The Best Cities To Buy A Home Right Now
Buying a home is not a decision to be taken lightly. Personal finance gurus warn against purchasing unless you plan to keep it for a minimum of five years and, since the housing bubble burst, many say it’s best to buy only if it fits your lifestyle – not your investing portfolio.
For first-time home buyers shopping for a permanent, full-time residence, it’s advice to heed. But say you do simply want a place to park some of your hard-earned money, perhaps a fixer-upper you could occupy for a few years or maybe a house you believe you could rent out right away and easily oversee?
You wouldn’t be alone: investment-homes sales jumped 64.5% from 2010 to 2011, with investors making up 27% of all single-family, condo and co-op purchases last year, according to the National Association of Realtors. And it’s no wonder why. Home affordability is at the highest level ever in the 42 years that NAR has been tracking it. Nationally, home prices are down more than 30% from their 2006 peak. Mortgage rates hover near all-time lows, with 30-year fixed loans just under 4%. And while the 10-year Treasury note yields around 2% and a 1-year CD an even stingier 1% or less, housing investments, specifically homes purchased as rental properties, return a 6.3% yield on average, according to Goldman Sachs.
So you have cash or financing to make a purchase, you’re aware of the responsibilities that come with homeownership, and despite the woes continuing to hinder a full-on housing market recovery, you believe in brick and mortar investments. Now comes the tricky part: where to buy that house.
“A lot of what we read is national but you have to take housing down to the local level and look at the reasons why a market may be turning around, may be a good place to buy,” says Steve Berkowitz, chief executive of Realtor.com, a Campbell, Calif.-based home listing site.
To determine the best places to invest in a real estate purchase now, Realtor.com created a list which sorted through February housing and jobs data for 146 Metropolitan Areas and Metropolitan Divisions (cities and their neighboring suburbs) across the U.S. The company, which boasts millions of home listings filtered from over 900 Multiple Listing Services, looked at listing price data, sales data and inventory trends such as the amount of homes available in each market and number of days on market. Realtor.com also utilized the peak-to-trough home price index from Fiserv Case-Shiller, which tracks how much home prices have fallen in the past five years and can serve as an indicator of whether they have bottomed. Lastly, unemployment rates from the Bureau of Labor Statistics were factored into the rankings, since jobs (or lack thereof) are a leading indicator of housing demand.
If you want to buy low, foreclosure-riddled Tucson, Ariz., may be just the place. It ranks No. 1 on this list.
Home prices in the Old Pueblo are down more than 45% from their peak, according to the Fiserv Case-Shiller index and the February median list price for a home headed to market was $170,000, about 3% higher than it was this time last year, according to Realtor.com. The number of REOs (bank-owned homes) for sale is down 8% from February of 2011 and the number of foreclosures scheduled for sale has dropped 40%. Sales have also picked up, decreasing inventory levels. Single-family houses and condos are selling 12% faster than they were a year ago, averaging 86 days on the market (the national average is 111). The Tucson Association of Realtors reports that the total number of sales were up 16% in February from the same month a year ago.
“In the case of Tucson, you are looking at foreclosures dropping back quite a bit coupled with a stable employment market,” says Berkowitz. The area has a 7.8% unemployment rate, a tad lower than the national average of 8.2%, helped by the presence of sizable employers in the recession-resistant education and government sectors, including the University of Arizona, Davis-Monthan Air Force Base and the U.S. Army Intelligence Center. All of this suggests Tucson’s housing market may be bottoming.
In San Jose, Calif., you won’t find bargain-basement prices to rival Tucson’s, but it still takes seventh place on our list. The capital of Silicon Valley continues to reap the rewards of the tech boom. Thanks to startup entrepreneurs and job-seeking techies flocking there, housing inventory is 34% lower year-over-year and prices are pushing up. Listing and rental prices have appreciated 8% and 12% respectively, since this time last year.
“San Jose is interesting because you have the IPO market,” notes Berkowitz. Indeed, many local realtors are anticipating a deluge of Facebook IPO millionaires-turned-prospective buyers in the high-end real estate market in coming months.
Austin, Texas, another burgeoning tech town, landed number two on this list. The potential for home value appreciation in the “Silicon Hills” is one of the best in the country, according to Realtor.com. Homes in Austin are selling 20% faster than this time last year, averaging 77 days on the market. Inventory levels are 19% lower than last February and list prices have jumped up 12% in response.
Washington, D.C. has enjoyed a relatively robust housing market thanks to its insulated government-driven economy – but it doesn’t make this list. Nearby Baltimore (No. 4) is the city where a buyer looking to plunk money into an investment home should shop. “Baltimore would probably be a push-out from Washington. Washington has become so expensive that this is almost a move out from the city to the suburbs and beyond,” says Berkowitz.
Baltimore’s housing inventory is 26% lower than last year and those properties gracing the MLS are finding owners 4% faster. Prices, which had dropped 22% from their peak, continue to flat line and in some neighborhoods drop. But it hasn’t stopped sales. Pending home sales jumped 16% from February 2011 to February 2012 and existing-home sales rose 7%, according to the Metropolitan Regional Information Systems (MRIS).
Brennan, Morgan, Forbes Staff