Real estate markets are some of the most profitable markets to invest in. The price of land will keep on moving northward and with it the return on investment. However, not all real estate markets are successful. There are many reasons for that, primary being economics.
In this article, we will look at the biggest real estate markets in the US and also try to find out why are they more successful than the others.
Before we delve into the nitty-gritty, it is pertinent to understand what drives the market.
Availability of land
This is one of the major challenges, especially in urban areas. The increasing population density pushes the land prices north. This is due to the paucity of land available. Cities are also expanding as a result. This has a domino effect on a lot of other spheres of life. As cities expand, newer logistics have to be created. More urban infrastructure has to be erected to sustain the newer areas. All this gets added to the cost of the land. That wouldn’t mean that land is available in plenty in the countryside. Numerous issues govern the availability of land in the outback. Legislations barring the erection of structures are one of them. Most of the land may belong to the department of forest or agriculture. This prevents realtors from developing them.
Due to this unavailability, the area which is becoming costly.
Real Estate depends on the economic cycle of the country. Land and property prices rise and fall all the time. There is no best time to invest in real estate. It is always the best time. The realtor simply has to be smart whilst making the move. The real estate market is akin to the price of gold. It depends on the supply and demand function. However, to unbind oneself from the economic cycle, investors but REITs or other holdings which are diversified. This diversification of investment often creates a firewall against sudden economic downturns and anomalies.
A demographic study will tell the investor the lay of the community and their living behaviour. The study is important because the price of the property depends on it. For example, a property or area which has primarily retirees will cost less than an area which surrounds a popular vacation spot. That is because the economic activity surrounding a vacation spot will higher than a property consisting of retirees. On the other hand, the area consisting of mostly retirees will be a favourite for people wanting to settle down or even invest as a second home. There is also a study which consists of the annual income of homeowners. Retirees, for example, are mostly pensioners. The salaried young crowd would look for greener pastures where there are more sources of entertainment and luxuries.
This affects the price of the property.
However, demography is never a constant concept. Areas undergo a major demographic shift. A retirees’ oasis may tomorrow turn out to be the haven for youngsters and tourists. The vice versa is also possible. Hence, forecasting needs to be done and an analysis established which would measure the shifts.
The Interest Rates
Bank interest rates play a major factor while deciding on a particular property. These interest rates depend on the economic cycle, area in which the property, cash flow et al.
All the above factors play a major role in deciding the validity of a property.
The Real estate market has gone through major upheavals over the past few years. It has since stabilised and shown great signs of recovery. With the easing up of the mortgage market and the rise of the local economies, the property scene has slowly heated up.
For a realtor or an intrepid investor wanting to invest in the property market, these are good times.
Let us look at some of the hottest property markets in the United States of America.
The Urban Land Institute, the largest network of land and realty experts lists the following as some of the markets that are on fire right now:
The trend about the said list has remained the same for the past few years. The group also mentioned that between 2016 and 2018, these places accounted for almost 26% of the total transactions in the US real estate market.
The reasons are plenty.
- There are no supply constraints and there is plenty of land availability.
- The housing momentum built up in 2019 has nudged 2020
- The current housing prices are low and hence have attracted realty investors as well as homeowners.
- There has been a sudden spurt in the growth of white-collar jobs in and around the area which has led to an increase of greater disposable income.
Looking at the trend, it can be safely bet that this list would easily march into 2021 unscathed given that the full potential of these markets is yet to be tapped. The low prices of the housing sector in these markets have created a low threshold. This Is seen as an advantage since it will allow millennials and other salaried class with lower incomes, to enter the buying fray.
The Curbed List mentioned the following cities to be the hottest real estate markets for the year 2020:
- Los Angeles
- New York City
The list clarified though that these were area-specific and did not mean the entire city.
For specific cities, these are the following that made it to the list:
Charlotte, North Carolina
A lot went for this city and Charlotte Real Estate. It is one of those coastal cities which has seen a growth in homeownership, primarily because of the low pricing. This has led to millennials forming a large part of the neighbourhood. The city is developing further with mega infrastructural projects lined up. Charlotte also has one of the most diversified economies in the whole of the United States of America and because of that a robust job market. Because of this, many flocks to this city in search of jobs. Mots get it and settle down, eventually ending up buying a house.
