Housing prices have been surging across the nation, rising 10.2% from October 2019 to October 2020. While most areas of the United States are seeing positive growth both year over year and month over month, not all areas have seen quite as dramatic an increase. The biggest leaps seem to be occurring towards the interior of the country rather than the coastal metropolitan areas that have been so popular the past few decades.
Boise City, Idaho, saw the highest year-over-year change with a mind-blowing 16.4% increase in home sale prices. Compare this to many metropolitan areas in Louisiana, Texas, and California, which have only gained 2%-5% over the same time frame, and it’s clear there’s an inward trend. But what does it mean for investors? Here’s what you need to know.
Is this a trend for investors to follow?
One of the advantages of being a real estate investor means having the wherewithal to look for value where others are not. Finding the up-and-coming neighborhood or market before most people catch on will lead to higher chances of profitability as opposed to competing with an influx of buyers in an already hot market. Coastal areas are most frequently home to the largest cities in the United States. Los Angeles, New York City, Miami, San Francisco, and more all reside on or near the shoreline.
Coronavirus pressures are pushing people out of the cities looking for more cost-effective and spacious areas to call home, but this trend may not be as short lived as some believe. Global warming and concerns over rising seas have put coastal cities in threat for decades. The sea surrounding Florida is expected to increase six inches in the next 15 years, which would be devastating to certain real estate markets. Buying real estate now could pay off big, not just in the short term but also in the long run as environmental threats continue to push people inward.
Potential risks of following the trend
The biggest risk facing investors who are following migration trends for their real estate ventures in 2021 and beyond is if the fad doesn’t stick. Mid-American cities are historically less populated areas with slower inward migration trends than coastal cities. If investors flock inward and residents return home shortly after the coronavirus pandemic goes away, investors may be left with real estate but no demand.
Right now, there is no way to know if this is the new norm or if things will slowly transition back to face-to-face business and in-office employees. Luckily, real estate in mid-American cities are often cheaper than high-density coastal cities, meaning investors can get more real estate for their dollar. But if this demand continues, some of these affordable areas of the United States will eventually become not so affordable anymore. As an investor, caution should be used when investing in hot markets unless the fundamentals are solid and the return on investment warrants the potential risk.