How to Find Emerging Real Estate Markets: An Investor’s Guide
While a recent report by the Urban Land Institute and Price Waterhouse Cooper identified Charlotte, Denver, Dallas, and Nashville as “new boomtowns” for real estate investors to see in 2021, it’s important to conduct your own research on emerging markets. After all, your goal should be to get down to the ground floor before others realize the magnitude of the investment opportunity. With this in mind, we have provided you with some important metrics that you should consider when looking for emerging real estate markets. Read through each one to get a better sense of how you should analyze a market’s growth potential.
First, consider broader economic metrics
To find the markets that have the best real estate opportunities, your first step should be to look at the local economy as a whole. If there is no economic growth, it is likely that the real estate market will not flourish either. With that in mind, we’ve listed a few metrics you can use to start your search.
One of the first signs of finding an emerging market is employment growth. In particular, you should 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 increased or decreased in recent years?
- Are there growing job opportunities in multiple sectors?
Where to find this information should be your first stop at the Bureau of Labor Statistics. They regularly publish data on civilian labor force and unemployment statistics in various metropolitan areas. However, you can also view job prospect reports for the specific area you want to invest in.
growth of population
When an economy is doing well, the population usually grows steadily. In a broader sense, a growing population will increase the demand for housing and ultimately strengthen the market over time. With that in mind, you can visit the US Census Bureau website for year-over-year population growth data.
However, when you look at the data, it is important to know what is in it. For example, many population estimates include births as well, which won’t help you very much if all you’re looking for is those who are able to rent an investment property.
For that purpose, net migration would be a better number. As the name suggests, net migration studies the number of people moving into the area from other locations, which may give you a more accurate picture of an emerging trend.
Then take a closer look at the specific housing metrics
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. The truth is, there are many different metrics that you can use to get a sense of how the real estate market is doing. We have put together some important key figures for your considerations. Take a minute to get a better idea of which markets offer the most investment opportunities.
New building numbers
Many real estate gurus would say that there is no better indicator of a healthy housing market than new construction. In some ways they are right. In an emerging market, it can seem like construction is going on around every corner and in nearly every asset class. To this end, the Census Bureau fortunately conducts a monthly and annual survey of building permits, which can be filtered by metropolitan areas.
Next, it’s important to look at existing home sales. Along with the new construction, home sales should increase if a particular market is to explode. In this case, your best bet is to contact the National Association of Realtors (NAR) for data. They provide data on existing home sales on a national level, as well as a variety of local market reports that can be very insightful in your search for the hottest property markets.
When rental property prices rise, this is another indicator of high demand. With this in mind, you should look for metropolitan areas where rents have increased in recent years. Zillow’s Observed Rental Index is an excellent tool for this. You have access to rental data that goes back to 2014 and you can filter the data by postcode for even more targeted searches.
Days in the market
The last metric you want to see is days in the market. As the name suggests, the days in the market show you how long the average property will stay in the market before receiving an offer. As you can probably guess, the lower the market days, the more likely the property market will grow. 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 to identify broader areas for real estate investing, you also need to focus on specific neighborhoods before looking at yourself investment property.
To do this, you need to look at even more detailed data, including school district data and crime rates. Our guide on this topic has nine factors that will help you identify the specific neighborhoods that may be a good fit for your investment strategy.
The final result
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 data that is important to you, the truth is that knowing how to carry out the process yourself is important. This is the only way to know that your assessment is really correct.
With that in mind, use the metric above to get a feel for whether a particular market is right for real estate investment. While combing through all of the data can take some time, the effort is probably worth it. Knowing this, you should have a much clearer idea of where to find your next investment opportunity.