\n<\/p>\n
What\u2019s the best housing market for <\/strong>real estate investing<\/strong><\/a>? If this were 2022, we\u2019d say cities like Boise, Austin, or Phoenix, but things have changed, and many of last year\u2019s top real estate markets look like this year\u2019s losers<\/strong>. So which cities are the ones worth investing in over the next year? Which will see population, job, and home price growth? And which markets can you expect to sink even lower <\/strong>as interest rates rise and the threat of a recession looms?<\/p>\n We\u2019ve got a few housing market<\/a> experts around to help you navigate the plethora of property markets in the United States. James Dainard<\/strong>, master house flipper on the west coast, has a surprising prediction<\/strong> on an often underrated east coast city<\/strong>. Jamil Damji<\/strong>, one of the nation\u2019s largest wholesalers, is bearish on what was once a hot market and bullish on a \u201cunicorn\u201d city<\/strong> between two cultural capitals. Kathy Fettke<\/strong>, the Golden State\u2019s home builder and investor, picks a fight with a familiar character and has her eyes set on another sunshine state<\/strong>.<\/p>\n And, of course, we also get Dave Meyer<\/strong>\u2018s take on where the data says will be the worst and best real estate market<\/strong><\/a> to invest in during 2023<\/strong>. So place your bets, get your MLS<\/a> search ready, and prepare to see which markets will come out on top over the next year. If you\u2019re thinking of buying or selling, these picks may completely change your plans!<\/p>\n Dave: Kathy: Dave: Jamil: Dave: Jamil: Kathy: Dave: Jamil: Kathy: James: Dave: Kathy: Dave: Jamil: Dave: Jamil: Dave: Jamil: Dave: Kathy: Dave: Jamil: James: Jamil: Dave: James: Dave: James: Dave: Kathy: Jamil: Kathy: Jamil: Dave: Jamil: Dave: Jamil: Dave: Kathy: Dave: Kathy: Dave: James: Dave: James: Dave: James: Kathy: Jamil: Dave: Jamil: Kathy: Jamil: Dave: Jamil: Kathy: Jamil: James: Kathy: Jamil: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: James: Dave: James: Dave: James: Dave: Jamil: Dave: Kathy: Jamil: Kathy: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: Jamil: Kathy: Dave: Kathy: Dave: James: Kathy: Dave: James: Jamil: Dave: Kathy: Jamil: Dave: Kathy: Dave: Kathy: Dave: James: Dave: Jamil: Dave: James: Jamil: Dave: James: Dave: Jamil: Dave: Jamil: Dave: Kathy: Jamil: Kathy: Dave: Kathy: Dave: James: Dave: Kathy: Dave: Jamil: James: Dave: Kathy: Dave: James: Dave: Kathy: James: Dave: James: Jamil: James: Jamil: James: Dave: James: Dave: \u00a0<\/p>\n<\/div>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Hey, everyone. Welcome to On The Market. My name\u2019s Dave Meyer. I\u2019ll be your host today, joined today by Kathy Fettke, James Dainard and Jamil Damji. How are all of you?<\/p>\n
We are all sick, woo-hoo. It was a great party.<\/p>\n
Every single one of us is sick. I think we\u2019re going to have a lot of muting of microphones.<\/p>\n
I might have to take responsibility for it.<\/p>\n
It was Jamil\u2019s fault apparently, but I wasn\u2019t even at the party and I\u2019m sick too, so I don\u2019t know.<\/p>\n
Well, that\u2019s because we mailed it to you.<\/p>\n
Oh, yeah.<\/p>\n
Well, thank you. I appreciate that. I really appreciate you in including me. It\u2019s very thoughtful. Well, I actually wasn\u2019t at the party, but I did get to do something very fun, which was I was in Madrid, Spain and I got to meet in person the entire team that edits this podcast, they all live in Madrid. I don\u2019t even know if you guys know that.
