Think Realty’s List of Top 10 'Investing Hot Spots' factors in local economic trends, employment shifts, investor activity, buying and selling demographics, and relevant legislation and policy on state and national levels.
The national housing market continues to heat up, with U.S. home sales hitting a nine-year high in May and home prices soaring 4.7 percent year-over-year in the same month. Add to that $636.7 billion in much-needed new construction (again, on a national level) up 5 percent in May over April, and it’s easy to see why the “talking heads” on television are eagerly boasting that good times are here for housing again. In reality, however, as every savvy investor knows, housing is not national. It’s regional at best, and generally a local issue that is highly influenced by the individual investor’s abilities and chosen investing strategy.
When you pick apart the U.S. “hot housing market,” you find a lot of troubling minutiae in the details. For example, that $636.7 billion statistic flooding the airwaves these days actually is highly misleading because it includes all construction, including public works and power plants. In fact, the only major housing contributor to that number was multifamily housing, not new-home construction in the single-family-residence sector.
Think Realty’s “Top 10 Real Estate Markets and Industry Perspectives” is a new type of hot list, factoring in the unseen trends, the unnoticed demographic shifts and the important fine print that most media outlets either fail to consider or deliberately overlook. This list factors in local economic trends, employment shifts, investor activity, buying and selling demographics and relevant legislation and policy on state and national levels. These 10 markets represent substantial opportunity to the investors who choose to become involved in them in an effective way at this point in time according to our analytics.
Atlanta, Georgia, lagged behind the national housing recovery and, as a pleasant result, continues to experience traditional appreciation for buy-and-holds in excess of national averages. (The Atlanta Board of Realtors pegged metro-area appreciation at 6.7 percent in May.) Although local inventory is tightening, particularly when it comes to single-family “starter homes,” Atlanta still offers multiple entry points for investors, whether they wish to fix-and-flip, purchase turnkey rentals or invest in larger projects. With a growing jobs market based solidly on in-demand sectors like IT, entertainment and manufacturing, the city— which RealtyTrac recently named the most affordable in the country—is highly attractive to Millennial workers wishing to purchase their own homes while still living in an attractive, affordable metro area.
Despite recently being named the “most overvalued housing market in the nation” (along with San Antonio) by Forbes magazine, Austin, Texas, has an amazing ability to take this type of licking and keep right on booming. Austin not only experienced a relatively light impact from the Great Recession, thanks to a massive influx of IT-related jobs that shows no sign of slowing, but the population of IT workers in the area is sustaining the city’s growth despite potential “soft spots” in many Texas markets thanks to relatively low oil prices. IT jobs are a great sign of stability in any local economy because they pay well, are reliable and tend to create large numbers of other jobs as a result. In Austin, more than six out of every 10 new jobs are in the information technology sector. By comparison, the national average is just under three out of every 10. Current median home prices in the area have gone up 21 percent since 2012, but they are still extremely affordable relative to many IT-heavy California cities, causing a number of tech employees to seriously consider moving “back East”—at least a little way—in order to find more affordable, more acceptable housing and commuting situations. With a market that meets the traditional standards for “overvalued,” an investor should always have multiple “fast-action” exit options available or a strategy for holding that involves cash-flow, regardless of appreciation. At this time, Austin still is attractive for these investors.
Dallas, Texas, is another Lone Star market that is making some people nervous. Concerns about Dallas are creating openings in the real estate investing sector that previously had been closed simply due to too much activity and competition. Over the last 12 months, prices in the area have risen 9.3 percent, well ahead of national gains, and Dallas is presently second only to Denver, Colorado, in home appreciation. Although falling oil prices are a significant factor in Dallas housing trends, diverse employment opportunities and pro-business tax and legislative policies make it likely that opportunities for investors to get involved in this market, particularly if they wish to own rentals or multifamily properties, will remain available for the rest of the year. Thanks to Dallas’ high profile on the investing scene, individual investors may find it difficult to “break in” to the market at first. Working with a seasoned or connected local presence may be a good way to effectively vet deals and keep close tabs on market and economic shifts.
At present, Denver, Colorado, boasts the best appreciation in the country (10.6 percent in the last 12 months) but appreciation alone is probably the worst thing upon which to base your real estate investing strategy. Denver is undeniably a “hot” market, however, thanks in large part to its attraction to multiple age groups and demographics who are interested in buying at retail value in hopes of prices continuing to rise, highly ranked public schools, competitive safety statistics and an enviable public transit system. Also, we’d be remiss to leave out the “pot market” in the area, but many analysts and local investors warn that marijuana alone will not sustain Denver’s growth as more and more areas of the country become increasingly accepting of its medical and recreational uses. Real estate investing in Denver is great if you’re already in, but this is another major metro area that could be difficult to break into. However, the commercial sector in Denver is attracting a great deal of international activity presently and is less competitive than the residential side, making it a potentially intriguing play for investors interested in multifamily, retail or office space.
