Potential home shoppers in the Northeast and Midwest may be in for disappointment: Despite signs of cooling in the last year’s intensively competitive housing market, a new report from Zillow says some areas will stay especially competitive this year.
The Zillow report predicts the hottest housing markets for 2025; Buffalo, a city that sits on New York’s western border with Canada, tops the list.
Buffalo has two new jobs per home permitted, according to the report. 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’s home prices are forecast to grow an additional 3% in 2025 after jumping nearly 6% last year, according to the report.
Buying a home has grown more difficult for many Americans amid elevated mortgage rates and a lack of affordable options, fostering frustrations so deep they even helped shape anger at incumbents in last year’s US elections. Now, Zillow’s report shows that the deck could still be stacked against home shoppers in many major American cities this year.
Indianapolis; Providence, Rhode Island; Hartford, Connecticut; and Philadelphia are also expected to remain hot markets this year, according to Zillow. Home prices in those cities are expected to grow between 3% and 4% on average.
Zillow, an online real estate marketplace, ranked the nation’s 50 most populous metros by “hotness” by combining its internal home value growth projections with how quickly homes are selling and publicly available job growth and home permitting data.
Many economists expected mortgage rates to fall by the end of last year, especially after the Federal Reserve cut interest rates three times in 2024. But mortgage rates, which determine the interest paid on home loans, have stayed higher than expected. The average 30-year fixed mortgage rate was 6.91% last week, according to Freddie Mac.
Elevated mortgage rates have kept existing homeowners with lower mortgage rates reluctant to sell, effectively “locking” them into their current homes.
“Areas like Buffalo and a lot of the Northeast are so locked in, and existing owners are just holding on,” Olsen said.
But buyers who are open-minded might find more favorable conditions elsewhere.
Zillow predicts home prices to fall in several cities in 2025, including New Orleans, San Francisco, San Jose and Austin.
“In less competitive markets, you have much longer to make your decision, homes spend longer on the market and there are more available,” Olsen said.
However, homeownership in a city like New Orleans or Austin may be a double-edged sword. Falling home prices may mask other costs.
Louisiana, Texas and California have seen homeowners’ insurance costs skyrocket in the past few years, as insurance companies seek to recuperate losses from natural disasters like hurricanes and wildfires, according to a report last year from online insurance marketplace Insurify.