The Hottest U.S. Housing Markets | The U.S. News Housing Market Index compares the health of the top 50+ U.S. housing markets.

Despite 30-year, fixed-rate mortgage rates falling to about 6.8% from October’s highs, which approached 8.0%, the national U.S. housing market remains somewhat frozen given the huge share of existing owners locked in place with mortgages well below 6%.

However, with continuing signs that inflation is ebbing and predictions that the Federal Reserve will begin cutting its own rates by the middle of 2024, if mortgage rates also decline, the market should slowly begin to thaw with more transactions. Still, since this thaw will not be equal for each housing market, buyers and sellers armed with the most research will be in the best position to jump into the market when the timing is right.

Our analysis of the hottest housing markets pulls from the U.S. News Housing Market Index, which incorporates a wide array of data points and provides a simple yet comprehensive way to rank the covered metropolitan statistical areas (MSAs) from frozen to blazing on a scale of 1-100. This particular ranking is based on data from December 2023.

With Housing Market Index totals ranging up to 74.8 versus the lowest scores under 55.0 for MSAs in Hawaii and California, the following MSAs are the hottest housing markets ranked from first to fifth:

During the COVID-19 pandemic, these markets benefited from unusually low mortgage rates and the desire for more living space. They still remain popular even as more workers have returned to offices and higher mortgage rates have made buying less affordable. In addition, most of these MSAs also offer the types of amenities found in larger cities without the downsides of a huge metro area such as New York, Los Angeles or Chicago.

Once again named the hottest MSA overall, the Denver MSA retains a mix of strengths including low unemployment, few mortgage delinquencies, low rental vacancy rates for investors and a positive ratio of building permits to job growth.

However, a low housing supply of just 1.9 months at December’s sales rates and a low ratio of building permits to new household growth will continue to support home prices while maintaining a floor on rents until more housing inventory is available.

Here’s a deeper look at the various data points regularly tracked by the Housing Market Interface for this MSA:

The overall Housing Market Index of 74.8 for the Denver MSA rose 7.4 points year-over-year through December and was up from 73.2 in June. The three subindexes covering demand, supply and financial factors for December are also calculated on the same scale of 1-100.

Despite a loss of 14,600 jobs year-over-year through December (or a decline of 1.2%), the Denver unemployment rate remains low at 3.3%. A report from the Bureau of Labor Statistics shows the highest percentage job declines in categories including financial activities, information and mining, logging and construction versus increases in other services and government.

Due to more multifamily homes being built for sale and for rent in recent years, the mix of building permits in the Denver MSA had been gradually tilting away from single-family homes, but that trend reversed itself in 2023. More recently, the split in permits between the two housing sectors has hovered closer to the 50/50 level. This fall is due to an abundance of new apartments needing to be absorbed into the marketplace as well as fewer condominiums being built.

Since reaching a high of $595,000 in June, the median sales price in the Denver MSA continued to fall through the rest of the year to $550,000. Even with this decline, the median price was down just 0.2% year-over-year. The national median sales price rose 4.0% year-over-year to nearly $404,000, making Denver’s median price about 36% higher than the national average.

Although up slightly from 1.8 months a year ago, the supply timeline of homes for sale in Denver at 1.9 months in December is still lower than a national supply of 2.6 months. If a healthy supply timeline is closer to four to six months, it’s likely that prices will remain elevated for both Denver and the nation until more supply is released for sale.

According to Tom Hayden, president of Denver-based Peak Economics Research & Consulting, which focuses on Colorado homebuilding and development, while the region has long been a destination location, as the economy has diversified over the last 15 to 20 years, it has only become more popular. He also says that the low levels of housing supply are even tighter than official stats might suggest.

“Resales have plummeted to 1.9 months, and that’s deceiving because the meat of the market is closer to 1.5 months since the additional supply (over that level) is priced mostly over $1.5 million,” Hayden says. “Homebuilders halted starts sharply in the fall of 2022 due to a spike in cancellations and they’ve been really slow to restart until the last two quarters.”

Lauryn Dempsey, a real estate agent and broker specializing in the Denver and Boulder markets, says interest in the housing market rose even more in early January. “Our phones started ringing in January and it is a completely different market than it was last year,” she says. “It took some time for the data to catch up, and multiple offers have become more prevalent since January 2nd.”

