What Are The Strongest Property Markets In 2021 And Beyond?

What Are The Strongest Property Markets In 2021 And Beyond?

Although there are always risks in buying real estate, several property markets exist that may provide amazing investment potential. Where are the strongest property markets to start investing in property?

The mainstream media and the real estate industry tend to focus on strong demand, increasing job growth, and weak inventory as drivers for higher property prices in 2021 and beyond.

In key areas, real estate crowdfunding can help provide a huge opportunity for investors.

Strongest Property Markets

Where are the strongest property markets to start investing in property?

According to Trulia, the top 5 strongest property markets are:

  • Colorado Springs, CO
  • Grand Rapids, MI
  • Jacksonville, FL
  • Bakersfield, CA
  • Austin, TX

What has made these the strongest property markets? Four key areas account for these cities being top choices for property investors.

  • Employment economy over the past several years (aka: Job growth)
  • The relative share of the population that is young (early 30s)
  • Housing supply that does not exceed demand, including the relationship between families moving into, rather than out of, the area
  • The affordability cost of homes for first-time buyers

However, smart investors carefully navigate the waters of real estate. Though there are areas in the United States that are potentially lucrative, risks still present themselves.

Here are some other best cities to buy real estate in the new decade based on taxes and migration trends.

Signs To Look For Before Investing In Real Estate

Here are some signs to look for before investing in real estate.

1) Don't turn your back on weakening rent prices. In general, real state buyers should aim to buy at significant discounts from peak rental periods.

A comparable New York property, for example, that you want to buy today that was sold in March 2016 could be had at a 14.8% discount to the March 2016 price – because that’s how much rent prices are down.

Not all cities offer cheap entrances into the real estate market, either. In fact, several areas of the country remain extremely competitive and expensive for many real estate investors.

Cities with the highest rents in America

2) The typical cost of a mortgage is back down to ALL-TIME lows. 

The 4Q2018 stock crack helped to smooth out the unevenness, then the March 2020 crash caused rates to go even lower.

A couple years ago, I refinanced my mortgage and locked in a 5/1 Jumbo ARM at 2.5%. This same mortgage is now 3.5% based on the latest rates. Today, my monthly payment would go up from $3,951 to $4,535 – a 14.8% increase.

This represents a 14.8% increase, which is significant because the average income only increases by ~2% a year.

While 3.5% is still relatively low for a 5/1 ARM, everything is relative, especially since property prices in some cities have risen by double digits since 2012. If the average interest rate for the 5/1 ARM were to rise to recession levels, a $1,000,000 mortgage payment would go to $6,321, a whopping 60% increase.

Check the latest mortgage rates online through Credible. They’ve got one of the largest networks of lenders that compete for your business.

Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible from them or your existing bank. Credible allows you to compare multiple real quotes, all in one place for free. When banks compete, you win. 

Mortgage Rates Are At All-Time Lows

3) Many cities are seeing skyrocketing prices. It's true that each and every city is different (especially Colorado Springs and Grand Rapids!), if you look at the prices in cities like Dallas or Chicago, you find that the prices are roughly 45% higher than they were in 2006-2007. Hot cities like Seattle and Portland are only about 20% above previous peaks.

San Francisco Median Home Price Appreciation

4) Home inventory is increasing, but prices are fairly stagnant. The noticeable construction boom over the past several years is finally showing up in the data as a wave of new inventory hits the market. When there’s more inventory, pricing comes under pressure.

Average monthly supply of US housing chart

Although inventory is still historically low, it’s important to realize the inflection point we’ve experienced in mid-2018. In just several months, the amount of inventory is back to where it was at the end of 2012. If the trend continues, we could quickly get back to 2008-2010 levels. Also, remember that higher inventory also leads to flattening or lower rent prices.

5) We may not know when a peak has arrived. The 1996 housing boom ended in March 2006. Did you know that (at the time)?

Probably not.

It wasn’t until the beginning of 2008 that people started to accept that the housing market had already peaked.

Until 2008, property investors were still clinging to hope or at least were in denial that prices would no longer be going up.

Once Bear Sterns was sold for nothing to JP Morgan in March 2008, people started to panic.

Then Lehman Brothers went under on September 15, 2008, a full two and a half years after the housing market peaked. And things got even worse, with the S&P 500 finally bottoming out on March 9, 2009.

Do the strongest property markets make real estate a smart investment?

Although these 5 housing markets are hot, real estate is ultimately very local.

If you look at individual markets, you may see cracks in the foundation. The best markets, though, have something remarkable in common. 

Look to the heartland, where valuations are much cheaper and net rental yields are much higher.

The strongest property markets are great, but ultimately keep your head level.

If your goal is to purchase a primary residence this year, ensure first that you can ensure a double-digit stock market correction in the next five or so years.

If you don’t have a financial buffer equal to at least 10% of the value of your property after putting down 20%+, then you are not financially prepared for a downturn. Better yet, pay cash.

Debt is what will kill your returns over time. Too much debt puts you in a position of weakness. You could borrow from your 401(k) or IRA to buy a home, but it's not a wise move. Don't let your drive to buy property cloud your perception of reality.

Buy a house to enjoy life instead of looking to make a profit. I doubt we’ll have a correction as violent as the last one given lending standards became far tighter after the housing crisis.

But, nobody really knows. That's all a part of smart investments.

The stock market is a forward-looking indicator that is showing strains ahead. Here’s a better property investment alternative.

Explore Real Estate Crowdsourcing Opportunities

Explore real estate crowdsourcing opportunities: If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, don’t want to tie up your liquidity in physical real estate, and are looking for real estate diversity, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Crowdsourcing with real estate offers a lot more flexibility with your investments beyond just where you live for the best returns.

For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.

Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.

Fundrise Due Diligence Funnel