After another year of rising house prices and inventory depletion across the country, finding a place where you can put your money (and your mind) with reasonable return expectations have become increasingly difficult. Your investment Sweet points, however, are still widespread throughout the country. These cities offer a rare combination of above-average employment growth and some clues before housing becomes expensive, which anyone looking for a smart real estate investment should seek.
To find out where to look for a home this year, Forbes used the Local Market Monitor, which tracks over 300 real estate markets. For the CEO of each market, Ingo Winzer (Forbes partner) analyzed the life indicators and the biggest growth trends to reach 20 markets where he can park his money in 2018 and still sleep peacefully.
“Growing markets are always interesting,” says Winzer. “In a few years, however, today’s growth markets may be too expensive, the markets with average growth could also be a better bet for investors, as there is less competition for the real estate of choice and can buy them at a lower price.”
Orlando overcomes: The land of Mickey and Harry Potter World comes first this year. Orlando house prices rose 9% in 2017, reaching an average of $247,550. However, Local Market Monitor still rates the market as evaluated and expected prices will increase by 35% at the beginning of 2021. This optimism is largely due to Orlando’s 7.1% employment growth in the last two years, population growth of 7.6% as compared to the last three years. In general, Orlando is good when the United States is generally doing well as its economy is largely dependent on tourism. Nor does it hurt that house prices in Orlando, which are still affected by the housing collapse, are 22% lower than the national average. “Orlando has recovered in the sense that employment growth has been strong and home prices have risen at a healthy pace along with income,” notes Winzer. “Property prices are still below the top of the bubble, so they have not recovered in the narrower sense.”
Tech Threat: At the other end of the spectrum, there are several cities on the West Coast and in Texas, where high demand for high-income technologies and workers in the energy sector has pushed prices to the limit of accessibility. Until recently, some of these cities seemed to be safe bets, but dizzying price growth in 2017 increased the risk. Austin, Texas, for example, is ranked number 7 on our 2016 list. After a rise of 7% in 2017 to an average of $305,000, real estate prices are now 30% higher than the price/income of the city has historically supported. In Seattle, No 4 in 2017, prices are 25% higher than those historically valid. Seattle prices rose 14% last year, more than any other major city in the United States, and already more than half of the growth that winegrowers predicted between 2017 and 2020.
To put this list together, Winzer started with 330 markets. First, he eliminated those who were too small (populations below 500,000) and discarded those that behaved worse than key metrics. Finally, the 20 markets that achieved the best results in five measures were analyzed: one-year employment growth, three-year population growth (2014-2017), a one-year housing price growth, accessibility and three-year local market monitoring of price forecasts. We use labour force growth to rate the list this year. “In times of rising prices, a good economy is a better long-term investment criterion” than price growth, says Winzer.
To judge accessibility, Winzer uses a measure of the price of the house in terms of the price of rent, which is the price of the House of Equilibrium. This is the current average price of apartments in a market compared to the price if the historical relationship between house prices and income for that market were maintained. For example, in Columbus, Ohio, the average costs of housing is $229,776, or about 4.65 times the local per capita income. Historically, homes in Columbus have sold local incomes for 5.38 times. The gap between the two suggests that houses in the city have a low price of 13%.
Winzer believes that a deviation of 15% to -15% of the historical income price is normal. In general, a market is considered too expensive if this measure is 30% higher than the income price. While the low price is positive for people buying in a city where the economy is growing, it can be a big disadvantage in places without growth on the horizon. This is, for example, why Chicago is not on our list. Yes, housing prices are under-appreciated by around 20%, but employment growth is well below the national average. “There are many opportunities in Chicago, but unless the economy improves, you run the risk of not finding tenants,” says Winzer.