While a recent report from the Urban Land Institute and Price Waterhouse Cooper identified Charlotte, Denver, Dallas, and Nashville as "new boomtowns" to watch in 2021, for real estate investors, it's important to do your own research on emerging markets. After all, your goal should be to get in on the ground floor before others realize the extent of the investment opportunity. With that in mind, we've brought you some important metrics to look at if you're searching for emerging real estate markets. Read over each one to get a better sense of how you should go about analyzing a market's growth potential.
First, look at broader economic metrics
In order to find the markets where the best real estate opportunities are located, your first step should be to look at the local economy as a whole. After all, if there isn't any economic growth, it's likely that the real estate market isn't going to be flourishing either. With that in mind, we've listed out a few metrics that you can use to get you started on your search.
In finding an emerging market, one of the first signs that you want to look for is job growth. In particular, you will want to focus on questions such as the following:
- What is the current unemployment rate?
- How does the unemployment rate compare to the national average?
- Has the unemployment rate been increasing or decreasing over the last few years?
- Are there growing job opportunities in multiple sectors?
As for where to find this info, your first stop should be the Bureau of Labor Statistics. They regularly post data on the civilian labor force and unemployment statistics in various metropolitan areas. However, beyond that, you can also look into job outlook reports for the particular area where you're interested in investing.
Typically, when an economy is doing well, the population will be growing at a steady rate. By extension, a growing population will increase housing demand and will ultimately strengthen the market over time. With that in mind, you can use the U.S. Census Bureau website to find year-over-year data on population growth.
That said, when you're looking at the data, it's important to know what's included. For example, many population estimates also include births, which does not help you very much if you are only looking for those who are capable of renting an investment property.
To that end, a better figure to look at would be net migration. As the name suggests, net migration looks at the number of people who are moving to the area from other places, which may give you a truer picture of an emerging trend.
Then, look deeper into specific housing metrics
Then, once you've identified a few emerging economies, the next step is to take a closer look at the real estate market as a whole. In truth, there are many different metrics you can use to get a sense of how the property market is faring. We've laid out a few important housing metrics for your consideration. Take a minute to look them over to get a better idea of how to identify which markets hold the most investment opportunity.
Many real estate gurus would say that there's no better indicator of a healthy housing market than new construction. In some respects, they are right. In an up-and-coming market, it can seem like there's construction on every corner and in just about every asset class. To that end, fortunately, the Census Bureau does a monthly and annual survey of building permits, which can be filtered by metropolitan region.
Next, it's important to look at existing-home sales. Along with new construction, home sales should be on the rise if a particular market is about to explode. In this instance, it's best if you go to the National Association of Realtors (NAR) for data. They offer existing-home sale data on a national level, as well as a variety of local market reports, which can be very enlightening in your search for the hottest real estate markets.
If rental property rates are climbing, that's another indicator that demand is high. With that in mind, you'll want to search metropolitan areas where rents have been on the rise for the last couple of years. Zillow's Observed Rental Index is a great tool for this. It gives you access to rental data going all the way back to 2014 and lets you filter the data by ZIP code for even more targeted searches.
Days on market
The last metric you want to look at is days on market. As the name suggests, days on market will show you how long the average property stays on the market before it gets an offer. As you might be able to guess, the lower the days on market, the more likely it is that the real estate market is experiencing growth. You can use Realtor.com's research tool to find this data for almost all major metropolitan areas.
A note on finding the right neighborhood
While the above metrics should be enough for you to identify broader areas for real estate investment, you'll also need to zero in on particular neighborhoods before looking at any investment properties themselves.
For that, you need to look at even more granular data, including school district data and crime rates. Our guide on the subject includes nine factors you can look at to identify the specific neighborhoods that might be a good fit for your investing strategy.
The bottom line
The ability to identify emerging markets is one of the great skills in real estate investing. While there are many investing software programs out there that claim to sift through the crucial data for you, in truth, it's important to know how to do this process yourself. After all, that's the only way you'll know your assessment will truly be accurate.
With that in mind, use the metric above to get a sense of whether a particular market is right for real estate investing. While combing through all the data may take a little bit of time, in the end, it will likely be worth the effort. Armed with this knowledge, you should have a much clearer idea of where to find your next investment opportunity.