But I went to go hang out with them and they\u2019re extremely cool, fun people. They took me on a 10-hour tour of the inside of many bars in Madrid and I just wanted to give a shout out to Joel, Eliezer, Alexander and Anna, who are an incredibly talented team. It was a pleasure to meet them and I had a lot of fun with them. Very talented, passionate people who make this show possible. That was really cool for me and I just wanted to tell you guys about it.<\/p>\n
Amazing. I had no idea that they were in Spain, but now we have to make a trip out there and go hang out.<\/p>\n
Sounds like we have to.<\/p>\n
Are they sick of our voices yet?<\/p>\n
No. They were making fun of me the whole time. They\u2019re like, \u201cI feel like I have to put a frame around your face. That\u2019s what I\u2019m used to seeing you like. It\u2019s weird seeing you.\u201d No, they would love that. We should do that next time. Kathy, next time you\u2019re in Portugal, just pop over to Madrid. It\u2019s not far.<\/p>\n
April.<\/p>\n
All right.<\/p>\n
Did anyone say to you that you\u2019re taller than they expected?<\/p>\n
No, probably said shorter knowing me.<\/p>\n
I always get, \u201cOh, you\u2019re thinner than I expected you to be.\u201d I don\u2019t know how to take that. I\u2019m like \u2026<\/p>\n
Well, they were probably already thinking you\u2019re very thin and muscular, so even thinner.<\/p>\n
I get, \u201cYou\u2019re thinner than I thought,\u201d and, \u201cYour beard doesn\u2019t look as terrible in person as it does on video.\u201d<\/p>\n
What?<\/p>\n
Nobody says that to you.<\/p>\n
Who thinks your beard looks terrible?<\/p>\n
I have no idea, man. The Internet is fun.<\/p>\n
Well, let me see. I can\u2019t even grow a beard.<\/p>\n
That\u2019s what happens when you\u2019re one of the America\u2019s best investors and you\u2019re only 12, James.<\/p>\n
That\u2019s like one of the BiggerPockets podcast headlines like, 150,000 units by 12 years old, featuring James Dainard.<\/p>\n
Profit and puberty.<\/p>\n
That could be your BP book pitch, James.<\/p>\n
I think I\u2019m going to write that down.<\/p>\n
All right, well let\u2019s get to today\u2019s episode. As we wind down the year, we wanted to recap and sort of go back to actually one of the first shows we did, which we were picking best markets, worst markets. And so today, we\u2019re going to talk about our predictions for the best and worst markets for 2023.
But before we do, Rocket Mortgage, one of the biggest mortgage companies in the country, just came out with their rankings of the top five markets for 2022. I want to throw these out there and see what you guys think about these before we get into our predictions for next year.
They said the number five was Charlotte, North Carolina. Did any of you pick them last year? I feel like someone might have.<\/p>\n
I did.<\/p>\n
Oh, you did?<\/p>\n
Didn\u2019t I?<\/p>\n
Why do I feel like-<\/p>\n
No, Jamil. You had Austin in Denver. I remember that specifically.<\/p>\n
Austin and Denver, that\u2019s right.<\/p>\n
Because the final was just you against yourself.<\/p>\n
Yeah. Charlotte?<\/p>\n
It\u2019s Charlotte. Do you invest there, Kathy?<\/p>\n
Yeah.<\/p>\n
How did it do this year?<\/p>\n
Well, it got very expensive this year, so it became difficult to buy this year. But if you bought before this year, you did great.<\/p>\n
Nice. Then number four, we have at Nashville, which is sort of, I feel like perennially on everyone\u2019s list of top markets. Then we had Raleigh, number three. Tampa, which I said, but got voted out early for number two, and Austin for number one, which I was kind of confused by. I think that\u2019s actually what won in our competition last year. But would you guys think Austin was the best performing market this year?<\/p>\n
I mean if you look at those first two quarters in all those tech markets, they jumped so high. It\u2019s like they had room to pull back and it was still going to be good. I mean, Scottsdale was kind of like that too. It was like Scottsdale, Austin, Seattle, LA, San Fran. They just shot up.<\/p>\n
Well, that\u2019s a good question, James. You\u2019ve been pretty honest about pullbacks in Seattle in your market, are they still up considerably over pre-pandemic levels prices in Seattle?<\/p>\n
