This months copy of Business 2.0 magazine features an article to help one navigate the real estate markets pending 'bounce back', identifying 10 cities primed for pumping (I'll disclose them in a minute). What the core of the article is about, is a tried and true investing practice that I've mentioned here before, yet seems to escape the minds of the statu-quo reader out there:
If you want to make money on a commodity (like property) you must buy it lower than you sell it for, in short...Buy Low, Sell High. (Yes there are plenty of ways to make money when a commodities value goes south too...short selling, put options et.al., but thats not pertinent here.)
Markets across the nation are generally soft right now and getting softer. Why? Foreclosures and other 'fire sales' by individuals who bought real estate during the stooopid appreciation curve are starting to effect the current and immediate future value of property. There is an innate lag effect as these reduced sales prices are booked as sold, thus becoming viable comparables for new sales, thus driving down overall values going forward.
So, for once I'm going to agree with the NAR and say: 'It is a great time to buy real estate.' Property is on sale and it's not uncommon to find deals 20%-40% off on the open market, not just via foreclosure or short selling.
According to Biz 2.0, the following cities are about prime for buying:
- Dallas/Ft Worth, TX
- Indianapolis, IN
- New Orleans, LA
- Atlanta, GA
- Montgomery AL
- Memphis, TN
- Mobile, AL
- Austin, TX
- Houston, TX
- St. Louis, MO
There are a few things about these cities that intrigue me...(I'll bold out the reasons speculation for appreciation is high, so you can look for such trends in other markets). First, none of these cities experienced the rapid appreciation curve that consumed many markets, so there is/was far less room to fall. They're all in the South/South East, not areas of the country where 'Housing Bubble' crossed many pundits lips. Ominously absent are any cities in California...which is an economy in and of itself. It's hard to tell where, when, what, or how this market will shake out...
Mobile, Montgomery, and New Orleans were ravished by Hurricane Katrina, thus making them prime rebuild areas. New construction will help raise values in a market, especially these...they really have no where to go but out of the ground and up.
St. Louis is the very definition of 'average'. It's in the middle of the country, average per capita income equals the national average ($36k), it's pretty much an average city...The optimism comes from the fact that people are moving back to the urban core, where developers are converting old warehouses into swanky lofts, apartments, and condos. Urban sprawl steadily depreciated city real estate for years as the population moved to the suburbs, polarizing it from achieving any measurable appreciation during the refi boom.
Indianapolis is one of two state capitals on this list. State capitals mean government jobs, government jobs mean above average salaries and security, which equate to a solid economy. Plus the Colts won the Super Bowl...
Atlanta has the state of Georgia to partially thank for appearing on this list. The state is a pioneer of many anti-predatory mortgage laws that kept artificial housing appreciation from getting out of hand. Atlanta is also a hub of industry (Fortune 500 companies are also abundant in Hotlanta) making it a hot spot for young professionals just entering the job market. Hartsfield airport is an international hub and the worlds busiest. All of these factors make for a very active market, consistent turnover of housing inventory will spell an earlier relief for the center of the Dirty South...
Memphis was considered to be one the foreclosure capitals of the United States very early in the game, it was the early mover to bottom out, if you will. This is another 'no where but up' scenario...as a matter of fact Memphis is now considered one of the most undervalued cities in America.
Dallas/Ft. Worth. The Metroplexicalmegapolitan. I recently moved to Plano, TX (Northeast side of Dallas), and this area is freaking HUGE. It just goes and goes and goes...according to Business 2.0, this area will add 6.4 Million more people to it's infrastructure in the next two decades. WTF, thats ridiculous. Moving from Greensboro NC, the 3rd largest city in the entire state, Plano has more people and it's just a measly little suburb...Everything is big in Texas.
Houston. Hot, humid, and hot...did I say humid? All I remember about Houston, besides it being prohibitively hot and humid, is sitting in the most amazing traffic jams. Being the oil and gas hub of the USA is a plus for the economy and apparently the inner city is going through a housing revitalization...apparently other people really don't care to sit in traffic when it's 105 degrees with 95% humidity either.
Austin. Solid industry with big name tech companies like Dell and IBM, being the state capital (see Indianapolis), as well as home to the University of Texas makes Austin an uber-progressive city. The inner cities housing infrastructure is new and highly coveted. Austin retains many college grads where other college towns typically lose their graduates to other cities.
The three cities in Texas: Dallas/Ft Worth, Houston, and Austin. While each city has their upsides as far as industry and the such, there is one main reason why three cities from Texas made this list that the article failed to identify. There is a lending law in the Lone Star state that prohibits anyone from taking cash out of their home in excess on 80% of it's appraised value. You can buy property at (up to) 100% of it's purchase price, but you cannot cash-out anything above 80%. This law has effectively prevented consumers from using their house as an ATM, thus repressing the artificial appreciation that has stung places like California so hard. You can get alot of house for your money in Texas, and land too.
This is a law that should be looked at real hard by other states in the Union. It's a simple and effective measure to countering irrational personal finance decisions and keeps home values in relative check.
There are many other cities that should have made the list, but 10 was a good number. In any case, I don't see cities like Montgomery, Mobile, Memphis, and St Louis as the next great places to live, though for investors looking to make some nice acquisitions and gains, all of the above markets seem ready to put the days of a housing recession behind them.
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