Study: Which Property Type Has the Best Price Growth?

by | BiggerPockets.com

Part of the American dream is owning a home—and another part is establishing a business so you can be your own boss. Whether you’re fixing and flipping or buying and holding, you’ll want to understand price growth in any market where you’re investing so that you’ve got a good idea of how your asset is appreciating (or not).

HouseCanary examined the top 100 metropolitan statistical areas (MSAs) in the United States by population and looked at which ones had the highest year-over-year price growth for three property types: single-family homes, condos, and apartments. We found that all property types are seeing price increases in certain parts of the country, which also correlates with U.S. Census migration data.

Home is Where the Cash is

The single-family home (usually surrounded by a white picket fence) is the quintessential symbol of housing in America. It’s where you can raise your two-plus kids and give a dog space to run around the yard, and in some metro areas, single-family homes are a better investment than other types of property.

Most of the housing stock in the United States is represented by single-family homes. Generally speaking, home prices are growing faster in Florida and the West than they are in the Southeast and Northeast parts of the country.

Related: Study: The Impact of Tax Reform on Property Investors by County

Condo in the City

We see this pattern reflected in the best markets for condos, too. Condos are multifamily units that are available for individual sale and ownership. Unlike an apartment building, a condo building is managed by a homeowners’ association (HOA) and allows for individual ownership of units, while an apartment building is owned and managed by an individual or company and does not allow individuals to purchase units, instead renting them out either short-term or long-term.

Note: One MSA in the top 100 by population (Buffalo, New York) was excluded from our condo research because there weren’t enough condo properties to draw a year-over-year price growth conclusion.

Price growth for condos is generally higher across the board than price growth for single-family homes—but not everywhere. So although condos might seem like a less risky, more lucrative investment than single-family homes, it really depends on where you’re looking.

The Data in Apartment 13

Unlike condos, apartments cannot be purchased by individual buyers; instead, they are owned by a company or individual and rented out unit by unit, either to long-term renters or short-term occupants (like vacation rentals). But like condos, price growth has been higher for apartments than for single-family homes—and also like condos, if you don’t choose your investment market wisely, then you might end up buying an asset that decreases in price year-over-year instead of increases.

Conclusion

Condos and apartments tend to increase in price more than single-family homes in areas where the population is growing, but they’re not always a safe bet—condo and apartment prices can decline year-over-year in markets where population growth is slow or markets where more people are migrating out than are moving in.

Price growth is strongest in the West and in Florida, and less robust in the Southeast, while parts of the Northeast may require even more digging to find a good investment deal. Pay attention to where people are moving and try to secure investment properties in those markets if you’re hoping to make the most money from your real estate investment upon sale.

Read our full analysis at housecanary.com.

Methodology:

HouseCanary examined the top 100 MSAs in the United States by population for this research. We looked at year-over-year average price change at a block-group level (where distinct property type indices are available and maintained), then rolled all of the applicable blocks for each property type up to the MSA level, creating a weighted average of all block groups and their price changes to determine the year-over-year price change for single-family homes, condos, and apartments in the MSA.

Does this data surprise you? Why or why not?

Comment below!

About Author

Alex Villacorta

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, lenders, and more.

7 Comments

  1. David Krulac

    Nice article, Alex,
    Coincidentally I was on House Canary today looking up a specific property. The projected value of that house was higher than the Zillow value, so I’m ok with that.
    I’ve bought and sold over 900 properties (did Bigger Pockets Podcast # 82) and never owned a property with a white picket fence, guess I’m not quintessential?
    David Krulac

  2. Dan Heuschele

    Using the short-term past (1 year) to make broad statements on markets is risky. Maybe those markets already have achieved their gain while other markets have not yet achieved their gain. Maybe the market fell like a rock recently and is simply recovering.

    In addition some markets like Las Vegas are know for their booms and busts. In boom times their RE market can be very lucrative. In bust time,s such as the Great recession, their RE prices can fall like a rock.

    So I choose to look at the data as where I should have invested last year rather than real relevant to where I should invest today.

  3. Mark Stedman

    Just wanted to make one point : The Tampa-Clearwater area was one of the hardest hit locales from 2009-2013. Perhaps prices appear to be increasing faster is mostly due to the fact that it fell a lot further.
    An interesting piece of data would be to compare current growth of Florida real estate prices with 2005 prices, instead of just the last 3-5 years of recovery following that collapse.

  4. John Barnette

    Like the idea of the data analysis. However a couple of observations to share as a Realtor in SF for last 21 yrs. Houses tend to be slightly more stable in values from year to year and owners tend to stay in them longer. Thus flattens out the data if you will. Condo values tend to be much more variable. More high debt ratio financing with first time buyers, more 2nd homes, more constructed and bought in boom times and dumped in the downturns. Foreclosures higher on 2nd homes, high leverage financing, etc. The numbers in your analysis are for good years. I find the apartment investment analysis quite interesting. Did not expect numbers to be higher than SFR. I would say multifamily investment values are much more driven by the cash flow they produce. And also to a larger degree the market interest rates. Good work though. Interesting read.

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