Oh yeah. We\u2019re substantially up from pre. I mean we\u2019re still 5% up on this year in Seattle, but we were up 25% to 30% and there\u2019s first two quarters. I know there was one month alone I was seeing some cities appreciate at 25% in one month. It was crazy. I had to triple check the data. I was like, wait, what happened? The median home price jumped 25% in one?<\/p>\n
That\u2019s like a crypto coin.<\/p>\n
Yeah. I mean we\u2019re still at least 30% up from 2020 or 25% to 30% in certain neighborhoods for sure. And so there\u2019s still rapid growth. It\u2019s just sliding back with the affordability right now.<\/p>\n
Yeah, I mean that was kind of my comment last year is that this is a leveling out of a crazy manic pandemic-induced buying spree of last year. And so with so many things, when we see layoffs, when we see home prices coming down, it\u2019s really just comparing to an abnormal year. And so if you could keep that in mind and maybe just compare numbers to 2019, people who bought in markets that really went up and are now coming back down to earth, if they bought this year, they might be feeling a little pain. But if you bought before that, you\u2019re fine.
If you hold it, you\u2019re fine. It\u2019s just anytime you have to sell, if you\u2019re forced to sell when it\u2019s not good timing to sell, then that can be painful. But if you can hold, usually those hot markets come back and they become hot again.<\/p>\n
I feel like if you bought a house in the peak time of 2022, it\u2019s kind of like one of those nights you got really drunk at a party and things didn\u2019t turn out the way that they should have and you want to forget it. And so that\u2019s basically what happened.<\/p>\n
Is this what happened at your party last weekend, Jamil?<\/p>\n
Maybe.<\/p>\n
I left in time.<\/p>\n
Listen, we all have the same sickness, and how that happened \u2026<\/p>\n
I don\u2019t know how to follow that up.<\/p>\n
I put on a good party though, guys.<\/p>\n
That was a good party.<\/p>\n
Let\u2019s be real.<\/p>\n
You know what? Everyone should go to Jamil\u2019s meetups and parties. They\u2019re the most fun things for real estate I\u2019ve been to. It\u2019s like, it is a vibe that is nothing I\u2019ve seen at a real estate conference before or meetup.<\/p>\n
I\u2019m signing up.<\/p>\n
All right, well definitely check those out.<\/p>\n
Okay, well let\u2019s take a break now because, Jamil, you threw me off. Let\u2019s take a quick break and then we\u2019ll come back and talk about our predictions for 2023.
All right, let\u2019s jump into our predictions, but before I ask you which markets you actually picked, can we talk quickly about what criteria you all used? We\u2019re going to do our worst markets first and when Kailyn and I assigned you these, we didn\u2019t really give definition what worst means. I\u2019m curious, Kathy, what did you interpret that as? What did you think? How did you choose the market you chose?<\/p>\n
I had to really give it some thought because with real estate, you can get super confused. There\u2019s so much data coming from so many different angles and everybody\u2019s got an opinion and that\u2019s a hundred X every year as more and more people get into the industry. It can be very confusing. I just had to stop and say, for what? The worst market for what?
For me, my buying box, basically what I have always looked for are areas that cash flow with the hope of appreciation because there\u2019s something going on in that area, there\u2019s growth. And so I don\u2019t need it to go up in price dramatically right away. I just want it to over time so that I know that I\u2019m getting cash flow and appreciation because the double whammy is what can really make you wealthy.
For me, the worst market I chose was Detroit. Now Detroit came up on some lists as a great market for 2023. Again, it just depends on your buy box. I\u2019m sure there\u2019s Detroit investors listening who are like, \u201cIf you invest the way I invest, you\u2019ll do great in Detroit,\u201d because there is a lot going on and apparently has had some of the highest millennial growth there. There\u2019s a lot of revitalization happening downtown. Some of the things I look for are there.
