By Charles Sells
Did you know that there are still buyers’ markets in the United States today? If so, do you know how to find them?
If you are like most real estate investors, you have probably been feeling a little frustrated with the state of the market lately. In most markets, things are definitely weighted for sellers at the moment. According to the Federal Housing Finance Agency (FHFA)’s quarterly housing price index, prices rose 3.5 percent in the first quarter of 2021 alone. Year-over-year, prices are now 12.6 percent higher nationally than they were this time in 2020.
In fact, the market is so hot that Greg McBride, Bankrate’s chief financial analyst, considered it a warning when he observed, “Higher mortgage rates mean the red-hot housing market might downshift to merely sizzling.” McBride cited the serious shortage of housing inventory as the main reason he does not expect higher interest rates to put a serious dent in demand.
However, there are still some markets that are primed for buyers – even though they are few and far between. Barron’s recently released a list of non-booming markets based on data from the Wall Street Journal and Realtor.com. Analysts evaluated real estate, economic, and quality-of-life indicators to identify buyer’s markets, defined as those with “the potential to provide a strong return on investment.”
What Makes a Market a Buyer’s Market in 2021?
These days, the things that give buyers an advantage in the home-purchasing process include longer-than-average time-on-market and falling supply-and-demand metrics. Although some investors consider markets with falling home values to be conducive to property acquisition, Barron’s analysts elected to exclude areas where pandemic impact has been outsized compared to the rest of the country. They also excluded areas where unemployment was trending upward and where median listing prices fell compared to a year ago because those metrics, in combination with mortgage forbearance and eviction ban policies, could place these markets “at greater risk once those protections expire,” the analysts said.
Although a buyer’s market has, historically, been considered to be one in which buyers have an indisputable advantage in the home transaction, the definition is certainly changing in 2021. Because so much of the national housing market has been white-hot, markets that are simply attainable are being described this way.
For example, in April of this year, Realtor.com noted that only 15 of the top 50 housing markets in the country offer “cheaper monthly payments for the median home compared to renting a similar property.” Danielle Hale, Realtor.com’s chief economist, called this statistic “encouraging news for the millions of millennials who are approaching peak homebuying age.” She noted that these markets would likely see an uptick in buyer activity due to the general expectation that interest rates will rise later this year.
Essentially, today’s “buyer’s markets” are really more aptly described as “emerging markets” where there are still opportunities for real estate investors and other buyers to acquire properties without paying sales prices in excess of market value. If you are an individual investor operating a fix-and-flip or rehab-to-rent business, your true buyer’s market will be one in which you can access discounted deals or in which you can access properties with the potential for “forced appreciation” that will enable you to buy at or slightly above market value, make upgrades and repairs, and then sell or rent for a profit.
By this standard, the top buyer’s markets in the country are likely to be secondary or tertiary markets with solid employment. They need room to grow so that the inventory is not so tight that bidding wars are out of control. Finally, they need a median home price that is attainable, if not affordable, so that buyers will consider the market as an option in the future.
Top Buyer’s Markets for 2021
According to that Barron’s article, top buyer’s markets include (1) Indianapolis, Indiana; (2) Savannah, Georgia; (3) Greenville, South Carolina; (4) Cedar Rapids, Iowa; and (5) Port St. Lucie. The analysts noted that in these areas, home prices have risen “less than average, and economic conditions are favorable” and that in many of these areas listing prices are already rising by double digits.
For example, in Savannah, Georgia, listing prices have risen more than 11 percent year-over-year. Because this is less than the average of nearly 14 percent across most industry indices, Savannah is still considered one of the best buyer’s markets in the country.
Rising Market Pressure Will Keep Prices High in 2022
The biggest issue for most buyers – both retail and investor – is that the COVID-19 global pandemic has created a new economic situation that most people cannot fully grasp. As Lynn Fisher, deputy director of the Federal Housing Finance Agency (FHFA)’s division of research and statistics, explained, “Only time will tell how housing markets will adjust as the U.S. economy recovers from the effects of the COVID-19 pandemic.”
There are two things that are relatively certain, however:
- Even if interest rates do not rise, buyers will continue to behave as if they will at any minute.
With concerns about inflation mounting daily, the Federal Reserve has said they will likely raise interest rates to deal with the issue sometime this year. Many analysts expect interest rates to rise by the end of 2021, but some economists say trying to stay ahead of inflation will constrain the current economic recovery. “We just don’t know [what the Fed will do],” observed Yale finance professor Bill English, noting that the general public is currently wondering if their money is falling in value.
- Access to off-market deals is the key to making any market a buyer’s market as far as your investing is concerned.
If you have ever wondered how real estate investors in “hot” markets get access to really good deals, then you know that for the right investor, any market can be a buyer’s market. The key is to have a system by which you reach the owners of properties that meet your requirements (including your price requirements) before they ever list their home and put you in competition with other buyers. One of the best ways to access this type of system is to team up with a local investment firm that works with investors to identify and acquire deals. Groups that have a long history in the area are likely to have networks for referrals and established marketing processes that keep deals flowing even when the market turns.
Don’t Let the “Lingo” Get You Down
Whatever you do, refuse to permit arbitrary terms like “buyer’s market” and “seller’s market” to determine whether you get involved in real estate investing. Today’s housing market is full of potential; you just have to be willing to look for it and act quickly once you spot it.