Top U.S. Real Estate Markets For Investment

 

Top U.S. Real Estate Markets For Investment

Matt Woolsey

Sources: National Association of Realtors, Moody's Economy.com; Photo: © Istock

 

 

  

1. New York City

New York is not only ranked the best location for real estate investment in the U.S., it also holds the No. 1 spot worldwide, barely nipping London for the title. While the residential and multi-family home market has slowed in Gotham, overseas funds and investors are enthusiastic about buying opportunities in the office sector.

  

2. Washington, D.C.

You wouldn't expect the District to have performed so well if all you've read about is overbuilding of residential properties in the exurbs. But office, multi-family home and commercial spaces have proved attractive enough to foreign investors to place it second in the U.S.--and tie it with London for second worldwide. The D.C. metro area continues to see strong business and salary growth, especially in Northern Virginia.

  

3. Los Angeles, Calif.

The apartment market in Los Angeles--and Southern California in general--is giving foreign investors a strong return. It's one of the hot spots of the foreclosure crisis, and many residents, especially on the urban fringe, are moving back into the rental market. Effective rents for both LA and Orange County have climbed by more than 5%, according to Marcus & Millichap, due to volatility in the housing market and a slowdown in construction that limits supply

  

  

4. San Francisco, Calif.

Based on AFIRE's research, San Francisco ties with Mumbai, India, and Seoul, South Korea, for its investment opportunities. One problem the city runs into is price; the costs of doing business and the value of land are among the most expensive in the country, which makes operating and purchasing outlays high. In the current climate, credit for expensive deals isn't easy to get, causing markets like San Francisco to suffer.

  

  

5. Seattle, Wash.

American investors have been a little ahead of the curve on the opportunities available in Seattle. While the residential real estate market has cooled, Seattle has so far bucked the unemployment trends plaguing much of the national economy. According to the Bureau of Labor Statistics, metro area unemployment has remained flat in year-over-year terms at 3.7%, something that bodes well for commercial and retail investment opportunities.

  

6. Boston, Mass.

Like New York, office investing in Boston is the top pick for European investors, but the multi-family home and apartment markets are attractive too. While prices have only gone up 3% in the last year, according to real estate investing firm Marcus & Millichap, a 41% decline in expected construction completions is expected to tighten the market.

  

  

7. Chicago, Ill.

Regional economic downturns in the Midwest have made the region largely unattractive to foreign buyers, as job loss and slow growth deter investors looking to take up a stake in housing, retail properties or commercial rentals. Still, Chicago has bucked the trend, largely as the result of its non-manufacturing-based economy. In the year of the commodity bubble, being the host city for the world's largest commodities exchange doesn't hurt either.

  

  

8. Las Vegas, Nev.

Even during the height of the real estate boom from 2004 to 2006, international investors were wary of gambling in Vegas real estate. In 2006, the city was only the 16th most popular locale for international money. But since the market has turned south--and projects ranging from residential complexes to casinos and offices have suddenly stalled--international investors are starting to look for big discounts.

  

9. Phoenix, Ariz.

While the Phoenix market has certainly proved problematic thanks to bad lending, subprime mortgages and mortgage-backed securities, which have hampered consumer spending and made the financing landscape more difficult, investors see plenty of opportunities in the distressed marketplace.

 

10. Orlando, Fla.

Orlando held on to the 10th position when AFIRE judged American markets, but when stacked up against international markets, investors ranked it 32nd, tied with Madrid, Spain. Orlando is just one of economies suffering from a boom-then-bust market in the past five years

 

 

 

 

  

In Depth: How Low Will Real Estate Go?

Matt Woolsey

Sources: National Association of Realtors, Moody's Economy.com; Photo: © Istock

  

  

  

1. Riverside-San Bernardino, Calif.

Expected year-end median home price: $291,590

Percent drop: 23%

Housing values in the Riverside-San Bernardino metro doubled between 2003 and 2006, when they reached a peak level of $401,900. With that sort of rapid appreciation at the median level, you'd think the residents discovered diamond mines on top of oil wells, but median incomes didn't rise much quicker than historical norms, leaving a huge disconnect between what people could afford and what housing cost. The subsequent bust has not yet fully returned to that equilibrium.