In a frenzied market with competition rising but listings subdued, Dempsey counsels buyers and sellers to reach out earlier instead of doing research online and waiting to contact a real estate agent. In one recent case, she pushed a buyer to move up his search from March to January to get a jump on the selling season even if that meant breaking his rental lease, adding, “Breaking a lease is cheaper than waiting for home prices to rise and to find the right place.”

Looking ahead to the rest of 2024 and beyond, Dempsey sees the rising costs of property taxes and homeowners insurance pushing more homeowners into financial distress even if they’re sitting on low mortgage rates or own their homes free and clear.

Other owners have overleveraged themselves by purchasing homes with the expectation that continued low mortgage rates coupled with significant remodels would bring huge returns, yet they failed to realize that these remodels were not a good fit for the local neighborhood. To avoid this, Dempsey says, “Talk to a real estate agent before you even start the project and know what the buyers are looking for as well.”

As for addressing affordability, while homebuilders are increasingly offering more traditional townhomes, duplex options and what Hayden calls “standalone skinny product,” such as detached townhomes, for now new condominium flats are just 3% to 4% of the market due to construction defect laws that remain overly favorable to lawyers. While he adds that there’s “lots of policy discussion going on this year” to encourage more condominium development, he doesn’t expect any practical impact until at least 2025.

Another key advantage builders enjoy versus most sellers of existing homes is the ability to buy down mortgage rates to as low as 4% to 5%, helping to reduce the payment shock of higher home prices. As builders get increasingly comfortable building speculative homes to meet demand, that could mean more standing inventory with higher incentives to buyers.

Still, Dempsey cautions against shopping for the lowest mortgage rate alone. “Too many people are shopping for cost over value and they don’t get the right advice,” she says. “Go with a lender who understands the local market, and Movement Mortgage is also offering buydowns to compete with builders.”

Both Hayden and Dempsey agree that Denver home prices tend to rise in tandem with their proximity to the Rocky Mountains, especially for buyers who can pair this proximity and related views with the convenience and amenities of an urban lifestyle. Even if the housing market here is far more expensive than it was just a few years ago, it’s still more affordable than other markets along the coasts.

Rental Growth Slowing Due to Higher Vacancy Levels

Zillow shows the median rent in Denver rising 3.1% year-over-year to $1,992. This median rent is 1.8% higher than the national level of $1,957, which rose by a similar percentage rate of 3.3% year-over-year through December.

With more households forced to rent as mortgage rates have risen, vacancy rates for rental properties in Denver fell to 4.6% during the fourth quarter of 2023. Besides being below the national vacancy rate of 6.6%, because the vacancy rate is also below the 5% equilibrium level for rental supply and demand, for now Denver remains a landlord’s market.

Official Signs of Homeowners in Financial Distress Remain Low

In December, the rate of mortgage delinquencies of 1.8% in the Denver MSA was half of the national rate of 3.6% and was unchanged year-over-year. The rate of foreclosures at just 0.1% also remains low and stable and remains a fraction of the national level of 0.4%.

Another way to analyze the MSAs tracked by the Housing Market Index is to watch changes over several months. Between June and December 2023, even as mortgage rates continued to slowly rise before starting to subside in November, a gradually improving job market helped markets such as Cleveland, Virginia Beach, Detroit and Oklahoma City boost their overall HMI scores by almost four to nine points.

Given the deterioration in housing market demand over the past year, in which the national HMI Demand index fell by up to 19 points, a third way to analyze different MSAs is to compare their levels of resiliency. For this ranking, the leaders included Greeley, Miami, Oklahoma City and San Jose, with their own regional HMI levels rising by over nine to 13 points since June.

The HMI Demand subindex includes government data on employment, unemployment, household growth, consumer sentiment from the University of Michigan, median home sales prices from Redfin, and observed, smoothed housing rental prices from Zillow.

The Supply HMI includes government data on housing supply, rental vacancy rates, construction costs, construction jobs, builder sentiment from the National Association of Home Builders and architectural billings from the American Institute of Architects.

The Financial HMI includes government data on housing supply, rental vacancy rates, construction costs, construction jobs, builder sentiment from the National Association of Home Builders and architectural billings from the American Institute of Architects.