Leading up to the Great Recession, the housing market was fueled by lax lenders who wrote mortgages to practically anyone who could fog a mirror. When the market bubble burst, people who bought during the run-up in house prices had little or no equity to fall back on, so they had little choice but to sell for less than they paid – or owed – or hand their homes back to their banks.
These days, the market is going nutsoid once again. Prices are rising at a record pace. Mortgage rates, though starting to rise a bit, are still around 3%. Inventories are at record lows, and people are falling over themselves to get one, bidding against each other for properties the instant they’re listed, sometimes sight unseen.
But there are two key differences between then and now; for one, lenders have wisened up and tightened their standards. For another, all but the most recent buyers have built up enough equity in their houses to weather almost any economic downturn.
So, while we may not be looking at a national housing bubble, there could be some local ones. Consequently, anyone in the market now has to choose where to buy – and perhaps more importantly, where not to buy — more carefully.
Cities Safe(r) to Buy Right Now
While it seems no locale has been spared from the extreme sellers market conditions, there are a few cities to buy in that multiple analyses have deemed safer bets if you’re looking to move:
- Cleveland, OH
- Toledo, OH
- Detroit, MI
- Virginia Beach, VA
In Forbes’ recent analysis of the nation’s most affordable cities, which looked at such key factors as the region’s median income, average home costs, state income taxes, annual food costs and utility expenses, the financial advice site crowned Detroit No. 1, followed by Cleveland and Toledo.
Money Crashers, a financial education site, considered other affordability factors such as local employment, average time houses are on the market, actual selling price compared to listing price and changes in median prices over multiple time frames. In this study, Cleveland came out on top, again followed by Toledo.
While Detroit didn’t make the cut with Money Crashers, the Detroit suburb of Wayne County did find itself on ATTOM Data Solutions’ list for affordable homeownership. Among the 42 counties in the report with a population of at least 1 million, those where homeownership typically consumed less than 28% of average local wages in the first quarter of 2021 included Wayne County.
“The past year certainly has been an odd one for the (national) housing market,” Todd Teta, ATTOM’s chief product officer, commented. “Home prices surged at a remarkable pace even as the virus pandemic damaged the economy, which dropped historical affordability levels. But average workers untarnished by the pandemic were still able to afford the typical home because wages and rock-bottom interest rates worked to their favor in a big way.”
Virginia Beach not only landed a Top 10 spot on Money Crasher’s list, it also took honors with LendingTree’s recent analysis of market competition. According to their analysis, the Virginia Beach market is one where you’ll likely face less stiff competition. (Don’t kid yourself — you’ll still likely find yourself in a face-off with other would-be buyers but, according to LendingTree, you’ll at least you’ll have a fighting chance!)
Cities to Watch Out For
Looking at the flip side, some cities just can’t seem to catch a break from extreme price and inventory conditions. Cities like Los Angeles, San Francisco, and New York City tend to be extreme outliers even in “normal” (i.e., non-pandemic years). But what about other cities to buy in? Here are just a few you might find that to be a struggle in right now:
- Phoenix, AZ
- San Diego, CA
- San Jose, CA
- Raleigh, NC
The Phoenix and San Diego areas were highlighted in ATTOM’s report as two of “the most populous of the 225 counties where major expenses on median-priced homes were unaffordable for average local earners in the first quarter of 2021.”
However, another study by Veros is predicting the Phoenix metro area to experience double-digit price increases of 13.2% through Q1 of 2022, while San Diego’s projected to experience 11.6%. So, if you’re a buyer or investor who can stomach the high prices in those areas right now, you may just find yourself riding the wave of a home value increase simply by turning the key.
San Jose actually tops LendingTree’s list of most competitive markets, citing high percentages of both down payments and credit scores of buyers, while ATTOM’s report noted that surrounding Santa Clara County is among the areas where the “highest annual wages [are] required to afford the typical home.”
Raleigh, comparatively, is actually still a decent value-for-the-money market — but according to LendingTree, it’s the third most competitive market in the country, even outranking Los Angeles, Boston and New York.
The Bottom Line
You’ve heard it before, but it bears repeating because perhaps now, more than ever, real estate is a local enterprise when searching for cities to buy in. Current market conditions can vary from street to street, neighborhood to neighborhood, and can often change drastically with little notice. If you’re a buyer in the current market, it’s a jungle out there — don’t go it alone. Utilize the knowledge and expertise of a real estate agent who knows how to navigate it, and can be your advocate.
Above all, stay vigilant and patient!