Ten Cities Ready To Bounce Back
Thursday, October 18, 2007
The horror show of America's residential real estate market just keeps getting scarier, what with the sub-prime mortgage crisis threatening to slash demand for homes while the inventory of unsold properties continues to pile up. It's enough to send any prudent investor fleeing to the relative sanity of, say, the stock market.
Don't. Instead, get ready for the bounce-back. The oldest rule of investing dictates that you buy low and sell high. Real-estate buyers aren't at the gate, however, because most local markets have yet to hit bottom. In fact, most cities won't do so for another year.
But Business 2.0, working with Moody's Economy.com, has unearthed 10 major metropolitan areas that are bucking the national housing trend. By the beginning of next year, these markets should be coming back to life -- and in our exclusive rankings, we've projected the house-price appreciation these cities will enjoy during 2008 and 2009. The gains may seem modest -- they range from about 4 to 7 percent -- but remember, in the midst of the current housing meltdown, any gain at all constitutes a minor miracle.
What our 10 cities have in common is that they're relatively affordable. They missed out on the housing bubble, yet they still enjoy steady employment and income growth. Not surprisingly, five of the 10 are state capitals with hefty public payrolls. Even more telling, with the exception of the three Texas metros ( Austin, Dallas, and Houston), the big national builders didn't make significant incursions into these markets.
"These cities didn't draw in speculators or investment the way the coastal markets did,. says Celia Chen, the Economy.com economist who crunched our numbers." "House prices in these places weren't untethered from the underlying fundamentals." These underappreciated -- but soon-to appreciate -- housing markets offer real opportunities to the savvy investor.
Dallas- Fort Worth
Projected median sales prices for single-family homes:
Q1 2008: $151,930
Q4 2009: $161,690
Growth rate: 6.4 percent
The Metroplex, as locals call the Dallas- Fort Worth region, is smoking, adding jobs at twice the national rate. Better yet, those new jobs are concentrated in well-paying fields like banking, advertising, and health care. Dallas- Fort Worth sits at the center of the Interstate 35 corridor, a "megapolitan" galaxy of urban development that Virginia Tech researchers estimate will add 6.4 million new people and 2.8 million units of housing over the next two decades. Dallas also serves as the North American headquarters for international high-tech employers like Nokia and Ericsson. All of this makes Dallas one of the nation's nine most global metros -- cities that are hubs for international trade and foreign investment -- according to an analysis by Moody's Economy.com.
Dallas has largely avoided the boom-and-bust cycle, which is one reason this market is on track to post the best returns on housing of any major U.S. city during the next two years. An added bonus: The region's service sector has escaped the collateral damage that comes when the bubble bursts and equity-driven spending dries up.
Indianapolis
Projected median sales prices for single-family homes:
Q1 2008: $122,940
Q4 2009: $130,630
Growth rate: 6.3 percent
New Orleans
Projected median sales prices for single-family homes:
Q1 2008: $153,850
Q4 2009: $162,600
Growth rate: 5.7 percent
Atlanta
Projected median sales prices for single-family homes:
Q1 2008: $177,750
Q4 2009: $187,640
Growth: 5.6 percent
Montgomery
Projected median sales prices for single-family homes:
Q1 2008: $140,020
Q4 2009: $147,690
Growth rate: 5.5 percent
Memphis
Projected median sales prices for single-family homes:
Q1 2008: $143,550
Q4 2009: $150,730
Growth rate: 5.0 percent
Mobile
Projected median sales prices for single-family homes:
Q1 2008: $134,580
Q4 2009: $140,920
Growth rate: 4.7 percent
Austin
Projected median sales prices for single-family homes:
Q1 2008: $186,350
Q4 2009: $195,060
Growth rate: 4.7 percent
In Austin, the rental market takes a backseat to buyers, many of whom hold high-paying jobs with tech giants like Dell, IBM, and Freescale Semiconductors. Austin's population is well educated -- 40 percent have a university degree -- and the Texas capital ranks among the top major metropolitan areas for business startups per capita. Austin also has the highest percent age of residents in the coveted 25- to 34-year-old demographic and, not coincidentally, the highest concentration of live music venues in the country. The labor market is so hot that shortages of engineers and product managers are driving double-digit wage hikes in those occupations.
But unlike other creative-class capitals, Austin doesn't price white-collar talent out of the housing market. At $200,000, the median sales price for a single-family home is about a third of that in San Francisco. But the gap is starting to close: While home prices in San Francisco have barely budged since the market peaked in 2005, prices in Austin have risen by 6 percent. That has prompted major builders to lay groundwork for some of the largest new master-planned communities in the country - at the very time that competitors are fleeing other Sun Belt metros.
Houston
Projected median sales prices for single-family homes:
Q1 2008: $154,850
Q4 2009: $161,910
Growth rate: 4.6 percent
Downtown Houston is also one of the places to be these days. The Texas oil capital is notorious for its suburban sprawl and horrendous traffic jams, but within the so-called Inner Loop bounded by Interstate 610 lies a new land of opportunity. That's where a multibillion-dollar expansion of Houston's medical center has spurred an influx of high-earning workers looking to live nearby.
Commuting to the center of the city has gotten worse in recent years, so suburbanites are flocking to the Inner Loop to snatch up older homes just for their lots and location. The trend is none too surprising, given that Houston is the only major U.S. city with no formal zoning code, which makes purchasing older houses and tearing them down to build whatever you want pretty easy. New homes on old lots start at about $1 million and reach as high as $4 million. Meanwhile, Big Oil is keeping Houston humming; the city added nearly 100,000 jobs last year.
St. Louis
Projected median sales prices for single-family homes:
Q1 2008: $143,920
Q4 2009: $149,710
Growth rate: 4.0 percent
