Although increasing mortgage interest rates have begun to cool the costs of the real estate market, buyers and homeowners are finding themselves going to extremes to keep costs in check.
Inflation means that the average American is more cognizant of the cost of living than they may have been in a long time. With gas prices hitting highs again, and essentials like groceries costing more and more, it comes as no surprise that Americans are on the hunt for a deal wherever they can find one.
With the pandemic’s diminishing control over our daily lives and habits, it would be natural to assume that the Great Migration is over. After all, pandemic conditions largely drove Americans out of cramped multifamily housing in bustling cities and into the sprawling suburbs of secondary markets.
According to Forbes, Americans aren’t done looking beyond their local markets.
The Hunt for Housing Affordability
Data from Realtor.com suggests that house hunters aren’t done making big moves. So far in 2022, 40.5% of prospective buyers searched for property listings outside of their home states. That’s up from 2021 and 2020, where rates were 36.4% and 33.4%, respectively.
This reiterates something we’ve been saying since the pandemic shook the housing market: the pandemic didn’t create housing market trends; it simply accelerated ones that already existed.
Although the pandemic’s impact has receded, more and more Americans are on the hunt for out-of-state real estate. And it all comes down to the hunt for affordability. Despite reopening offices, buyers aren’t done looking to migrate to distant markets.
3 Directives for Real Estate Investors
#1) Go where the people are going.
Demand plays a key role in not only rental demand and pricing (and by extension, vacancy rates and resident turnover) but in your long-term property values. An investor’s best bet for securing an income-generating rental property is to follow the demand.
So where are people going? Forbes spells it out in the aforementioned article. These are the top markets being searched by out-of-state buyers:
- El Paso, Texas
- Albuquerque, New Mexico
- Washington, D.C.
- Birmingham, Alabama
- Hartford, Connecticut
- Omaha, Nebraska
- McAllen, Texas
- New York City
- Augusta, Georgia
- Greensboro, North Carolina
By this list, we glean two truths: out-of-state buyers are most readily looking to buy in Sunbelt markets and southern markets – in both cases representing half of the entries on the list.
The reasons behind these trends are simple: Sunbelt and southern real estate markets are more affordable, less competitive, and increasingly desirable due to climate and overall quality of living.
#2) Value relative affordability.
Savvy investors understand that what is considered “affordable” is relative. There’s a reason we see most of our investors coming from outside of our markets – and even outside of the United States! Your local real estate market may not be the most affordable. In other markets, you can get more bang for your buck: more square footage, better property conditions, better upgrades, and better amenities in better locations.
A property that might be cheap by your standards may be average for its market context. Investing out-of-state allows you to capitalize on these differences.
#3) Anticipate long-term market stability.
Of course, successful buy-and-hold real estate isn’t all about what’s trending in the present. It has much more to do with what has staying power for the future. When we look at where buyers are headed and what they prioritize, we can get a sense for what people value.
Thankfully for us, what people value in where they live typically stays the same:
- Low/Reasonable Cost-of-Living
- Job Security & Opportunities
- Community Amenities & Growth Potential
When considering where to invest, we’ve got to look at all the market indicators – not just what’s “hot” right now. We’ve seen plenty of times how over-hyped markets can lead to big disappointments. Instead, investors do well to focus on the markets that have a track record characterized by consistency.
Look for population, property value, and household income growth over time. So many factors can influence a market and it’s easy to get overwhelmed. Just keep this in mind: the markets that perform best over time are not usually the markets with the most hype.
As a buy-and-hold investor, you’re looking for stability, not a rollercoaster. A steady climb is always preferable to wild highs and lows.
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