How many people are leaving metropolitan areas like New York City, Los Angeles, San Francisco, and Chicago during the pandemic? increased dramatically. With the ability to work remotely and wanting more space for less, they moved to Sunbelt metropolitan areas like Phoenix, Austin and Tampa.
Rents and home prices soared due to the influx of new residents, but both are now falling. Some reports project a return of the population to major urban areas where job opportunities are plentiful and many businesses are in need of hybrid work arrangements.
However, existing residents living outside Sunbelt cities will need cheaper shelters. In July we reported that migration trends were already favoring the Northeast as people left the South. And there’s other evidence that the newly revitalized Rust Belt rental market is heating up as people look for the cheapest (yet desirable) places to live.
For investors seeking long-distance opportunities, these markets are worth considering.
Why the Rust Belt and Northeast Are Attractive to Real Estate Investors
So why are these regions so attractive now? There are several reasons.
1. Rents are rising fastest in the Northeast and Midwest
Asking rents in the south saw the lowest year-on-year increase in July, according to the report. redfinOn the other hand, the median desired rent in the West fell 1.1% year-on-year. But asking rents rose to record highs in the Northeast and Midwest. The new median asking rent in the Northeast was $2,533, up 4.6% from a year ago, while the median asking rent in the Midwest rose 4.3% to $1,416.
2. These three Rust Belt cities have the best rent-to-price ratios.
Redfin also reports that owning a home is more affordable than renting it. only 4 cities. The cities where most real estate is cheaper to buy than rent are Detroit, Philadelphia, Cleveland and Houston. This gives investors a wider choice of cash flow assets. For example, in his 80% of Detroit real estate, the median mortgage payment is below the median rent.
In the Bay Area, on the other hand, buying is more than twice as expensive as renting. And in a pandemic booming city like Phoenix, only a fraction of the properties are cheaper to buy than rent.
3. Home prices in the Rust Belt and parts of the Northeast are among the cheapest in the country
Second, the entry barrier is low. According to one study, many Rust Belt and Northeastern cities are among the cheapest cities in the country. Forbes ranking Of the 100 most populous metropolitan areas. Detroit ranked as the cheapest city to buy a home in, followed by Cleveland and Toledo, Ohio. In many of the Rust Belt and Northeast metropolitan areas, median home prices are well below the national median.
4. Tech companies reinvigorate the Rust Belt
We love cheap properties, but when the area has low prices, a weak economy, and no future growth, that’s a concern for investors.
But the rust belt has a future. Cities such as Pittsburgh, Cleveland, Detroit, and Youngstown, Ohio are experiencing their high-tech renaissance.that’s all 18,000 startups A variety of companies have emerged in the region over the past decade, with increased investment in Central America thanks to ventures founded in Columbus, Ohio. Tech giants such as Alphabet, Apple, Amazon, and Meta Platforms (the company formerly known as Facebook) Expanding Recruitment in Pittsburgh is a hotbed of affordability, room for growth, and talent from colleges and universities in the area.
Blue-collar jobs in steel mills and coal mines have not returned, but the innovative and practical application of technology is creating new jobs. The Midwestern hub may even follow in Austin’s footsteps and evolve to become the next Silicon Valley, but technology-driven revitalization has yet to reach all regions of the Rust Belt.
5. People are priced from nearby markets
New York City rents fell during the pandemic, but as of June, rents were 30% higher Compared to 2020 prices, they were 20% higher in Manhattan and 20% higher in Brooklyn.And Chicago rents have risen triple National average rate over the past year. Rents in these cities were already above the national average, but for many, they are becoming increasingly unaffordable.
For those who can relocate, New York or neighboring cities in the Midwest may be the most logical relocation choices. The number of long-distance relocations has also increased. According to recent migration reports, renters in cities like St. Louis, Chicago and Denver are all interested in moving to cheaper Midwest cities. Migration trends also show that New York City residents are interested in moving to the Harrisburg, Pennsylvania, Lancaster, Lebanon, and York subways.
