The 6 Safe Markets to Invest in Today ?

[wallacehobbs]

I just read this report from Kiplinger that list the 6 "Safe Havens" to invest
in as well as the worst.

Do you feel it is correct?

Your thoughts on it?

With foreclosures skyrocketing and home prices plummeting, real estate has had a tough year. But in certain pockets across the country the damage has been minimal -- if nonexistent.

We found six cities with slow, steady growth, using data from Fiserv Lending Solutions, a home-price research company. These cities' local economies have kept unemployment and foreclosure rates below average. Plus, their affordability index -- a measure of home prices versus family income is low.

We also pinpoint an average market and the worst market in the country.

Safe Havens

Lancaster, Penn.
Population: 498,465
Median home price: $206,000
12-month change in home value: +1.6%
Affordability index: 3/10
Homes sold this year: 1,166
Home value vs. national average: Same
Top employer: R.R. Donnelly & Sons publishing company

Known as an Amish cultural hub, the city is also home to a diverse group of industries, including printing and food processing. This helps keep the local market stable and unemployment low, as losses in one sector aren't devastating to the overall economy.

Locals say Lancaster is a conservative lending market, which limits foreclosures.

Clarksville, Tenn.
Population: 265,062
Median home price: $130,000
12-month change in home value: +1.4%
Affordability index: 3/10
Homes sold this year: 2,081
Home value vs. national average: -37%
Top employer: Trane Corporation

Clarksville offers an affordable alternative to nearby Nashville but is close enough that residents can enjoy the larger city's attractions.

The housing market is kept active by Clarksville's proximity to Fort Campbell. Traditionally a manufacturing town, the city also offers a robust retail economy, driven in part by Austin Peay State University.

Albuquerque, N.M.
Population: 832,774
Median home price: $172,000
12-month change in home value: +1%
Affordability index: 3/10
Homes sold this year: 7,100
Home value vs. national average: -17%
Top employer: Intel

While other midsize cities have fallen prey to rampant speculation, Albuquerque has hovered below the national real estate radar and largely avoided the subprime mortgage debacle. An influx of tech companies such as Eclipse Aviation, Hewlett Packard and Intel has helped fuel this Southwestern city's economy and attracted a young creative class.

Active retirees and immigrants have also migrated to the area, ensuring a well-rounded housing market. Experts project 9% population growth between 2006 and 2011, compared to 6% nationally.

Burlington, VT
Population: 145,360
Median home price: $250,000
12-month change in home value: +1%
Affordability index: 4/10
Homes sold this year: 592
Home value vs. national average: +21%
Top employer: IBM

On the shores of Lake Champlain, Vermont's largest city focuses on retaining its high standard of living rather than growing its population. Strict zoning standards make homebuilding difficult and discourage speculators.

Burlington's small-town mentality ensures that home lenders maintain personal relationships with their clients and help them stay within their spending means. Technology, health care, and education drive the local market.

Pittsburgh, Penn.
Population: 2,355,712
Median home price: $137,000
12-month change in home value: +.1%
Affordability index: 2/10
Homes sold this year: 7,634
Home value vs. national average: -33%
Top employer: University of Pittsburgh Medical Center

Although Pittsburgh home sales have dipped 16% this year, the properties have retained their value. This "Pittsburgh paradox," as it's called by locals, is attributed to the city's steady population growth and the construction of new, high-value homes.

Despite its reputation as a gritty city of industry and steel, Pittsburgh is now driven by the health care and technology sectors.

Johnson City, Tenn.
Population: 193,554
Median home price: $120,000
12-month change in home value: -.4%
Affordability index: 3/10
Homes sold this year: 1,134
Home value vs. national average: -41%
Top employer: East Tennessee State University

Demand in this Northwest Tennessee city's market is largely driven by East Tennessee State University, as well as new retirees. These "halfbacks" used to spend summer in the north and winter in the south but are now making Tennessee their home year round.

Education, health care and manufacturing provide the bulk of Johnson City's jobs.

Average Market
Washington, D.C.
Population: 5,306,125
Median home price: $388,000
12-month change in home value: -17.1
Affordability index: 4/10
Homes sold this year: 49,013
Home value compared to national average: +47%
Top employer: Federal government, George Washington University

While sales are still high, an overabundance of new homes in the Washington suburbs has lowered values. Northern Virginia's Prince William County is among the hardest hit by the subprime crisis in the country, with 865 foreclosures so far this year -- four times more than neighboring Fairfax County.