 

 

  

2. Sacramento

Expected year-end median home price: $261,590

Percent drop: 23%

Prices in Sacramento didn't spike as quickly, or reach such heights as markets like Riverside-San Bernardino or Los Angeles, but they did grow from $143,860 in 2000 to $374,970 in 2005. Largely to blame? New construction on the city's periphery, which has filled up with homes priced above what the average buyer can afford.

  

  

3. Orlando, Fla.

Expected year-end median home price: $210,730

Percent drop: 19%

Orlando's great strength as a housing market, historically, has been affordability. Throughout the 1980s and 1990s, prices ran at 2.7 times median salaries in the area. Between 2000 and 2006, though, prices jumped from $111,290 to $267,920, which dramatically outpaced incomes. Housing prices, at the peak in 2006, were at 5.2 times the median income.

  

  

4. San Diego, Calif.

Expected year-end median home price: $471,300

Percent drop: 18.7%

There's a silver lining in San Diego's slumping market. Though the city is experiencing steep price declines, transactions have started to pick up over the last three months, reports Radar Logic, a New York real estate research company. This is a sign that buyers are starting to re-enter the market, which is expected to help slow price declines.

 

 

5. Los Angeles, Calif.

Expected year-end median home price: $471,320

Percent drop: 17%

Prices in Los Angeles nearly tripled from 2000 to 2006, going up 161% to $575,550 from $217,220. Income growth did not match that rate. The median home price in 2000 was 4.7 times the median family income, but by 2006, home prices were 10 times the median income level, making L.A. the least affordable housing market in the country

 

 

6. Las Vegas, Nev.

Expected year-end median home price: $246,140

Percent drop: 17%

One of the most important factors in mitigating price declines and an overbuilt, overheated market like Las Vegas, is job growth. While homebuilders pumped the area with jobs in the mid-2000s, as they pull out, jobs in construction-related industries are disappearing. They are down 9.6% from this time last year and still dropping, according to the Bureau of Labor Statistics.

 

 

 

7. Tampa, Fla.

Expected year-end median home price: $178,810

Percent drop: 15.4%

In 2005, 25% of Tampa buyers were investors, according to National Association of Realtors. Many have since left the market, allowing first-time home buyers to eat up the excess inventory left behind. This should help prices regain balance if job loss can be stanched. The metro added many jobs during the mid-2000s, but, as the economy has turned, especially in housing, jobs have declined by 1% and 2% a month for the last nine months; these numbers are growing.

 

 

8. Phoenix, Ariz.

Expected year-end median home price: $226,430

Percent drop: 11.6%

Phoenix, a victim of overbuilding, is experiencing myriad issues. Within Scottsdale, some zip codes are seeing price increases while others are experiencing double-digit price declines. Foreclosures, especially in Maricopa County, are among the nation's highest and are felt along the outer edges of the metro.

 

 

 

9. Detroit, Mich.

Expected year-end median home price: $124,390

Percent drop: 11.1%

The Motor City has experienced slow and steady price drops as jobs have been shed. Based on research from Harvard's Joint Center for Housing Studies, the single most influential cause of home price declines is job loss, more than overbuilding. Consider Detroit a prime example. Its 7.7% unemployment rate is among the nation's highest. Along with Cleveland, it's the only city on this list where prices today are lower than they were in 2000

 

 

 

10. Cleveland, Ohio

Expected year-end median home price: $116,350

Percent drop: 9.7%

In 2001, when home prices around the country were starting to jump, the median home price in Cleveland was $133,760. By the end of 2005, at the height of the national real estate boom, Cleveland prices hit a $139,250 peak. In nominal terms, prices haven't dropped as far as other markets, largely due to Cleveland's affordability, but job losses, especially in manufacturing, mean that the definition of what's affordable has changed.