Why Some Cities Are Poised for Extended Home Price Growth

There tends to be a positive connection between income growth and home price appreciation across cities, though the strength of this relationship varies by location.

For most cities, rising household income was the most reliable indicator of home price increases. While that article focused on tech-driven cities, not all cities have significant tech sectors. To provide a broader view, I analyzed overall income growth at the metropolitan level, considering all industries.

Top 10 Cities with the Fastest Income Growth

To begin, I gathered wage data from the Bureau of Labor Statistics (BLS) at the Metropolitan Statistical Area (MSA) level. As is my practice, I excluded smaller markets from the analysis—specifically, the lower half of cities with the fewest jobs—since these tend to distort the results.

Next, I calculated the five-year compound income growth rate for each metro area and ranked them from highest to lowest. I also pulled price data from Zillow to compare each city’s five-year home price growth.

Key highlights include:

Wilmington, North Carolina led the pack with strong five-year compound growth in income (+9.05%), employment (+2.45%), home prices (+10.48%), and rent (+7.80%). It’s fitting that it tops the list.

Boise, Idaho also performed exceptionally well, showing solid five-year compound employment growth (+3.42%).

Gainesville, Florida and Tucson, Arizona had positive metrics in terms of income, home prices, and rent growth, though their employment growth was less impressive (+1.49% and +0.87%, respectively).

Surprisingly, San Luis Obispo, California, and Kalamazoo, Michigan, despite their strong income and home price growth, experienced poor employment growth and even population declines, signaling weak fundamentals in those markets.

I ran the analysis a second time, this time focusing only on cities with the highest employment growth.

Wilmington, North Carolina, and Boise, Idaho, remained at the top, while Fayetteville, Arkansas, climbed to third place with solid market fundamentals and a median home price below the national average.

In a previous article, I highlighted Fayetteville as one of the best markets for first-time house hackers, and I continue to see it as a top choice for single-family home investors.

Several Florida cities, such as Port St. Lucie, Tallahassee, and Tampa, also appeared in the rankings, which isn’t surprising given the strong post-pandemic migration and job growth in the state over recent years.

A surprising entry was Sioux Falls, South Dakota. This city rarely makes top 10 lists, but it has experienced excellent wage and employment growth over the last five years while remaining relatively affordable—making it worthy of further consideration.

Final Takeaways

There is a strong correlation between wage growth and home price appreciation, though the degree of this relationship varies from city to city.

A scatterplot of the 100 largest metro areas shows the link between income and price growth. If you're evaluating markets for real estate investment, income growth is a factor you might want to consider.

How has income growth—or the lack thereof—affected prices in your market? I’d love to hear your thoughts on whether this data is relevant to your investments or if it plays a minimal role in your market.

In the previous email: " What are the four stages in the property cycle?"