Most Expensive U.S. Markets Have Appreciated 2x as Fast as Least Expensive in Past 30 Years

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Online Real Estate Transaction Startup Reaches $1 Billion Valuation

Led by mutual fund operator Wellington Management Co. along with venture capital firms Institutional Venture Partners and Thrive Capital, real estate startup Compass Inc. has raised about $75 million in new financing, which values the company at a whopping $1 billion.

Compass, which is based in New York, plans to increase transparency in real estate transactions and to make them more convenient via online services. It currently has 24 offices within the U.S. and plans to open more.

The company aims to use its new funds to ramp up its technology for analyzing real estate markets. It has passed $100 million in revenue so far this year and plans to triple its 2015 revenue by 2016’s end. Compass makes money by taking a percentage of proceeds when people buy, sell, and rent properties on the site. It sees about $7 billion in transactions run through the site annually.

Most Expensive Markets in U.S. Have Appreciated Twice as Fast as Least Expensive in Past 30 Years

Inequality amongst real estate markets is only widening, according to a recent report by Trulia, as reported by CNN Money. Per the study, the country’s most expensive markets have appreciated much more dramatically and much more quickly — at an average of two times as fast — than the least expensive areas in the past 30 years.

The report cites the following stats:

The average home price in the nation’s most expensive markets was $127,058 in 1986 — 144% higher than the average price of $52,022 in the least expensive markets.
The average home price in the nation’s most expensive markets is now $493,504 in 2016 — almost 320% higher than the average price of $117,827 in the least expensive markets.

The main factors that drove the discrepancy are thought to be income growth and housing supply.

Said Ralph McLaughlin, Trulia’s chief economist about the gap, “If there are going to be changes to inequality, we are talking generations rather than decades.”

Per the study, “There have only been four changes to the list of the 20 most expensive during the past 30 years: Portland, Oregon; Seattle, Denver and Washington, D.C. They replaced Dallas; Hartford, Connecticut; Worcester, Massachusetts and Riverside, California.”

The 10 markets that have enjoyed the largest returns on home values in the past 30 years include:

San Francisco
San Jose, CA
Honolulu, HI
Seattle
Portland, OR
Oakland, CA
Orange County, CA
Los Angeles
San Diego
Miami

Chinese Investment in U.S. Real Estate Continues to Ramp Up

The past three years have seen an uptick in Chinese investors pouring money into high profile U.S. real estate ventures. Seeking to diversify outside of their country, these investors are continuing to fund commercial property at an unprecedented rate.

Chinese investment increased 19% year over year in the first half of 2016 to $5 billion, and they have committed $12.9 billion including under contract deals this year — which nearly matches the total of $14 billion invested in all of 2015. For reference, back in 2014, Chinese investors poured in just $3.4 billion.

“The vast majority are looking for development opportunities,” said Stephen Collins, who oversees a global capital markets group at real-estate investment-services company JLL. Many of these opportunities include high-profile, often flashy developments in U.S. hotspots like New York City, San Francisco, and Los Angeles. They believe they can make more money building new rather than putting funds into existing buildings.

What will the rest of the year bring? Experts don’t see this trend slowing down any time soon — more likely, foreign investment is predicted to ramp up in 2017.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.