The coronavirus pandemic saw many real estate markets leap upward. Some saw home prices jump over 40% in a single year!

Pick your reason as to why. People spending more time at home are focused more on their home, and usually wish they had more space. Many homeowners took on home improvement projects. The sudden collapse and meteoric recovery of the stock market left many investors seeking firmer assets — particularly as a hedge against inflation in the face of record government spending and new currency creation. 

But America’s re-infatuation with real estate hasn’t been evenly spread. Which begs the question: what are the hottest real estate markets in the US right now? 

Heat Map: Hottest Real Estate Markets in 2021

At first glance, the heat map below doesn’t offer up any obvious patterns.

Sure, the Southwest boasted plenty of fast-growing real estate markets. But so did the Northwest, and the Northeast, and Florida. Which says nothing of the sprinkling of hot house markets all over the South and Midwest. 

(Note: Gray counties were omitted by Zillow, who provided this data.)

One trend we witnessed in 2020 was an acceleration of the de-urbanization trend, particularly in the largest, most expensive cities. But in many cases, residents simply moved out to the suburbs surrounding the same city, and therefore stayed in the same county. 

We also keep an eye on nationwide migration trends, particularly the extent to which Americans are leaving high-tax states in favor of lower-tax states. But these migration trends can’t perfectly explain the hottest real estate markets in 2021. 

Take New Jersey, one of the states with the highest taxes and greatest outbound migration. Every county in South Jersey saw year-over-year home price growth of over 10%! 

Or Vermont, with its high inbound migration. Sure, it saw strong appreciation by historical standards, but nowhere near what you'd expect.

Which led me to dig a little deeper, and review the hottest real estate markets at the city level. 

The 100 Fastest Appreciating Markets in the US

I was curious which cities and towns logged the fastest growing real estate markets over the last year. Without further ado, they are:

Nearly all are smaller cities rather than major metropolises. For example, the fastest growing real estate market over the last year was Boise, Idaho with an eye-popping 40.2% jump in home prices. Rounding out the top five are Austin (TX), Boone (NC), Kalispell (MT), and Kingston (NY).

Still, a few larger cities made the list. Salt Lake City saw 23.9% appreciation, San Diego home prices grew 23.3%, Sacramento prices grew 21.0%, and Tampa prices went up 20.6%.

If you’re looking to invest in real estate long-distance, consider researching these markets. Make sure you do your due diligence, and consider buying turnkey properties if you’re out of state. You can even potentially buy properties with tenants already paying rent, particularly if you use a platform like Roofstock.

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Best Cities for Investing Based on GRM & Cap Rates

Appreciation isn’t everything, of course. You still need the property to cash flow well, or you end up coming out of pocket.

If you’re looking for the best housing markets in the US for cash flow, here’s a map of the 100 largest cities in the US, contrasting their gross rent multiplier (GRM). Remember, lower is better!

Alternatively, see this list of the cities with the best cap rates. (If you’re not familiar with them, here’s an overview of how cap rates work). 

Before buying a rental property, always run the numbers through a rental income calculator. Most new real estate investors underestimate expenses and fail to calculate real estate cash flow property. 

What Drives Hot Housing Markets?

Real estate prices rise for many reasons. But at their core, they rise because demand for homes outstrips a limited supply of available housing. 

As you scout for the best cities for real estate investing, keep the following trends in mind. 

Population Growth

It sounds obvious, and it is. But where there’s strong population growth, there’s nearly always strong real estate appreciation. 

Unfortunately, official Census Bureau data on population growth lags by a year or two. That leaves investors relying on less official data to try to track population trends. 

Economic & Job Growth

What drives population growth? Job growth, at least traditionally. A booming local economy attracts people to move from all over the country. In fact, job growth often serves as a leading indicator of population growth. 

However, in an age of greater telecommuting, inherent amenities like shoreline or a historic vibe can draw inbound migration even without abundant local jobs. 

Increase in First-Time Homebuyers

When a homeowner goes to move, and simultaneously sells their old home while buying a new one, it doesn’t change the total housing inventory available. They add their own home to the inventory for sale, and they take their new home off the market. 

First-time homebuyers, however, don’t have an existing home to sell. So they take a home off the market by buying it, without adding to the available inventory. 

In other words, they add to the demand for housing, but not the supply. Which drives up home prices.

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What Happens When Hot Real Estate Markets Cool?

Even the best housing markets in the US, the hottest real estate markets, eventually cool off. It can happen gradually, or it can happen (relatively) suddenly, such as we saw in the housing bubble collapse after 2008. 

Housing markets go through predictable cycles. A dearth of housing supply spurs more new home construction. Home builders gradually build up a head of steam, as the process from finding sites through pulling permits to building the home to marketing and selling them all takes time. At a certain point, housing developers start building more homes than the local demand actually needs or wants, but by the time they discover that, they still have months or even years to go in order to finish existing construction projects. 

At that point, supply exceeds demand, and you see a housing market correction. Developers stop building, and eventually supply gets pinched again, and the cycle repeats itself. 

Here’s a handy visual aid for good measure: 

Is the US in a Housing Bubble Currently?

While parts of the US could already be in a bubble, I doubt that most of the country’s markets are in a bubble, even the hottest real estate markets. 

To begin with, supply — particularly of starter homes — remains insufficient to cover demand, to put it mildly. Building material and labor costs hover around record highs, putting additional upward pressure on home prices. 

Meanwhile, millennials have reached the “settle down in the suburbs and pop out some kids” phase in their lives. See above about the increase in first-time homebuyers supercharging demand for housing. 

So no, I don’t see a real estate bubble, at least for most markets in the US. 

Final Thoughts

At the moment, I see a great reshuffling of the deck taking place in real estate markets. While the largest, most expensive cities like New York and LA will never become irrelevant, even before the pandemic we saw rents and demand dipping. The rise in telecommuting should exacerbate that trend even after the pandemic is in the rearview mirror. 

I see continued hot housing markets in areas with natural charm. Areas with beautiful beaches or lakes, with great skiing and hiking, with history and culture. Post-industrial cities will need to reinvent themselves if they want to retain high-income residents after they discover they can live anywhere and telecommute to work. 

Keep an eye on all of the hottest real estate markets in 2021 showcased in the maps above. And note that the best housing markets in the US are mostly satellite towns, seeing astronomical growth.♦

Where are you currently investing in real estate? What do you consider the best housing markets in the US?

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About the Author

G. Brian Davis is a landlord, real estate investor, and co-founder of SparkRental. His mission: to help 5,000 people reach financial independence by replacing their 9-5 jobs with rental income. If you want to be one of them, join Brian, Deni, and guest Scott Hoefler for a free masterclass on how Scott ditched his day job in under five years.

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