Real Estate News & Commentary

Real Estate Markets 2018: the Biggest Losers and Winners

Expertise: Real Estate News & Commentary
5 Articles Written

As you consider another investment property in the market you know best (or in a new market) home-price growth is critical to making your ROI pencil. The last thing you want is to buy a property to fix and flip or buy and hold, only to discover that home-price growth is slowing, reducing your potential profit simply because you thought (or hoped) the future would be a reflection of the past.

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What if you could pinpoint not just last year’s growth in home prices, but predict the next 12 months, too?

Looking Ahead

We recently investigated the factors most likely to impact home prices in 2018, zeroing in on the effect on each of the 382 metropolitan statistical areas (MSAs) in the country. We looked at affordability, home sales, home price growth, mortgage rates, taxes, and less predictable geopolitical events, to determine which markets will see accelerated home-price growth and which markets will slow down.

Related: 2018 Best Commercial Real Estate Markets to Invest In: Part I

What we found is that many of the historically “hot” parts of the country are softening significantly — and the “less exciting” low-growth markets are seeing acceleration — all as buyers continue to look for affordability in 2018.

Related: 3 Reasons I’m Still a Buyer in Today’s Real Estate Market

Conclusions

Across the board, the gains markets make in 2018 will be less dramatic than in 2017. Investors will want to pay close attention to MSAs that are part of the biggest gainers group and MSAs in the biggest losers group — in order to be aware of tailwinds or headwinds, respectively — in their favorite markets.

Do you have any predictions backed by statistics you’d like to share?

Let us know in the comments below!

