• The hottest housing market in America is poised to see continued price gains, according to Capital Economics.

• The firm said strong employment trends bode well for the housing market in the south.

• "We think the southern markets will continue to outperform over the next few years," Capital Economics said.

America's hottest housing market will see more price gains over the course of the next few years, according to Capital Economics.

The research firm said in a note on Monday that America's southern housing market is poised to see continued strength thanks to two big trends: strong employment and relative affordability.

"We think markets in the south will continue to lead the pack, supported by still-reasonable house prices and high levels of inward migration thanks to their thriving job markets," Capital Economics property economist Thomas Ryan said.

The housing market has already boomed in the south since the COVID-19 pandemic, as rising demand and short supply pushed prices steadily higher.

Since December 2019, home prices in Miami, Tampa, and Charlotte surged 74%, 71%, and 62%, respectively, far outpacing the national average house price gain of nearly 50% over the same period.

Ryan doesn't expect the house price gains in the South to reverse anytime soon, rather he expects them to accelerate.

"We think the southern markets will continue to outperform over the next few years for two main reasons," Ryan said.

The first reason is due to strong employment trends in the south. A combination of favorable taxes and regulatory conditions has attracted many businesses to relocate to the south in recent years. Meanwhile, a warmer climate and relatively low living costs have attracted remote workers to the region.

"As a result, markets in the south are generally expected to record stronger employment growth," Ryan said. That means demand for houses should continue to remain strong in the south.

The second reason is that even after considering the massive house-price gains since 2019, homes are still relatively affordable in the south compared to the rest of the country.

"Miami aside, mortgage payments on a new loan for the average-priced home are fairly low as a share of income in southern markets compared with the rest of the country," Ryan said. "Decent affordability will only encourage more households to make the move south, particularly given that today's high cost of borrowing makes buying a home in the more expensive western and major markets unaffordable for most."

Mortgage payments as a share of average income vary widely based on the city, but they are markedly higher in cities in the western and northeast markets compared to the south.

For example, mortgage payments as a share of average income are pushing upwards of 80% in San Diego and Los Angeles and are at about 50% in San Francisco, Washington D.C., and New York. That number drops closer to about 30% for major southern cities like Atlanta, Dallas, and Charlotte.

"The bigger picture is that housing demand will continue to be the strongest in the southern metros over the next few years, outweighing rising supply. As a result, they will continue to lead the way on price rises," Ryan concluded.

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