5 markets for real estate investors

Cheap homes aren't always best indicator

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 8, 2011

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Cheap homes aren't always best indicator

Steve Bergsman
Inman News™

I live in the surprisingly large suburban city of Mesa, Ariz., ranked No. 38 nationally by population. My house sits about 20 miles from downtown Phoenix (No. 6 in population), so I keep a close eye on the local economy and housing market, all of which have been absolutely miserable since the start of the recession about four years ago.

Indeed, the Phoenix metro is considered one of the great bust-ups of this downturn, along with some metros in Southern California, Las Vegas and Florida. Nevertheless, when considering the top five investor markets in the country, I would put the Phoenix metro at the top of the list for a couple of reasons.

First, because everything is cheap.

As a top-10 foreclosure market, the abundance of bank-owned properties coming back into the market has put extreme pressure on pricing. In February, the median price for homes sold in Maricopa County (home to Phoenix, Mesa, Scottsdale, Tempe, etc.) was $127,500, down dramatically from $140,000 in February of the prior year. However, it was slightly more than in January, which hopefully means the Phoenix housing market is stabilizing.

Cheap homes don't always make good investor markets, as some cities -- such as Orlando, Fla., where prices are also cheap -- by some predictions, won't see pre-crash pricing for another 30 years.

Arizona is still an in-migration state, and most people who come here move to the Phoenix metro. Growth cities generally experience decades-long cycles of real estate boom and bust, which is certainly the history of Phoenix. The metro, called the Valley of Sun, has been in a bust for a while, but it could spring back to a boom.

The unemployment rate is improving, retail sales are up, and the economy shows signs of stabilization. Large-scale investors and Canadians have been bullish on the Valley of the Sun, buying up almost anything with a "Foreclosed" sign.

10 Best Markets for Investors

Another busted market that I have faith in is Riverside, Calif. (No. 61), which is often tag-teamed with San Bernardino in an area known as the Inland Empire. Frankly, I wouldn't call this the prettiest part of Southern California, caught between the eastern edge of the Los Angeles metro and the desert, but this is a place where people work for a living.

What makes Riverside-San Bernardino cook is that it is the distribution center for much of the goods that come into the port of Los Angeles-Long Beach, which sees a large share of goods imported from Asia. This is a business that is not going to go away anytime too soon.

The trend line for Riverside-San Bernardino looked a lot like Phoenix, with a complete bust during the recession: a huge amount of foreclosures and a deep dive in housing prices (dropped 50 percent since 2006). The good news is housing construction came to a complete halt, which should help the old inventory get absorbed. Some Southern California forecasters suggest home prices may rise this year.

The bad news for the Inland Empire has been a very harsh unemployment rate that earlier this year was almost 15 percent. That should drop about 3 percentage points in 2011, reports the Los Angeles Times, although the newspaper also points out that the unemployment rate won't drop below 10 percent until 2014.

Sticking with my theme of finding cool investment opportunities in sun-drenched lands, I'll switch coasts. Florida has been the epicenter of the housing bust, condominium overbuilding and bad condo conversions, so it's easy to find cheap housing almost anywhere in the state. The trick has been to spot the markets that will come back quickest.

I have not been a fan of the state, as I think it has numerous other problems besides a deflated housing market, including increasing taxes, high property insurance, and more competition than ever for retirees.

In all the weeds, some flowers are still growing, and if I had to choose my Florida market, I would opt for the Tampa Bay (No. 55) metro -- and not just because it has decent sports teams.

In March, existing-home sales skyrocketed, up 32 percent -- levels not seen in five years, reports the St. Petersburg Times. While residential sale prices fell by 16 percent from March 2010 to March 2011, on a month-to-month basis median prices climbed -- for the first time in 10 months -- according to the Pinellas Realtor Organization.

Retail sales have improved as well, with strong gains at the start of the year.

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