Alex Villacorta is the EVP of Analytics at HouseCanary, where he works to make real estate data and valuations more accessible to investors, home owners, lend...
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    Isaac Agbolosoo Rental Property Investor from Grosse ile, MI
    Replied over 2 years ago
    Detroit , will be a strong market
    Chris Ayers Rental Property Investor from Warrenton, VA
    Replied over 2 years ago
    Why do you think that and when? Still seems like it has a long way to go.
    Michael O. Rental Property Investor from Detroit, MI
    Replied over 2 years ago
    I agree with Isaac. Being in the market, there is a lot of growth going on here right now. Do a simple Google search to see all of the development already happening, or planned for the next 2-3 years. Multi-family occupancy rates above 95%, strong demand for more. The largest roadblocks right now are mass-transit & education, though. If those get fixed, I expect the market to explode even more than it is. Should be fun to watch!
    John Fortes Multi-Family Syndicator from Brockton, MA
    Replied over 2 years ago
    The ppl need answers!
    Alex Villacorta from Boulder, Colorado
    Replied over 2 years ago
    Indeed, and in fact, Detroit already is a strong market. Consider this: the Detroit MSA declined a whopping 40 percentage points from peak to trough of the housing crisis in 2011, leading to considerable distressed inventory along with migration out of the city. Since that time, however, the market has come back in a big way, with prices increasing an eye-popping 78% (8.6% CAGR), putting it only 1.5% below the prior peak in 2005. Our models suggest this pattern will continue for the next 3 years.
    Winston Alejo from Germantown, Maryland
    Replied over 2 years ago
    So you see the Scranton area as the biggest gainer?
    Alex Villacorta from Boulder, Colorado
    Replied over 2 years ago
    We expect Scranton’s home value growth rate to increase by 27 percentage points in 2018. This level of growth is especially noteworthy given the slowed growth that’s evident elsewhere, but we’re also aware that gains are always relative to investment. Yet, our tracking has shown that when we see growth spurts like this, it usually leads to a period of sustained upwards growth.
    Chester Lee from Richmond, California
    Replied over 2 years ago
    Isaac, why Detroit? I’m not disagreeing. I just want to hear your rationale and reasoning.
    Harry Hertz from Lakewood, New Jersey
    Replied over 2 years ago
    What about SFH that you want to purchase to keep as a rental property? Any information if there will be a soft spot in 2018? Thanks for the article.
    Alex Villacorta from Boulder, Colorado
    Replied over 2 years ago
    Keeping a home as a rental property involves other metrics that I’m sure you’re already considering, like state and local tax rates, fair-market rent, the costs of maintaining a rental property, and other factors. SFHs, in particular, have seen rapid growth as an investment (rental) asset due in large part to the declines in homeownership rate and a demographic shift in the desire to own vs. rent. As such, rent and home prices are growing in most of the country, but as this analysis shows, that growth rate is varying and slowing significantly in some of the more traditionally “hot” markets, so it’s probably worth looking at areas with lower home prices that are growing more quickly as a single-family rental investor. (HouseCanary releases a rental investment index every quarter if you’d like to see our most recent analysis: https://www.housecanary.com/rental-yield-investment-index)
    Paul Merriwether Investor from Oakland, California
    Replied over 2 years ago
    What matters is can you afford to participate in a particular market. The Bay Area was 89, -39%. However which would you prefer 5.8% growth or 3.4% which was Scranton ranked #1 ??? Lets put it another way 5.8% on avg Bay Area home of $500,000 vs Scranton $110,000 at 3.4% !!!! If you can afford to invest in the Bay Area .. do so!!! If you can’t … Scranton, could be right for you. Just be sure you can sell when you need too.
    Deither A.
    Replied over 2 years ago
    “The last thing you want is to buy a property to fix and flip or buy and hold, only to discover that home-price growth is slowing, reducing your potential profit” – Good God. Did you people learn nothing from 2007? You don’t always make a profit. You get foreclosed on and lose what you made earlier because you are too greedy and stupid to get out when the getting’s good.
    Jessie Silva New to Real Estate from Miami, FL
    Replied over 2 years ago
    Correct me if I am wrong, but it seems that this post is judging markets and basing them primarily on which markets are appreciating the best? If so, this is a VERY wrong approach to take. Markets are based across a WIDE range of fundamentals; geopolitical, demographics, micro-economics, affordability, RE activity, and so many more factors, etc, etc. I don’t understand why this post is judging markets primarly on “appreciation”. Then again I might be mis-understanding something here. If so, I apologize in advance if that’s the case.
    Douglas Larson Rental Property Investor from Salt Lake City, UT
    Replied over 2 years ago
    You nailed it Jessie. Not only is it based on “appreciation” but it’s the projected difference between last year’s appreciation and what is predicted (guessed) for 2018. Ludicrous! I’ll keep finding ways to invest in my Salt lake City market, that went up about 10% last year and probably will again this year, rather than hope for the best-case-scenario that Scranton, PA might see 3.4% price growth. It was under 2% last year. Pitiful! A projected increase of 27% is meaningless if that appreciation is still below projected national inflation, and well below what you’d pay in commissions on a sale. Lame.
    Jeff S Brent
    Replied over 2 years ago
    It would be nice to read that last graph. That print is ridiculously tiny along the bottom.
    Alex Villacorta from Boulder, Colorado
    Replied over 2 years ago
    Here’s a link to a zoomable version: https://media.graphcms.com/HnQB512aSlGLnag0cJJV
    Nicole Martineau
    Replied over 2 years ago
    Troy – how do you successfully invest in another state from where you live? I live in new York city and totally agree with your post. Just not sure how to do it from afar. Any advice, greatly appreciated.
    Jim Watson Rental Property Investor from Davis, CA
    Replied over 2 years ago
    Make connections ideally with someone you know personally. I live in Sac (CA) area. We have a RE investor friend (ex Sac) in IN who’s shopping for us and will manage the purchase. Also make connections with good brokers. Qualify yourself as a buyer and keep checking in with them.
    Katie Rogers from Santa Barbara, California
    Replied over 2 years ago
    I cannot read the last chart. Is there a link to a larger version?
    Alex Villacorta from Boulder, Colorado
    Replied over 2 years ago
    Here you go: https://media.graphcms.com/HnQB512aSlGLnag0cJJV
    Andrew Herrig Rental Property Investor from Dallas, TX
    Replied over 2 years ago
    I find this to be a fairly misleading statistic. All things being equal, I’d rather be in a market appreciating 8% a year than 3% a year. Sure maybe the 8% market is appreciating 2% less than the year before, but I don’t see how that makes it a worse place to invest than a market that appreciated 2% last year and 3% this year.
    Raymond Jensen from South Bend, Indiana
    Replied over 2 years ago
    Could you make the font bigger on the bottom graph? I can’t read the city names. Thanks
    Raymond Jensen from South Bend, Indiana
    Replied over 2 years ago
    Never mind, I see the link now
    Michael V Akbar from Alexandria, Virginia
    Replied over 2 years ago
    Folks I am a newbie and don’t seem to be getting some of this. If in addition to cash flow one’s intention is long-term hold why would I want to invest in a rapidly appreciating market? Wouldn’t make sense to invest in slower markets that have potential for appreciation for the time I am selling? Advice on any additional source of education is highly appreciated. Thanks.
    John Murray from Portland, Oregon
    Replied over 2 years ago
    The change in growth rates are very interesting. The new Fed tax reform will have a significant impact on the SALT states as well as some states without state income tax. Tax payers that have vacation homes, high state income taxes and high property taxes may have to rethink their tax strategy. I live in Portland Oregon and will begin to liquidate my SF Home rental inventory. One property per year and keep my tax bracket low to pay a minimum of capital gains. Great article!