Homes in D.C. proper, however, have retained their value. This is because the city has little undeveloped land for new homes to be built, thus preventing speculation.

Worst Market

California Central Valley
12-month change in home values:
Merced: -42.3
Stockton: -40
Salinas: -38.7
Modesto: -37.9
Riverside: -36.8
Vallejo: -34.5

The market hit hardest by the housing bubble is the Central Valley in California, where aggressive development and price hiking has yielded more homes than jobs. Now many homeowners owe more than their house is worth and are being forced into default.

Still, it's not all doom and gloom for the California housing market. The drop in home values has created an affordable market for first-time home buyers. And, on average, monthly sales have almost tripled from last year. Although the Valley has seen the worst of the crash, it may well be one of the first areas to recover.

[John_in_NC]

I'm hoping with this downturn, Magazine companies like Kiplinger's and Smart money will have to sell their crystal balls. Surely at least one will have to right? I might even get into the stock market if I can get my hands on one of those beauties.

[Mr Investor]

That's 5 markets not 6 well 5 plus 1 bad market area.

[Roger J]

Wallace,

There are literally hundreds of local RE markets that fit into the Johnson City, TN mold (mine included).  Of course, this doesn't make for good ratings for news, so it doesn't get reported.  And these markets aren't usually included in the 350 or so markets that make up the claimed "National Housing Market" in which they base their figures.

My point on this is that you can't base your info on 350 top market areas when there are literally thousands of local markets and say that that IS the housing market for the country.

That said, I don't believe any market is "safe."  Safe is what you make it.  Whatever your market, you have to know it and base your investment decisions on THAT market.  If you're in a severe downmarket, yet you're able to buy properties at 30-40-50% of value, which can still either be resold or rented for cashflow, aren't you "safe" at that point?  The term, safe refers to speculating only, IMO.  By safe, they mean that if you pay retail, it's a pretty safe bet that the market will continue it's slow, leisurely climb up at 1-2% a year on average.

So if you're wanting "safe" areas like that, let me know.  I'm sitting in one.

Raj

[rightontime]

What about Altanta, David lindal says its an Emerging market???

[j1dias]

It seems that once again the magazine is looking at the hear view mirror to make its predictions. I do understand that you have to understand what has happened, but to base your decision to invest in real estate on markets that haven't seen decline over the past year doesn't seem very smart. Based on that logic, you should have bought properties in Florida or Phoenix at the high of those markets...

I agree with Raj - in any market condition, you can still invest in Real Estate and make money - as long as you understand the local market and the risks you are taking. You should consider each deal on its own merits. I am sure you can still find good deals in Californai Central Valley (the worst market listed by the magazine).

[fadi]

in 2005, I read in Furtune magazine that San Antonio, TX was second in the nation in expected appreciation. We had California investors buying everything in town, from existing, to pre constructions.

in 2006, Fortune magazine listed San Antonio, TX as being the 15th. All those who relied on it, could not sell because it did not appreciate high enough to cover closing plus commission costs.

San Antonio TX has been a good market and still is, but never count on appreciation.

[Funder]

Just a little local insight…
The Central California Valley is a farming community.  During the real estate boom, there was a phrase “drive till you qualify,” which inspired people to buy houses, no matter how long they had to commute.  There really is no industry in Salinas, Merced or Modesto.  Just farming.  People from the bigger cities moved out into rural areas with the intent of commuting for, let’s say, two hours.  The ultimate plan was to harvest the equity from their rural homes so they could ultimately buy in the city.  Developers started buying farms and building homes.  Guess how that worked out with values slipping 40% and gasoline costing $4.50 a gallon.
Now there’s nothing out in Modesto except farms and carpet bombings of single family homes.  The Central California valley has one of the worst economies in the country.  These properties can be acquired at a low price, but it does not necessarily bode well for recovery.
Cities like Stockton, Riverside, and Vallejo have a stronger chance of recovery because they are cities with industry, but they have historically had large low income areas.  Crime and poverty make these undesirable places to live; people cared a lot less about that 5 years ago than they do now.

