“A dollar today isn’t what it used to be, particularly when it comes to real estate,” says Zillow Senior Economist Aaron Terrazas. This comes from a recent report from Zillow Research regarding home values around the country. However, according to the study, a dollar can buy nearly 20 times more in markets such as Memphis, than in others, like San Francisco. “Figuring out exactly how much space a dollar does—or doesn’t—buy you can be sobering, but enlightening.”
Rising Median Home Values Drive Housing-Dollar Value Down
Nationally, the U.S. median home price in July 2018 was $218,000, and nearly 200 markets currently post median home values in excess of $1 million. While these numbers may seem staggeringly high, they are far more useful to investors when broken down into local statistics.
For example, in San Francisco, where median home values top $1.3 million, one dollar will buy about a sixth of a square inch. Notably, the value of that dollar has gone down dramatically in the last 12 months; a year ago that same dollar would have bought about nine percent more than it will today. On the other hand, in Houston, where median home values are under $180,000, the same dollar buys 1.4 square inches. While that value decreased by seven percent over the last year, your dollars go further in Houston than San Francisco.
What This Means for Investors
Many investors view these types of studies mainly as recreational reading. After all, who is going to buy or sell any real estate one dollar at a time? However, this data can be useful when it comes to determining how to fund deals and how to stretch capital. Investors with the ability to create massive leveraging opportunities for themselves may find that a more affordable market offers more opportunities to create great returns by virtue of the fact that the more affordable market yields more opportunity in the form of greater square footage.