Northeast and Rust Belt Markets to Watch as Potential Investor Hotbeds
To provide a snapshot of investment opportunities in the Rust Belt and Northeast, we collected data from 15 prominent cities in the region from a variety of sources. We extracted median home price, home price growth, and median days from Redfin market data, and average rent price and rent growth from Rent.com. All figures are accurate at the time of publication.
We also obtained metro rental vacancy data for Q2 2023 from: Census Bureauif available.
|city||median house price||Year-on-year change in house prices||Average Rent, 2 Bedrooms||YoY change in rent, 2BR||Rent to Price (RTP) ratio||Median days on the market||Metro rental vacancy rate|
|Cleveland, Ohio||$116,500||-9.16%||$2,074||+3%||1.78%||twenty two||1.6%|
|Rochester, New York||$182,475||+16%||$1,855||+10%||1.03%||8||2.3%|
|trenton, new jersey||$225,000||+60.7%||$1,875||+8%||0.83%||47||N/A|
|Buffalo, New York||$208,000||+4%||$1,660||+6%||0.80%||11||10.3%|
|Syracuse, New York||$163,250||-1.1%||$1,249||-Ten%||0.77%||15||8.3%|
|Troy, New York||$215,000||+1.7%||$1,552||+7%||0.72%||7||0.9%|
|Fort Wayne, Indiana||$215,000||+10.3%||$1,539||+59%||0.72%||Five||N/A|
|Albany, New York||$265,000||+8.2%||$1,687||+11%||0.64%||11||0.9%|
Many of the cities on this list are among the top 100 best places to live. US news and world reports, including four cities in western or northern New York State: Albany (17th), Syracuse (22nd), Rochester (26th), and Buffalo (27th). The ranking method takes into account factors such as the job market, desirability, quality of life and value. Other ranking cities include Fort Wayne, Indiana (No. 33), Pittsburgh (No. 47), and Cincinnati (No. 50).
Notably, home prices in all of these cities are well below the national median home price of $421,774 (as of July). redfin. And many of them also boast high rent prices. Cleveland and Detroit have particularly low housing prices and relatively high average rents. Rents are also rising rapidly in cities such as Fort Wayne and Youngstown.
of Nationwide rental vacancy rate The rental rate in Q2 2023 was 6.3%, up from 5.6% in the same period in 2022. Metropolitan areas, including cities such as Albany, Troy, Cleveland, Rochester, and Pittsburgh, all have very low rental vacancy rates compared to national vacancies. Shows strong rental demand. Cleveland, in particular, has maintained low rental vacancy rates over the past few years.
Finally, rent-to-price (RTP) ratios are favorable for many of these markets. Detroit, Cleveland and Rochester all have ratios above 1%, while six other cities are within 30 basis points of their target. It’s important to note that these house and rental prices are based on city-wide figures, and with a little research you might be able to find more favorable terms in certain areas. For example, her RTP ratio in Philadelphia is 0.74%, but there are several zip codes in the city with ratios above 1%.
The Rust Belt and the Northeast are areas to watch for investors, as the Sun Belt has the most room for rent to fall after a surge in rents due to migration during the pandemic. The southern region remains popular with large city migrants, but soaring prices will leave investors with fewer options for cheap real estate with strong cash flows. Cleveland and Detroit, for example, have properties available that may seem like pennies to investors accustomed to more expensive neighborhoods.
While we have not ranked the best cities in the Northeast and Rust Belt, we have provided some examples of potential markets as a starting point for our research. As always, it’s important to specifically examine and evaluate neighborhoods and individual properties. Find bargains and do the math to ensure you get a big return on your investment.
However, don’t leave out the Rust Belt and the Northeast when analyzing potential markets. These regions are worth evaluating due to their low barriers to entry and high growth potential.
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Note by BiggerPockets: These are opinions written by the authors and do not necessarily represent the opinions of BiggerPockets.