Unlocking Value in America’s Undervalued Housing Markets

The U.S. housing market, buffeted by high mortgage rates and affordability crises, is undergoing a regional rebalancing. While national prices remain elevated, strategic investors can capitalize on stark disparities in regional performance and affordability. This analysis identifies undervalued markets poised for growth, leveraging data on price trends, income ratios, and policy shifts to guide investment decisions.

Regional Price Trends: A Tale of Two Markets

The National Association of REALTORS® (NAR) reports that 83% of U.S. metro areas saw price increases in early 2025, yet growth is uneven. The Northeast led with a 10.3% annual price rise, driven by demand for affordable housing and access to quality education (e.g., Syracuse, NY, at +17.9%). Meanwhile, the South lagged at 1.3% growth, despite strong job markets, due to oversupply and weak demand.

The Midwest and West also diverged. Midwest markets like Cleveland (+11.1%) and Allentown, PA (+10.2%) outperformed the West’s 4.1% average, though high-cost hubs like San Jose, CA ($2.02M, +9.8%) remain outliers. Coastal markets, however, face headwinds: prime properties declined 12.8% from 2022 peaks due to tax surcharges and shifting buyer preferences.

The Affordability Crisis: Where Can Buyers Still Win?

Affordability remains a critical filter for value. The ATTOM U.S. Home Affordability Report reveals that 96.5% of counties are less affordable than historical averages, but stark regional contrasts emerge.

• Most Affordable Markets: Detroit (price-to-income ratio 17.0%), Cleveland (19.1%), and Philadelphia (19.9%) offer buyers a rare chance to secure homes at 36–40% below national average prices.
• Least Affordable: Hawaii (9.1x income) and San Jose (10.5x income) underscore the gulf between coastal luxury and heartland pragmatism.

First-time buyers face particular challenges: $2,120 monthly payments require median incomes of $100,000+, but in undervalued regions like Oklahoma City (23.2% ratio), the same income stretches further.

Undervalued Markets: Where to Invest Now

The following markets combine strong fundamentals, affordability, and growth potential:

1. Detroit, MI
2. Why Invest: Median sales prices rose 11.6% YoY to $192,000, with a 2.7-month inventory supply signaling upward pressure. Economic diversification into healthcare and tech (e.g., automotive innovation hubs) supports demand.

3. Risk: Unemployment remains elevated (5.9% vs. 4.5% national average), though improving.

4. Cleveland, OH

5. Why Invest: A 16.1% price surge in Montgomery, AL (a regional outlier), mirrors broader Midwest resilience. Cleveland’s 22.6% rent-to-income ratio offers rental opportunities, too.

6. Growth Catalyst: Infrastructure projects and corporate relocations (e.g., healthcare expansion) are stabilizing demand.

7. St. Louis, MO

8. Why Invest: A 20.7% price-to-income ratio and stable job markets (4.1% unemployment) make it a safe haven for conservative investors.

Growth Projections: The Turning Tide

• Mortgage Rates: Projected declines to 5.6% by 2026 and 5.0% by 2027 will ease buyer constraints.
• Construction: Single-family starts are up 3% in 2025, but new supply remains skewed toward high-cost regions. Undervalued areas, however, see speculative construction filling demand gaps.
• Policy Impact: While immigration reforms risk labor shortages, streamlined zoning in states like Ohio and Michigan could accelerate affordable housing growth.

Risks and Considerations

• Delinquency Risks: Rising rates and stagnant wages could strain borrowers in already stressed markets. Monitor delinquency rates, currently at 3.98% nationally.
• Regional Volatility: Overvalued markets (e.g., San Francisco) may face prolonged corrections, while undervalued areas could overheat if interest rates drop faster than expected.

Conclusion: Act Now Before the Window Closes

The U.S. housing market is stabilizing unevenly. Investors who focus on Midwest and Northeast markets with price-to-income ratios below 25% can secure assets at discounts while benefiting from rising demand, improving economies, and falling mortgage rates.

The clock is ticking: as inventory grows and rates ease, these undervalued markets will attract capital. For long-term gains, prioritize regions like Detroit, Cleveland, and St. Louis—where affordability and fundamentals align to outperform the national average.

The time to act is now.