[investorman]

The situation in the Central Valley appears to be similar to those that moved from the L.A metro area to the Lancaster/Palmdale areas. Those properties are now selling for a fraction of what they were before. The metro areas of L.A , especially the Westside of Los Angeles , have actually barely fallen at all. That doesn't mean they won't in the coming year or so , but still it is kind of interesting. There are not many foreclosures in the Westside...yet. But who knows in the future.

I think these magazine articles about the best markets are mostly bs. There are also many articles on the "best stocks to invest in" and many of those companies are now out of business or practically worthless.

But what kind of articles are they going to write, "You can find deals in any town?"

[sunnyskyinvestor]

Following-up on investorman, I'm in LA's San Fernando Valley area and houses are selling fast when a nice average home is priced around $400-450K. The same house was worth $600K in the bubble.

Recently 60 homes were bought by someone with a ton of money directly from the bank. One was just across the street from us. It had no sign that it was for sale but it sold for $300K (info courtesy of www.trulia.com). One month later it was back on the market for $459K, the best price in the area and 10 days later --- it's in escrow! So people with loads of cash are picking up great deals from the bank. This sale will net about 150K in three months. I saw the houses these purchased...the investors are back in SFV and they are going to make loads of cash this way. If only I had millions....

The $425-450K is a desirable purchasing price point here because the mortgage payment would be around $2500 (taxes & insurance included) which is the going rental rate in the area. Anyway, there are plenty of overpriced, run down REOs on the market but buyers are on the hunt in SFV.  I wouldn't call it safe but I would say showing signs of stablizing when the houses are hitting that price point.

[Bluemoon06]

Any market that appreciates is NOT a good investment.  It is a good speculation.  What you want to do is create your own market.  When you find a house for sale for $60k in a neighborhood that each and every other house in that same neighborhood has sold in the last 2 to 3 months for $100k that is a safe market.  Safety assumes if the worse happens and you have to dump the house.  If you have $40k in captured equity in any market you should be able to dump that house quickly to get your money back out.  But looking at the market that way is like punting on every third down.  You won't make many touchdowns like that.  You should be looking for a market that can get you rich.

But the real key is not even what a house costs versus the market.  The key is will the house cash flow.  If for some reason you can’t sell a house but it will cash flow you can hold it until you can sell it.  That is safety.  I guarantee that if it will cash flow the other things are given.  If the house will cash flow, it is bound to be priced below market so you get equity capture on the purchase, it will appreciate because all real estate appreciates, it will provide favorable tax treatment and it will self amortize (when your tenants pay their rent you reduce the amount you owe). 

Real estate reminds me of Fuddruckers.  They are known to have the best hamburgers in the world.  But real estate is like a hamburger.  If you have good meat you have a good hamburger.  The meat is like the cash flow.  All the other things that people talk about are the lettuce, ketchup, cheese, and mustard etc.   At Fuddruckers all they talk about is the spicy cheese, or jalapeños etc.  That stuff is all people talk about but do they have good meat?  That is the real story of a good hamburger but all people can talk about is that stuff Fuddruckers lets you pile on and distract you from the meat.
 

CASH FLOW...CASH FLOW.  Like Bill Clinton said Its the economy stupid.  I say it is the cash flow stupid. (not actually calling anyone stupid just being rhetorical)
 

[rgchamb]

Don't be sucked in by the change in median price year to year.  This value means very little in this type of market.  For example, I'm in Austin, where the median price has gone up about 1% or 2%.  But the number of houses that have sold in the last 2 months compared to last year is down over 40%.  Also, the number of houses in inventory has gone up dramatically, making this practically a buyer's market.  And we're supposed to be one of the best markets in the nation!

[christopher w]

I drove through the CA central valley last year in march, and I looked around at all of the houses and wondered where all of the people living in those houses worked. it was amazing how many houses there were with only a wal-mart or a target and a grocery store nearby. I guess now I know.

[Unkerpaulie]

You don't create safe investments by looking for safe markets to invest in, you create safe investments by buying your properties with the profit already built in, regardless of the market. Some of the best opportunities to make lots of money often come from places where the market is very unstable overall.

[investorman]

Yeah, and the places that were considered the worst to invest in become the best to invest in and vice versa.

Sometimes bad neighborhoods that people would never think of investing in become gentrified/trendy and values skyrocket. Who wouldn't have wanted to own property in Harlem (in Manhattan) before it was considered a trendy neighborhood?

Similarly the hot  the best markets to invest in a couple of years a go like Miami,FL etc are now the ones the "experts" are telling us to avoid.