The US Housing Market Bubble is surging in September 2021. Home prices are at all-time highs relative to inflation. Year over year home price growth is also at all time highs. These realities are creating a massive Housing Bubble that could soon result in a Housing Crash.
But some cities in America will better withstand the crash than others. Not everywhere is in a Bubble. The markets that combine 1) Affordability, 2) Job Growth, and 3) High Cash Flows could be better suited to withstand the upcoming Housing Crash.
The Midwest and Southeast parts of the country have the most affordable home prices, with many metros having a typical home value of less than $200k according to Zillow’s Home Value Index. Prices are more closely aligned with wages in these markets, which means they are more tied to fundamentals.
But just because an area is affordable/cheap doesn’t mean a future home owner or real estate investor should buy there. Some markets are affordable for a reason – based on declining population, job losses, and high crime. Investors might not want to buy there as a result.
Using economic data from the Bureau of Labor Statistics can help provide insight into the markets that are affordable and still growing. Analyzing which metros still have positive job growth (aka economic expansion) from 2016-2021 can allow potential buyers to find the markets that offer the best combination of affordability and desirability.
The final piece to the puzzle is cash flow. Real estate and apartment investors often prioritize investing in markets that yield a profit/return right away. Targeting metros with high rental yields could be a good strategy for these investors.
Ultimately those looking to still buy during the massive 2021 Housing Bubble would be wise to consider markets that are off the beaten path. Finding a diamond in the rough could be the best way to protect against future price declines and find a market with good future growth potential!
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