The US economic recovery is currently in its ninth year of expansion—and heading into extra innings. While the Cubs, Royals, and Cardinals have all won the World Series during the recovery, the Midwest housing markets have had little to brag about.
Modest job growth and price appreciation that has barely kept pace with cost increases has been the story. But, like I learned watching the Cubs finally win the World Series, it takes momentum, strength, inventiveness, endurance, size, and of course money to ultimately win the game. Here is our take on all six of those factors. Inventiveness is the factor most in your control—and the one where I feel I can add the most value.
- MOMENTUM. The Indianapolis new home market is growing the fastest. With a 24% year-over-year gain in single-family permit issuance, Indianapolis continues to outpace other Midwest markets in terms of construction activity. A low cost of living, good quality of life, and growing employment base all drive new home demand. Other strengthening markets include Chicago (+14%), Columbus (+11%), and Oklahoma City (+8%)—with the Minneapolis market as the absolute volume leader.
- STRENGTH. Strong apartment construction in Minneapolis. Driven by a surge in international migration and a dearth of construction earlier this decade, the Minneapolis apartment market continues to grow (+22% year over year). International migration and construction has also been strong in Detroit, Oklahoma City, Milwaukee, and St. Louis, with Oklahoma City the only one experiencing domestic migration growth too.
- INVENTIVENESS. Surprising new home sales gains in Cincinnati, Milwaukee, and Cleveland. New home sales are up only 1% year over year on average in the Midwest, but these markets were up 50%, 35%, and 16%, respectively. These markets have declining population, so success cannot be attributed to economic growth. Rather, builders are bringing new home designs that are far more appealing to today’s buyers and stealing share from the resale market. Some of the most successful builders subscribe to DesignLens™ to find innovative ideas from around the country and participate in our Consumer and Product Insights survey to identify shifting buyer trends.
- ENDURANCE. New home prices continue to improve in Chicago (+9% year over year). Chicago new home price appreciation is outpacing the Midwest overall—where new home prices increased 4.4% year-over-year on average. Other Midwest markets that recorded large price gains include Cincinnati and Kansas City.
- SIZE. Chicago edges out Atlanta, Phoenix, and New York as the largest volume resale market in the US. Chicago existing home sales totaled 116K over the last 12 months. Strong interest in preferred submarkets with a lack of affordable new construction alternatives has led to a frenzied, competitive resale market. Builders who have migrated into these strong submarkets have generally achieved better success than those building in the exurbs.
- MONEY. Strong income growth helps offset home price appreciation and interest rate increases. Median household income increased 3.8% year over year in the Midwest to $64K—outpacing the national average of 3.4% growth to $61K.
It took my beloved Chicago Cubs 108 years to win the World Series, proving that perseverance and patience can go a long way. My advice to Midwest housing operators is to keep your eye on the ball. Solid economic fundamentals coupled with good affordability are keeping this region of the country in the housing game.
Of the six factors above, Inventiveness is the one most in your control.
Go, Cubs, go. (Hey, what can I say? I am from Chicago!)
Notes: Data reflects the three-month period from January 1, 2018, through March 31, 2018. The following MSAs are included in the Midwest rollup: Chicago, Cincinnati, Cleveland, Columbus, Des Moines, Detroit, Indianapolis, Kansas City, Milwaukee, Minneapolis, Oklahoma City, and St. Louis. **Chicago includes the following Illinois counties: Cook, DeKalb, DuPage, Grundy, Kane, Kendall, McHenry, and Will. Median household income, existing median home price, and new home median price are weighted averages.