Buffalo, a city in far western New York and the state’s second largest, has emerged as the country’s hottest real estate market for 2025, according to Zillow, as high demand and limited supply drive up prices.

With two new jobs created for every home built, Buffalo’s booming economy is attracting young families and professionals – but the city’s construction industry is struggling to keep up.

In turn, Buffalo property values ​​are expected to rise another 3% this year, following a 6% increase in 2024.

The market frenzy has also spread to other cities in the Northeast and Midwest such as Indianapolis, Providence, Hartford and Philadelphia, where Zillow predicts prices will rise 3% to 4% in 2025.

Meanwhile, mortgage rates remain extremely high, freezing the national market and tying homeowners to their existing loans.

Freddie Mac reported an average 30-year fixed rate of 6.91% last week, leaving many sellers on the hook.

The housing shortage is putting even more pressure on new construction to meet demand, but builders are falling behind, said Skylar Olsen, Zillow’s chief economist.

“Areas like Buffalo and much of the Northeast are so locked in that the existing owners are just hanging on,” Olsen explained.

“In a lot of these areas, construction has really struggled to keep up,” Olsen told CNN.

“The reason new construction is so important right now is because existing owners are tied up. This is a key factor in the price pressure.”

Relief could be on the horizon for buyers willing to explore other regions.

Zillow predicts home prices will fall in several cities, including New Orleans, San Francisco, San Jose and Austin, where competition is less intense.

“In less competitive markets, you have a lot longer to make your decision, homes stay on the market longer and there are more available,” Olsen said.