the property, many lenders will not work with brokers. You do not want an over-appraisal of the property just to get a larger loan. There have been Federal legislation and regulations that have addressed some past problems with loan brokers but, as I say, some lenders will not use them and you do not want to cut yourself out of the most opportunities for getting a loan at competitive rates. Fourth, when dealing with a lender ask about their policy of selling loans off to investors (Wall Street). If they do, you may not know it because they will retain the servicing rights on your loan (i.e., you will still send them the monthly payment). However, if, for some reason, house prices fall and you are left with negative equity it may be easier to negotiate a loan modification or foreclosure alternative such as a short sale, if the lender does not have to deal with an investor owner of the mortgage. Finally, I believe a fixed rate loan is better than an adjustable rate loan at this time. However, realize that lenders set the interest rate on ARMs that reflect the current low rate on mortgages and, therefore, their likelihood of increasing. If you are interested in an ARM, be sure to select conservative cap limits on the annual interest rate change. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? When the Fed raises “interest” rates they do not raise rates on credit markets such as mortgages, car loans, and credit cards. They raise the rate of interest on loans that they make to banks. Banks have to keep “reserves” (money so to speak) with the Federal Reserve. If the banks need more reserves, they can borrow them from the Fed and pay the Fed’s interest rate. Thus raising the interest rate on borrowed reserves causes banks to be less likely to borrow reserves and then lend out more money. However, at the present time, banks do not have to borrow reserves because the banking system as a whole has excess reserves with the Fed. In fact, they now have 2.3 trillion dollars in excess reserves. The system has had, essentially, zero borrowed reserves since 2013. Any effect on the mortgage market will be sufficiently long-term that homebuyers should not be concerned. This does not mean that mortgage rates may not go up in the near-term due to changing supply and demand forces in this market, such as changing expectations of inflation. Why are Millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort? The simplest answer to this question is that for many in this age group, say under 35, their first experience with homeownership was the housing crash from 2007 to 2103. Research by the MacArthur Foundation found that 62% of this age group now believes that homeownership does not provide financial benefits. A full two thirds believe that renters can be as financially successful as homeowners. In addition, because of the housing crash, lending standards have tightened. The average down payment on a low priced home has increased by 57% from 2007 to 2013. Add to this that according to an IRS report only eight percent of those homeowners under the age of 35 claimed a mortgage interest reduction (as compared to 24% overall) and you can see why this cohort does not view homeownership as a financial decision. A Federal Reserve study found that one-half of those under thirty could not afford a down payment on a house. As a result, the U.S. Census Bureau reports that the homeownership rate for those less than 35 fell by 3.6% in 2011, and 2.65% in 2012 before a small increase of .27% in 2013. Also, millennials grew up in the age of technology where location may not matter for many. This is a very mobile age group and the transactions costs of homeownership do not make sense. Finally, there is a large volume of research that outlines the physical and mental health problems faced by homeowners who went through the foreclosure process in the housing crash. What to do? Probably not much. For them, they may be making the right choices. Mariya Letdin Assistant Professor of Real Estate at Florida State University, College of Business Is now a good time to buy? What economic indicators should potential buyers be watching? The question of whether or not to buy depends on the local housing market in each neighborhood. Even within the same city, different neighborhoods will usually go through different cycles and trends. That disclaimer aside, I would caution anyone looking to buy today with the hope of speculative home appreciation gains. Appreciation in access of transaction costs may not be achievable today (in most markets) the way it may have been four or five years ago. However, if a buyer is reasonably certain that they can spend five to seven years living in a house and that the after-tax cost of ownership is similar to that of rent, then yes, it is a good time to buy. Local economic indicators of growth to look out for are announcements of new retail moving in (such as a new mall or a neighborhood center or a supermarket) or alternatively recent or forthcoming employment growth in the area, such as a new company moving to the area or expanding and hiring. An indicator of house price stability is how well that submarket faired during the last crisis relative to other locations in the area. Are foreign buyers driving up the cost of US real estate? Which cities are most affected? Yes, particularly in New York, Los Angeles, San Francisco, Washington DC and also Boston, Baltimore, Miami and South Florida overall. How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market? I believe that the housing market may slow down soon. I don’t think that rates will be the only cause, especially since the rate increase is likely to be relatively small and the employment gains have been relatively large. What may be a bigger driver is that people have sat out and waited to buy a home for a few years after the financial crisis, and now we’ve experienced a catch up effect. The fulfillment of pent up demand post crisis may coincide with an interest rate increase and together these could cause a slowdown in home price appreciation. In evaluating the healthiest housing markets, what are the top 5 indicators? I have four indicators with sub-categories: low unemployment, low vacancy in apartments, low supply in housing (both number of houses and time on the market), proximity to schools, amenities, services and retail.

