After a drastic price growth in the housing sector the market seems to stabilize, rendering as a good time to start long-term house investments.
9 Jan 2015 – Forbes
Whether you’re an investor looking to pick up a few rental properties or a young professional interested in purchasing a first home, there are plenty of places where housing should be a pretty safe bet. The key is to buy in cities with strong job growth that people are moving to, so that the stock of potential tenants for would-be landlords is abundant. We teamed up with Local Market Monitor, a North Carolina-based data company that tracks home prices and economic factors in more than 300 housing markets, to find 2015’s Best Buy Cities—the top 20 housing markets to invest in this year.
Local Market Monitor screened the 105 largest Metropolitan Statistical Areas (a geographical designation used by the U.S. Census Bureau that generally includes a core city and its surrounding suburbs), all with populations of at least 550,000. Each of our Best Buy Cities has strong population and jobs growth, and relatively low home prices. In most—but not all—of the cities, homes are still undervalued, by Local Market Monitor’s reckoning. (Last year, the average home values in every single city on our Best Buy list were considered under market.) This year four cities have reached the point where prices are a slight bit overheated–Salt Lake City, West Palm Beach, Denver, and Austin–though given their fundamentals, they’re still a pretty safe bet.
To gauge whether homes in a particular market are over- or undervalued, Local Market Monitor calculates what it calls the “Equilibrium Home Price,” or the “Income Price.” Essentially, this measure attempts to capture what the average home price for a particular market would be absent speculation and distortions (like the housing crash). This Income Price corresponds to the average income for the area over a multi-year period. “In every market there’s a relatively fixed relationship between home prices and income,” says Ingo Winzer, founder and president of Local Market Monitor. “When prices go above that level, that’s really when markets are overpriced. In this strong real estate recession, prices have gone under this income price.” When homes are under the equilibrium or income price, investors can feel fairly confident that they’ll make a good return.
With the recovery getting long in the tooth, there are fewer markets that are undervalued. “Getting a good deal is less likely, frankly,” says Winzer. “But in these markets you’re getting a strong rental stream. So now economic growth is relatively more important.”