BYTHE NUMBERS
MARKET TRENDS
ATale of 10 Markets 10 MARKETS WITH STRONG PRICE GAINS AND SEVERAL POSSIBLE FUTURES.
2017 POPULATION
JOB GROWTH RATE
AVERAGE HOME PRICE (THOUSANDS)
VERSUS INCOME PRICE
LOCAL MARKET MONITOR
HOME PRICE INCREASE
2,889,626
14%
2.4%
$472
20%
Seattle, WA
623,279
13%
0.9%
$202
-7%
Deltona-Daytona Beach
by Ingo Winzer
676,909
13%
3.7%
$235
10%
Boise, ID
lthough home prices have been ris- ing briskly in many markets across the country, the prospects for investors in these markets can be quite different from market to market. This is especially true for investors in rental properties who need a longer-term perspective than those rehabbing and reselling. Sure, rising home prices are an important part of your investment deci- sion because they indicate a mismatch A INCOME PRICE: A calculated value that shows where home prices should be according to local income. Income price metrics are used to help determine whether a market is over- or under-priced, and are based on data from the FHFA Home Price Index and the Bureau of Economic Analysis. This metric was developed by the Local Market Monitor.
between the local supply and demand for housing. But you need to look be- yond just prices to get a feel for what is likely to happen down the road. Our list of 10 markets with strong gains in home prices over the past year includes examples of several possible future outcomes for each market. MARKETS STILL RECOVERING A couple of years ago, home prices in most of these markets were well below the Local Market Monitor’s “income price,” a measure of where prices “should” be. For example, the fact that prices are still below the income price in Deltona, Florida, and Grand Rapids, Michigan (though not by much) shows how long the road to recovery has been and highlights possible structural weakness. The problem in Grand Rapids was purely economic: Manufacturing jobs went away but now are back. When you look at the job growth rate, you can see that although it’s still tough to bet on manufacturing jobs that risk is creating
opportunities for investors willing to take it. Furthermore, a rental investment in Grand Rapids is still pretty cheap. On the other hand, the problem in Deltona was investor speculation and overbuilding of retirement and vacation properties, many of them condos. The economy now is not great either thanks to mediocre job growth, but future retirees and the workers who provide services to them will include many more renters than in the past. In light of that, a rental investment in Deltona makes sense. MARKETS THAT ARE BOOMING Home prices in Seattle, Washington, and Denver, Colorado, are not only high but also well above the income price, and Portland isn’t far behind. This doesn’t mean prices will blow off and crash any time soon, and there could be a soft landing when prices do peak, but investments in rentals are now very expensive at the very time when more
2,387,138
12%
2.9%
$245
11%
Orlando, FL
$259
12%
4,707,151
12%
2.8%
Dallas, TX
2,814,330
11%
1.8%
$374
35%
Denver, CO
2,389,228
11%
2.7%
$354
17%
Portland, OR
2,274,194
10%
1.7%
$321
10%
Sacramento, CA
1,038,583
10%
2.5%
$183
-12%
Grand Rapids, IA
1,830,345
10%
3%
$272
1%
Nashville, TN
Source :: Local Market Monitor
people want to rent. Subdividing into multiple rental units is probably the best bet, but that commits you to an investment for a long time, so you need to have confidence in the longer-term economic situation.
good job growth and fairly moderate home prices. You’ll have to make up your own mind whether you’d rather have an investment in California or Tennessee, but the outlook for rental properties in those two states is actually quite similar. Demand is strong in all of these markets, which means they’re ripe for thoughtful investments. Just be sure you think about what the differences in these markets will mean for the future
of your investment strategies. •
IngoWinzer is president of Local Market Monitor, which analyzes conditions in 300 U.S. markets, using such economic data as home values and growth in employ- ment and population. Winzer, who has
analyzed real estate markets for more than 20 years, was a founder and executive vice president of First Research, an industry research company that was acquired by Dun & Bradstreet in March 2007. He is a graduate of MIT and holds an MBA in finance from Boston University. Winzer resides in Cambridge, Mass. www.localmarketmonitor.com.
OTHER MARKETS The “other markets” in our list have differences, but they’re united in having
110 | think realty magazine :: january 2018
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