The reason I choose it as the worst for me is that they\u2019ve had a population decline over decades. Yeah, decades. Detroit has seen a 61% decrease in his population since the \u201950s. It used to be really quite like a New York kind of city, very popular city, but people are leaving and they\u2019re going to wear my favorite market. One of my best markets is warmer climates, the Florida area. No, I didn\u2019t tell you where in Florida, but warm climates with landlord friendly laws. This fits the buy box for me.
If I\u2019m looking for buy and hold, cash flow, appreciation and growth, I want to be in an area where there\u2019s job growth, population growth, infrastructure growth, rent growth, all those things. We\u2019re not seeing it. But the biggest reason that I wouldn\u2019t invest in Detroit is that they have this law, and it is a tough law, and I know it well.
In May of 2017, the city of Detroit announced its intention to implement a citywide effort to enforce tougher rental ordinance rules on landlords. Landlord rules really matter. Basically, you can get massively fined depending on which way you look at it. For renters, this is great, it means that landlords have to take care of their properties and fix things. But if you\u2019re not aware of that, you can get really stuck.
We\u2019re trying to sell three Detroit properties in our former fund. My last single family rental fund, we\u2019re down to three Detroit properties that we\u2019re having a really tough time selling. We can\u2019t get the tenants out because landlord laws are really not in our favor there. The city comes in and inspects and tells us all these things we have to fix. Those fixes are costing a lot, $40,000 to $50,000. These are properties we only owned five years and we fixed them five years ago. They\u2019re older. If you\u2019re buying an older property in Detroit, you just have to know that the city inspectors may charge you.
For me, this is not a best market for me, it\u2019s a worst market for me. I do think if you go in and you can get a great deal and you completely renovate it and you\u2019ve got the budget for it and the reserves, you could get great cash flow. I just don\u2019t think that you\u2019re ever really going to see that market appreciate the way I like it to do in other markets.<\/p>\n
All right. Detroit is our first worst city. I know the former CEO and founder of BiggerPockets, Josh Dorkin, would definitely agree with you. He made a reputation of hating on Detroit for many generations.<\/p>\n
I used to love it. I used to invest there and our fund bought a bunch of properties there and they cash flowed the whole time during the fund. They were wonderful for cash flow. It\u2019s just when you\u2019re trying to get out or if the city comes in and tells you to do a bunch of work you weren\u2019t expecting to do. You just have to have lots and lots and lots and lots of reserves for older properties.<\/p>\n
Kathy, it\u2019s a great point. Two or three years ago, I did this data analysis to look at appreciation versus cash flow for markets and I plotted them out. Basically, what we saw was that before the pandemic, most markets were either really good appreciation or really good cash flow and there were a few that were both, but they were modest for both. The outliers for good cash flow like Detroit were also outliers for bad appreciation.
And so you saw the other thing too. An outlier for appreciation like Seattle was also an outlier for bad cash flow a lot of the time, just on average. Since the pandemic started, all that got thrown out of the window and everyone has just seen both. But I do think as we go into 2023, we\u2019re going to start going back to that normal sort of bifurcation in the market where some markets are really good for cash flow but don\u2019t appreciate really and vice versa. Some will continue to appreciate but aren\u2019t going to be places where you can easily find rental properties that meet the 1% rule, for example.
And so, it sounds like you agree. Detroit might be good for cash flow, but appreciation probably not going anywhere.<\/p>\n
Yeah, I think it\u2019s really important to look at how performance was before 2020. I know a lot of these cities have really redefined themselves in the last decade, but if you take say 2015 to 2019 and really look at the cap rates and what was happening in those markets appreciation-wise, those were good solid years for real estate. That will be a better metric for where we\u2019re headed in 2023, I think.<\/p>\n
All right, well there we got one. James, how did you approach this and what city did you pick?<\/p>\n
I picked kind of a different city. I spent a lot of time researching all these markets and I\u2019m like, you know what? I\u2019m going back to the market that I had the biggest regret of not buying in 2009. And so I picked San Diego, California. The reason I picked San Diego is, A, and this has nothing to do with what we\u2019re going through now because it\u2019s a different thing, but I remember in 2009, the sky-rise condos went down to under 400 grand. These things were like you\u2019d be up killer views, brand new, and you could buy them for under half million dollars and they were trading for over a million before the mortgage industry exploded.