At the nadir of the housing crash, most analysts were more worried about whether there would be a Detroit housing market to rank by mid-2016 than they were about putting it on a hot market list of any type. However, with home prices up 127 percent from their lowest point during the crash and still 38 percent below peak values, Detroit’s housing market has room to grow and is making more than one hot list these days. If you like paying cash or getting creative with financing, Detroit is a good place to consider, as one in every two transactions is still all-cash in the area. The downtown area of the city is flourishing, thanks in large part to extremely thoughtful, strategic cultivation on the part of large employers in the area like Quicken Loans, which was recently named the “Best Place to Work in IT” for 2016 by industry leaders. Investors hoping to get in on the action in Detroit need to be very careful to be aware of inventory “clogging,” since much of the distressed inventory is so blighted that it cannot be saved and may not be the deal that it appears to be on paper or online. Bringing this issue to bear on your strategy, however, and keeping your research and due diligence current should help keep your investments in the clear.
Kansas City, Missouri
Experts predicted a hot year for housing in Kansas City, Missouri, at the end of last year, and so far, they haven’t been proven wrong. Home prices are up more than 5 percent year-over-year (as of the end of Q2 2016) after a healthy 5.6 appreciation rate for all of 2015. Demand for housing is still heavy, with 38 percent fewer homes on the market at this time than there were last year. However, housing remains relatively affordable with median home prices in the area hovering just over $130,000 and the metro area making “best” lists in terms of livability all over thanks to low unemployment, high affordability, a list of established employers that are constantly growing and an entrepreneurial/start-up-friendly business community is difficult to rival. With rental rates and home values both experiencing overall positive trends since 2012, investors will have their choice of real estate investing strategies in the area. However, take note: building permits are up 29 percent in the region over last year, according to the Home Builders Association of Greater Kansas, so there are developers clearly looking to fill (and possibly flood) the inventory void. While not all permits ever get used, the pace at which the city is issuing those permits is much faster than preceding years, and more permits have already been issued in 2016 than were issued for the duration of 2009, 2010 or 2011. However, with a market ideally suited to creative financing and more conventional cash-flowing rental options, Kansas City definitely makes the grade as a current hot market.
Although Nashville renters are reportedly struggling to “make the leap” to homeownership these days, the city is hot for investors in turnkey rental properties and multifamily housing. Strong year-over-year employment and income growth (3.7 percent and 1.8 percent, respectively) make it unlikely that residents will be heading out anytime soon, so both housing and rental markets are looking good in this metro area. For those who can afford to buy, the market is great, as they’ll break even compared to local renters’ costs in about a year and five months. Many buyers clearly see the value of owning, with home sales volumes in the area rising 3.9 percent over the last 12 months and home values rising 10.2 percent. Investors planning to sell to owner-occupants must remember, though, that at present nearly half of all Nashville residents are already paying a third or more of their income on rental housing. That will make it difficult to save for a down payment but certainly makes owning rental properties a viable, attractive option since that population is likely to stay in place and continue paying competitive rents.
Orlando, Florida, is definitely hot for investors, even if the average homeowner isn’t too happy there these days. The metro area posted the fourth-highest percentage of distressed home sales in the country during the first part of 2016 (nearly one in every five transactions was distressed) but home values are rising in the area while affordability is actually falling. On the surface, this is great news for investors who often have more funding flexibility than banks and who can purchase turnkey rental properties to generate cash flow. But due to Orlando’s heavy reliance on tourism, at some point the affordability issue is likely to catch up with the market because wages will not keep up with home prices. When that happens, an investor positioned in turnkey rentals will be well-prepared to cater to a population opting or finding itself compelled to rent instead of buy. At present, however, wholesaling, flipping and rentals are all well-positioned in the area as long as an investor does due diligence thoroughly prior to deciding on a strategy for an individual property.
San Diego, California
San Diego, California, makes just about everyone’s “hot housing” list, and that often means that an area will not be a particularly friendly one for real estate investors. However, in San Diego, the market appears to be a bit different than in many West Coast markets, thanks to rising sales volumes as well as rising home prices. According to CoreLogic, the median price of a San Diego County home was $490,000 in May 2016, up 6.8 percent in the last 12 months, and home sales volume was up 5.6 percent from two months prior. This could indicate that although affordability is still a very serious issue in San Diego, the market could be doing what economists hope other West Coast markets will do in the next 12 to 24 months: level off instead of dive downward when they become too off-balance. Although investor share of purchases in San Diego is at a six-year low, this market could soon be in transition, opening it up to more investors who are prepared and watching for signs that it is time for a reentry.
Tampa, Florida, has a huge distressed inventory (the third-highest in the country) and, like our other Florida cities, represents great potential for real estate investors hoping to get in early on something that others have missed. Tampa often gets left off these “Big 10” lists due to a slightly smaller population than many other major metros. But with 11.4 percent appreciation, huge attraction for Baby Boomer buyers who actually have the wherewithal to purchase at retail and at competitive prices, falling number of days on market and an inventory that has just started to trend downward in a meaningful pattern, Tampa represents a truly hot opportunity for real estate investors looking to get into a market, control some distressed inventory and make their mark on local housing.