Indicators of Strong Real Estate Markets in Today’s Economy
By Kathy Fettke “Bigger Pockets”
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The value of a good place to live is impossible to measure these days.
The COVID-19 pandemic has forced us into a new way of living. We’ve passed the halfway mark of 2020 and have already experienced more than any of us could’ve ever imagined. Starting with a global pandemic and subsequent national health crisis, millions of businesses were shut down and job losses soon followed.
But it hasn’t all been doom and gloom. E-commerce, virtual technology, grocery stores, and real estate are all industries that are holding steady and even booming, despite COVID-19.
The real estate industry stalled for a brief time when the pandemic first hit, but quickly recovered. Some are calling it a V-shaped recovery and saying home sales are better than ever.
Remarkably, even during these unprecedented times, there are very strong real estate markets experiencing bidding wars and price gains. If you want to partake, you need to know how to spot the fundamentals of a growing metro area.
Real Estate Impact
When the economy essentially shut down and “stay at home” orders were put in place, we had to adapt quickly and find ways to work remotely. Thankfully, we live in an era where the internet and advanced technology allow us to keep many businesses up and running, even from afar.
Now that we’re six months into this pandemic and just about everybody’s had a crash course on Zoom, some employers are enjoying the savings. Instead of paying for expensive office space, they are allowing and even encouraging their employees to continue to work from home, if possible. Many major companies have already announced the option for employees to work remotely permanently.
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If living near your job is no longer a factor, it will be very interesting to see where people decide to move and why. The ability to work remotely will most certainly impact the future of real estate markets in the suburbs and the exurbs.
Builders are gearing up for the demand, providing affordable new construction homes just an hour or two outside of expensive metro areas. This way homeowners and/or tenants can work mostly at home, but still come into an office when needed.
Indicators of Strong Real Estate Markets
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In any economy, there are key indicators to look for when identifying a strong real estate market: population growth, job growth, and affordability. If you want appreciation as well, look for areas that are expanding their infrastructure with new roads, parks, and schools.
A quick way to see if a market is affordable is to look at the average household income and the average home price compared to the national average.
For instance, if the three-bedroom home in Orlando costs $193,000, while the national average for a three-bedroom is $222,000, we know that Orlando’s average home price is 13% lower than the national average. If the average household income is a third of the average home price in the neighborhood, we know it’s an affordable real estate market.
2. Job Growth
Metro areas with a diverse employer base typically also have a strong real estate market. That’s because jobs attract people and those people need a place to live and shop.
When big companies move their corporate headquarters to a different location, you can count on an influx of people to soon follow. A strong job market is a key indicator of a healthy economy and housing market.
3. Population Growth
If there’s job growth there’s population growth. It’s that simple. And because we know that everyone needs a place to live, population growth is another indicator of a strong real estate market.
However, as mentioned earlier, many working people don’t need to live near their jobs anymore. Still, there are plenty of jobs that can’t be remote, mainly in the hospitality industry.
A Prime Example
There are countless examples of real estate markets around the country that are still holding strong in the coronavirus economy. One of these markets is Central Florida, from Orlando to Tampa.
Together, the Tampa-Orlando area makes up the largest metro center in the Southeastern U.S. About five million people live in Central and West Florida, with four airports closeby.
As the “most visited place on the planet,” Orlando is home to Disney World, Universal Studios Orlando, Sea World, Legoland, and more. Central Florida is also less than an hour away from some of the best beaches in the world, with warm weather year-round.
Last year, Forbes ranked Orlando as the #1 best place to invest. Both Central and South Florida housing markets have continued to grow even during the pandemic, as more people flee big coastal cities in search of more space. Home sales are stronger than ever, and home prices have actually risen in the Central Florida markets.
Young families are moving to more affordable areas to buy homes with backyards and to get more bang for their buck. And since these suburban areas offer good schools, money is saved by avoiding the cost of private schooling in big cities. Certain areas in West Florida are considerably more affordable than other nearby metros. In these suburbs or “exurbs,” it’s possible to buy a new home for around $200,000.
Florida’s job growth outpaces the national job growth rate. Companies and industries outside of tourism have not laid off employees. Financial, healthcare, real estate, and construction companies are all retaining their employees.
All Disney theme parks were closed down when the coronavirus hit and countless people, not just in Florida, lost their jobs. Even with this massive hit to the leisure and hospitality industry, Florida’s economy has held relatively steady. That’s because West and Central Florida’s local economies are diversified. Leisure and hospitality only make up about 11% of the overall economy—the local economy doesn’t depend entirely on tourism.
Amazon, NASA, LG, Walmart, PepsiCo, Publix, higher education, and healthcare are just a few of the largest employers in the state. Amazon is currently hiring 100,000 new employees for its distribution centers. Florida is also considered a tax haven for both individuals and businesses.
Right now, the NBA’s plan to finish the 2020 season inside “the bubble” of the Disney World Resort seems to be working. With housing, daily meals, and entertainment for as many as 1,500 people on campus, you can imagine how large the support staff would have to be. In fact, it’s costing the NBA over $150 million. Jobs are starting to come back, which is a positive sign for the economy and for the rest of 2020.
The technological adjustments since the onset of the COVID-19 pandemic actually seem to be promoting population growth in Florida. Since COVID-19, more people are moving to the Orlando/Central Florida metro than any other metro in the U.S.
More than 1,000 people a day are moving to this area and as the third most-populated state in the country, it continues to grow. Retirees, vacation homeowners, first-time home buyers, and beach lovers continue to move to Florida for varying reasons
The ability of a huge number of people to work remotely has changed the landscape of where people choose to live. Get out of the cold weather, avoid the traffic-filled commutes, and live in more affordable areas with a better quality of life.
The scarcity of inventory is keeping demand high and driving prices up. The population is growing along with jobs. West and Central Florida are considered growth markets, meaning they’re more likely to have some appreciation in a shorter period of time.
They’ve also proven to offer good cash flow, in addition to appreciation. Because of the market conditions today, demand for new construction homes is through the roof.
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There’s no trick to identifying strong real estate markets in this economy—or any economy for that matter. Smart real estate investors know to look for three indicators of a healthy real estate market: affordability, job growth, and population growth.
To stay up to date on the latest housing market insights, check out vacancy rates, and find out how much you’ll be able to rent a potential investment property for each month, check out BiggerPockets Insights.