Download Courtesy Market Update PDF
The question is not so much “when” to invest, but “where” and what types of properties. Anecdotal evidence, declining inventory, and rising prices indicate that California markets are heating up. Rising prices despite high inventories and discouraging unemployment suggest that the market is undervalued.
We use 4 criteria to assess markets for investors and home-buyers: (1) housing supply vs. demand (essentially absorption), (2) pricing trends, (3) investment affordability (essentially a cap rate analysis), and (4) local economics. We use four proxies for these criteria: housing inventory/capita, statistical evaluation of appreciation rates, affordability of buying vs. renting, and jobs growth in the area. We use these criteria to pick cities that appear to be poised for growth in demand and pricing.
Below is our pick of cities for this quarter, in alphabetical order by state. This list is only a starting point based on high level factors, and is intended for a buy-and-hold strategy with at least a 1-2 year outlook. Investors must perform their own due diligence regarding local market conditions and the viability of any specific investment. Further detailed market analysis for each city is available from PortReal’s web site.
PortReal Investment Picks for 4th quarter, 2009
- Jonesboro, AR
- Washington-Arlington-Alexandria, DC
- Sioux City, IA
- Springfield, IL
- Owensboro, KY
- Boston-Quincy, MA
- Cambridge-Newton-Framingham, MA
- Peabody, MA
- Baltimore-Towson, MD
- Bethesda-Gaithersburg-Frederick, MD
- St. Cloud, MN
- Omaha-Council Bluffs, NE
- Buffalo-Niagara Falls, NY
- Nassau-Suffolk, NY
- New York-White Plains-Wayne, NY
- Utica-Rome, NY
- Lawton, OK
- Texarkana, TX
- Wichita Falls, TX
- Burlington-South Burlington, VT
Investments that break even in cash flow—with operating income covering finance costs—should produce high returns on investment as property values increase in the long term. We believe it is critical to buy in markets that have strong underlying economic fundamentals that support continued occupancy, rent levels, and value appreciation, to ensure consistent operating income and long-term growth.
Transitions in the economy typically create investment opportunities. Now may be a good time for new money to acquire investor grade properties at low prices in markets that will sustain housing demand as the economy recovers. This may also be a good time to reallocate money invested in relatively high-valued properties and reinvest in undervalued properties.
For example, luxury properties have maintained their value in some markets, and are unlikely to see significant increases as the market recovers. In these same markets, investor grade properties have fallen significantly and are more likely to benefit from a recovering economy. In some markets, then, it may make sense to sell off luxury properties and buy up investor grade properties.
