Bad news for home buyers in the Northeast and Midwest

CNN
—

Prospective home buyers in the Northeast and Midwest may be disappointed: Despite that signs of cooling In last year’s intensely competitive housing market, a new report from Zillow says some areas will remain particularly competitive this year.

Zillow Report Predicts Hottest Housing Markets for 2025; Buffalo, a city located on New York’s western border with Canada, tops the list.

According to the report, Buffalo has two new jobs per home allowed. That means Buffalo could see an influx of new workers moving to the city — pushing homebuilding to fall further behind housing demand, said Skylar Olsen, Zillow’s chief economist. As a result, Buffalo home prices are expected to grow another 3% in 2025 after rising nearly 6% last year, according to the report.

Buying a home has become more difficult for many Americans due to rising mortgage rates and a lack of affordable options, fosters frustrations so deep they even helped shape resentment against the incumbents in last year’s US election. Now, Zillow’s report shows that the tire could still be stacked against home shoppers in many major US cities this year.

Indianapolis; Providence, Rhode Island; Hartford, Connecticut; and Philadelphia are also expected to remain hot markets this year, according to Zillow. House prices in these cities are expected to grow between 3% and 4% on average.

Zillow, an online real estate marketplace, ranked the nation’s 50 most populous metro areas by “hotness” by combining its internal home value growth forecasts with how fast homes are selling and publicly available job growth and housing permitting data.

“In a lot of these areas, construction has really struggled to keep up,” Olsen told CNN. “The reason new construction is so important right now is that existing owners are locked in. That’s very crucial to the pressure on prices.”

Many economists expected mortgage interest rates to fall at the end of last year, especially after the Federal Reserve cut interest rates three times in 2024. But mortgage rates, which determine interest rates on home loans, have remained higher than expected. The average 30-year fixed mortgage rate was 6.91% last week, according to Freddie Mac.

Increased mortgage rates have kept existing homeowners with lower mortgage rates reluctant to sell, effectively “locking” them into their current home.

“Areas like Buffalo and a lot of the Northeast are so locked in and existing owners are just hanging on,” Olsen said.

But open-minded buyers may find more favorable terms elsewhere.

Zillow predicts that home prices will fall in several cities in 2025, including New Orleans, San Francisco, San Jose and Austin.

“In less competitive markets, you have a lot longer to make your decision, homes spend longer on the market and there are more available,” Olsen said.

However, home ownership in a city like New Orleans or Austin can be a double-edged sword. Falling housing prices can hide other costs.

Louisiana, Texas and California have seen homeowner insurance costs skyrocket in the past few years as insurers seek to recoup losses from natural disasters like hurricanes and wildfiresaccording to a report last year from Online Insurance Market Insure yourself.

“Homeowners insurance rates have been going up since 2022 and it’s going to be unaffordable,” Leslie Heindel, a New Orleans realtor, told CNN last year. “You can get something cheaper here now, but there’s a reason for that.”