Methodology

In order to determine the best real-estate markets, WalletHub’s analysts compared 300 cities across two key dimensions, including “Real-Estate Market” and “Affordability & Economic Environment.”

We evaluated those dimensions using 21 relevant metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the healthiest housing market.

Finally, we determined each city’s weighted average across all metrics to calculate its total score and used the resulting scores to rank-order our sample. Each city in our sample was categorized according to the following population-size guidelines:

• Large cities: More than 300,000 people
• Midsize cities: 150,000 to 300,000 people
• Small cities: Fewer than 150,000 people

Real-Estate Market – Total Points: 80

• Home Value Forecast: Full Weight (~5.71 Points)Note: This metric is based on Zillow’s Home Value Forecast, which predicts the Zillow Home Value Index one year from June 2017.
• Median Home-Price Appreciation: Full Weight (~5.71 Points)
• Average Number of Days Until a House Is Sold: Full Weight (~5.71 Points)
• Share of Homes Selling for a Gain: Full Weight (~5.71 Points)
• Share of ‘Underwater’ Homes: Full Weight (~5.71 Points)Note: This metric measures the percentage of homes with negative equity.
• Home Sales Turnover Rate: Full Weight (~5.71 Points)
• Ratio of Rent Price to Sale Price: Full Weight (~5.71 Points)
• Foreclosure Rate: Full Weight (~5.71 Points)
• Share of Delinquent Mortgage Holders: Full Weight (~5.71 Points)
• Number of Bank-Held Homes: Full Weight (~5.71 Points)Note: This metric refers to unsold Real Estate Owned, or REO, housing units.
• Vacancy Rate: Full Weight (~5.71 Points)Note: This metric was calculated as follows: Vacant Housing Units / Total Housing Units.
• Buy vs. Rent Breakeven Horizon: Full Weight (~5.71 Points)Note: The “breakeven horizon” is defined by Zillow as the point, in years, at which buying a home becomes less expensive than renting the same home.
• Share of Young Homes: Full Weight (~5.71 Points)Note: “Young Homes” refer to housing units built between 2010 and 2015.
• Building-Permit Activity: Full Weight (~5.71 Points)Note: This metric measures the number of unit permits pulled per 1,000 residents.

Affordability & Economic Environment – Total Points: 20

• Housing Affordability: Double Weight (~5.00 Points)Note: This metric measures home price as a percentage of income.
• Maintenance Affordability: Full Weight (~2.50 Points)Note: This metric measures maintenance costs as a percentage of income.
• Population Growth Rate: Full Weight (~2.50 Points)
• Job Growth Rate: Full Weight (~2.50 Points)
• Unemployment Rate: Full Weight (~2.50 Points)
• Underemployment Rate: Full Weight (~2.50 Points)
• Median Credit Score: Full Weight (~2.50 Points)

 

Sources: Data used to create this ranking were collected from the U.S. Census Bureau, Bureau of Labor Statistics, Council for Community and Economic Research, Zillow, TransUnion, Chmura Economics & Analytics and Renwood RealtyTrac.

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