Why Charlotte will be the hottest market of 2023

Zillow's annual predictions for this year's hottest housing markets. Factors include expected growth in home values, expected change in households owning them, and job growth compared to new construction.
The hottest markets of 2023 all boast strong forecast value growth, solid economic fundamentals, relatively mobile inventory and plenty of reasonable buyers.
The Midwest enters Zillow's list of hottest housing markets as a rival to the once-dominant Sun Belt. Charlotte, Cleveland and Pittsburgh top this year's list.
Last year's hot market, Tampa, fell out of the top 10 this year.
San Jose, Sacramento, Minneapolis and Denver are expected to be the biggest and coolest housing markets in 2023.
The housing market is expected to continue to cool in 2023, as the high monthly cost of the mortgage continues to reduce the volume of sales. Of course, this national slowdown will affect the nation's 50 largest markets in different ways, and some markets seem more likely to navigate these turbulent waters than others. Specifically, Zillow expects Charlotte to be the nation's hottest housing market in 2023, with Cleveland, Pittsburgh, Dallas and Nashville rounding out the top five. [1]
Zillow's list of the hottest markets in 2023 is based on an analysis of projected home value growth, recent housing market velocity and expected changes in the labor market, home building activity and the number of homeowner households.
Propelling Charlotte to the top of the list is the projected annual growth in home prices, and Cleveland's second-place ranking can be attributed to the high speed of the market and job growth. While Pittsburgh is the only market in the top five with projected household declines, it makes up for the decline in homeownership with the fourth-highest ratio of jobs added per new home permitted.
This year's cool markets are expected to be San Jose, Sacramento, Minneapolis and Denver. Each of these is characterized by expected annual decreases in the value of the apartments and a slower speed in the housing market - as measured by the total number of days of listing in the market - than in other large markets.
Here's a closer look at what drove these markets to the top of the list:

growth in price
Record-breaking home value growth ended in 2022, largely driven by the highest mortgage interest rates since 2008, although the story is mixed across markets. Some, like Miami, have seen very slight declines in home values, with prices even rising in recent months. Meanwhile, Austin, previously at its peak, saw a 4% drop in prices compared to last December.
Even the fastest growing markets of 2022 are expected to see significant slowdowns in the coming year. Nashville had the fifth highest annual growth in home values ​​during 2022, but is expected to drop to eleventh this year. Tampa, last year's hottest market, is expected to maintain its spot as the market with the largest growth in home values, with Charlotte close behind.

Stock and speed
Where last year's homes were snapped up at a breakneck pace and sales were plentiful, this year the flow of new listings has slowed and homes are taking more than twice as long to go into contract. However, in markets that are still hot, homes that go on hold continue to do so quickly even as inventory ages.
Markets where buyers struggled to find a home in 2022 are likely to see relatively high demand in 2023, compared to other markets. The markets where there were the fewest (standardized) listing days per home in 2022 – in other words, where homes generally sold the fastest – were Hartford, Cleveland and Baltimore.

demography
The baby boom generation and millennials represent two huge generations, and both are very active in the housing market. Baby boomers are barely exiting the market as they age, an exit from previous generations at the same age, and millennials are just beginning to age into their prime home buying years as they reach their early to mid thirties.
In 2023, the market with the highest demographic increase in the market for sale is Austin, with a trend suggesting the formation of 8.1% more owner-occupied households (assuming there are homes available for purchase). Charlotte followed at 6%, and then Jacksonville at 5.7%. There are nine markets where there is negative demographic pressure, led by San Jose, San Francisco and Milwaukee.

methodology
The final index was based on the following data:
Annual Home Value Appraisal Forecast November 2023
Predicted acceleration in the increase in home value, November 2022 - November 2023
Standard registration days for each house, January 2022 - December 2022
A two-year change in total non-agricultural employment for a total of two years' residential construction permits
Projected change in owner households, 2022 – 2023

The indices were normalized considering the data available at the metro level for standard deviations from the mean, where mean and standard deviation were weighted based on the number of housing units, and were raised to ±1.96 so as not to overly penalize any metro for extreme data points. The final index was obtained by taking the average across indices, with standardized HPA acceleration weighted in half.

Inventory and velocity are represented by standard listing days per home, using published Zillow data for median days to pending and new listings. To correct for structural regional differences in time on the market, we adjust the median days-pending using fixed-effects of the COVID region, then multiply by new listings to get standard listing days, and finally divide by the total number of homes to put metros of different sizes on the same scale.
The labor and building market data took the ratio between the change in employment and the total number of permitted residential buildings. Total non-farm employment (seasonally adjusted) comes from the US Bureau of Labor Statistics' Current Employment Statistics survey. We used a two-year change in employment November 2020-November 2022.
Building permit data comes from New Private Residential Buildings Permitted by Building Permits (BPPRIVSA), retrieved from FRED, the Federal Reserve Bank of St. Louis. We conclude over a period of two years November 2020-November 2022.
To estimate the underlying demographic pressure in the housing market for sale, we used the projected change in homeowner households 2022-2023. This forecast explained population aging and migration patterns. Data came from the American Community Survey (ACS 5-year 2018 sample, ACS 5-year 2019 sample and ACS 1-year 2021 sample) downloaded from IPUMS USA, University of Minnesota, www.ipums.org.
In the first step, we used the larger 5-year sample to calculate entry and exit from the population (due to birth, migration, death) by age. For each birth cohort, the age-specific exit was determined as the difference between the cohort population in 2021, less immigration, and the cohort population in 2019. Population inflows and outflows The population shares in 2019 yielded the rate of change of their 2021 age entrants.
In the second step, we applied the age-specific population change rates to the one-year sample, repeating 2022-2023. We filtered for ages 18-89 to avoid low population counts and unreliable migration trends at the highest ages. While keeping constant the observed age-specific portion of the population that is the head of a household of a housing unit that he owns ("ownership rate"), we calculated the percentage change in the number of heads of owners expected in 2023. Compared to 2022, by age. Summing up these changes gave us an expected demographic growth rate in home-owning households in 2023.
All population counts and owner headships were age-smoothed over a concentrated 5-year window before taking classes and changes.
[1] Analysis applied to the top 50 metropolitan areas by population, but excludes Birmingham, Alabama, New Orleans, Alabama, Buffalo, New York, Milwaukee, Wisconsin, Richmond, Virginia, Providence, Rhode Island, and Hartford, Connecticut due to lack of information.