Charleston, South Carolina
This historic city can be mistaken to be living in the past. However, given the spurt of realty related transactions and a booming economy, Charleston is a dream come true for most realtors. The Urban Land Institute calls Charleston the “small jewel with tremendous growth potential”. Being a small city, there will be constraints and prices may not be too modest too. If one is looking for affordable housing, then this city is not the place. However, if one is looking for big-ticket returns, welcome to Charleston.
Dallas Real Estate is on the list of most realty researches. Despite doomsayers and naysayers damning the growth story of the city as a thing of the past, Dallas continues to surprise. There have a lot of corporate relocations, which has led to a boom in the job market. On most corners you can find six-figure pick up trucks with PPEI Tuning on them – so you know the Dallas economy is doing well. This and a burgeoning population has meant that the demand is an ever-constant factor. The less strict building regulations have also added sugar. Dallas is a modern city that refuses to cow down under the mythical predictions of critics. Its population growth amounting to nearly 12 per cent between 2010 and 2018, was the largest ever witnessed. This slow and steady exodus to the Texan city remains unchanged and is likely to continue for some time to come.
Raleigh, North Carolina
The main reason this city has risen in the realty list is only that it has been the part of the research triangle. Silicon Valley and San Francisco have garnered most of the tech hub, but Raleigh’s real estate market has not been left far behind. The city, also known as a tech hub and an innovation hot spot, has shown remarkable growth over the past few years. Raleigh, with its mostly young crowd and massive urban developments, has found a mention in most realty list. The average home values have therefore seen a steady rise over a period in time. Raleigh has also seen a rise in its population and this is going to continue since most of the tech units and institutes are based here or are being built here. Because of the steady income of the tech crowd, the median housing price has risen by 5.5 per cent.
All of the above-mentioned cities have seen their fair share of advantages and hence have posted impressive growth in their housing sector. The real estate market is an uneven sector with the capability of radical changes across areas in the same geographical location. Smart investors do make a differentiation between a home property for residing purposes or purely as an investment vehicle. The return on Investment varies as per the choices made.
There is also a differentiation that needs to be made as per the verticals.
Some real estate markets may be hot for the rental sector but not for the buying section with the calculations reversing for some other market. A distinct divide is made between commercial properties and private ones.
It was said that the median sales price for houses bought in September 2019 was $299,400. This figure has seen drastic changes though and the latest figures are expected to be higher.
To add to the remarkable growth, the market has shown, 701,000 new houses were bought in this year.
With a rising economy, the figures of homeownership to have gone up. Towards the end of 2019, 64.8% of the population owned a home. This percentage has been going up since 2015 and it is expected to breach the 65% mark by the end of 2020.
Suffice to say that with rising figures of homeownership, there has been a steady rise in the overall costs of payment too. It has been calculated that one must be earning $61,123 a year to be able to afford a home. This comes in the back of the statistics which suggests that the average down payment is $59,880.
The housing sector though did see a slight decrease in the median selling price. In September 2019, it was $299,400, which was a decrease of 8.8% compared to 2018. The trend reversed in 2020 and will see some upward swing for the next few years. The reason being the bouncing back of the economy and the world economy as a whole and gradual opening up of the borders. Once travel restrictions are lifted and international travel becomes normal, there will be a greater transaction of goods and services. These have a positive effect on the realty sector.
The rent vertical has shown a steadfast rise since the past many years. The median rent currently stands at $1002 and there is no sign of fatigue. With commercial buildings popping up by the dozen and newer businesses mushrooming across multiple cities, it is a sector that has the investors excited. Commercial rents are some of the biggest deals in the corporate sector and every real estate agent worth their salt would want a share from that pie. The market is far from being saturated and there is immense scope for vertical growth. Also. Most cities in the above-mentioned list are undergoing a transformation which is also adding to the rental market.
The recession did see a sharp fall in the rental as well as housing prices. But that was more of a temporary blip and has since made a comeback with renewed vigour.
The real estate market of the United States of America has undergone a metamorphosis over the years. However, bucking the trend, it has always come back strongly after every economic crisis. It had after the great depression, it repeated the act after the recession and the housing mortgage fiasco. The resilience of this sector will help see it through any circumstance.
The success of the realty market once again proves how true the adage is:” Home is where the heart is.”