The US housing market is facing an affordability crisis. A combination of high home prices, rising mortgage rates, and low spending power has pushed housing affordability to its lowest level in decades. As such, it is difficult for investors and home buyers alike to identify cities where they can buy property.
But, there are still great opportunities to buy real estate even on a budget. I’ve done the research and identified eight of the most affordable markets for real estate investors. Below, I’ll explain how we got to where we are today, my criteria for choosing these markets, and then give you some data about the cities. Check out the list below and determine whether any of these cities suit your investment goals.
how did we get here
At this point, everyone knows what happened to the housing market since the beginning of 2020: It went way up. Driven by strong demographic demand, remote working, extremely low interest rates and many other factors, the housing market went on an incredible run of appreciation from early 2020 to mid-2022.
Since the summer of 2022, prices have started to decline as mortgage rates have increased, but the appreciation we have seen is still staggering. Nationally, prices increased by 31% from December 2019 to December 2022. In some markets, prices have gone up even further. Austin, Texas, for example, is up 43% over that time frame, despite seeing prices decline in the second half of 2022.
The reason why prices are likely to start falling in mid-2022 is because of affordability. Despite rapidly rising prices, affordability in the housing market was still strong for years due to low mortgage rates. But of course, when rates started going up, the reality started to set in. The combination of high rates and extremely high home prices reduced affordability to its lowest point in decades. below you can see how dramatically US Fixed Housing Affordability Index denied.
Of course, the story of how we got here and the data I showed is national. In reality, the housing market is very regional, and there are still relatively affordable places to buy real estate in 2023.
procedure
I selected four criteria to help investors understand where they can make affordable investments with good long-term return potential. The city had to meet my definition of affordable and pass some basic test of “investment suitability”.
- The median home price for the entire city must be less than the median home price for the entire United States (which is approximately $400,000 at the time of writing this article).
- The city needs to be large enough to have good economic prospects and reliable statistics. I drew from a pool of the 100 largest US cities
- According to the US Census, the city is expected to increase in population from 2021 to 2022. While there are many macroeconomic variables you’ll want to look at when selecting a market, population growth is perhaps the most important. Hint: Lots of them are in Florida.
- The rent-to-value ratio (RTP) of the city should be above .6%. RTP is a good proxy for cash flow, and although you want to find a deal with an RTP of .75% or higher, if the city average is .6%, that usually means you’re cashing solidly. can find deals. When I was doing this analysis, I found that all cities with a higher RTP than the cities on my list were declining in population.
Taken together, this is a list of major metro areas where home prices are lower than the national average, the population is growing, and there is a good opportunity for cash flow. Of course, I could consider many other criteria for selecting these markets, but this list is simple, easy to understand, and provides a good sense of direction. If you are seriously considering investing in any of these markets, you should exercise greater caution and understand the market in much greater depth than this analysis will allow.
Market
Below you will find a list of the eight most affordable markets for real estate investors for 2023. This list. For example, the cheapest market, Oklahoma City, has a median home value of about $165,000, which is almost half the price point of Tampa, the most expensive market on this list.
I’ve provided some additional data here for you to review: year-over-year sales prices, median rents, and rent increases, as well as population growth.
final thoughts
Again, if you are considering investing in any of these markets, you need to exercise extreme caution. You should learn more about the economic condition, regulatory climate, and demographics of the area, just to name a few key topics. You need to find a good deal too! Within each of these cities, there will be deals with good returns and deals with poor returns. It’s your job to find the good people.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