But the reason I picked San Diego is I do think, A, I think San Diego is the best city on the West Coast. It is where you want to live for sure, but the problem is the income is just not there and what people can afford in the job market. It\u2019s a really good place to move to if you have money, but if not, you\u2019re going to struggle with a lot of the pricing around there.
And so what we\u2019ve seen with the interest rates rising is the rates, we\u2019ve already seen it go from a medium home price down over 10%. There\u2019s been a drop from about 950 down 850. We\u2019ve seen something very interesting to watch for and these are the markets I\u2019m most cautious in right now are the ones that\u2019s hockey stick up in that first two quarters at a crazy rate. San Diego definitely hits that. In March, they were up 30% and they were one of the top three appreciating markets for that month. It has retracted back 20% from March and it\u2019s continuing to slide right now.
I think a lot of the reason that they have retracted back is the math just doesn\u2019t quite make sense. Also, rents have dropped 5% since March as well. I do think the rents are falling because more the remote work. Why wouldn\u2019t you want a remote work in San Diego if you could? That\u2019s where I would want a remote work. And so as the workforce is going back to where they\u2019re supposed to be working, all these things are starting to bring it back.
During the pandemic, living in a quality place was a big concern for most people and San Diego\u2019s one of the best you can be in. And so I think people are just starting to leave a little bit and it\u2019s starting to let things down. But to put it in perspective, you have to save \u2026 In San Diego, the average home buyer needs to save up $160,000 to buy a house. With the income that they\u2019re making, they need to save a minimum of $13,000 per year to it. It is going to take them almost 8 to 12 years to save up for that 20% deposit. That doesn\u2019t even keep track with the pricing going up during that time. With a median home price of $905,000, the household income should be $166,000 to afford that comfortably.
The problem is the median household income there is $70,000 and a lot of the actual jobs that are in San Diego are big \u2026 There\u2019s not as much, and I picked San Diego because there\u2019s not as much big business as there is in Austin, Seattle, San Francisco where there\u2019s these big anchor tech companies that yes, they might be going through a downturn right now and laying off some people but they\u2019re going to come back and these are companies that are not going away whereas they have a much more limited pool. Military is a big deal.
Now I do think if we are going into more conflict that the military could grow and that there is going to be, that could expand in San Diego because it\u2019s the biggest military base there is, but it still doesn\u2019t get you to the income for affordability. With rates being as high as they are, it\u2019s just going to pull everything back because just people are not making enough money to buy. We\u2019re seeing that right now.
If the rates continue to go up, which I do believe they will for at least the first two quarters, you\u2019re going to see homes dropping price. 43% of all homes in San Diegos have cut their price this year. That is a substantial amount. That means people are either overpricing or even if they are pricing right, they\u2019re just not selling for people can\u2019t afford them.
The major pool of that they can\u2019t afford that, those big companies are slowing down, like Qualcomm is a huge business there. That is one of their anchor employers. Qualcomm has froze their hiring right now. They have not announced layoffs yet as far as I could tell, but that\u2019s usually the first step. You freeze your hiring and then there\u2019s layoffs coming.
They have not predicted the layoffs but they are expecting the company internally is expecting that their shipments are going to decline in the double digit percentage for next year. They\u2019re predicting that they are going to do less business as a company which is going to start laying off the people that are going to absorb a lot of these more expensive properties. And so all those things that when you get in a mix, I just see this stuff coming down. It\u2019s way too expensive, we\u2019re missing like $70,000 on the median home price to get people to really be able to afford. Then there\u2019s other things that are just indicating that it\u2019s way better to rent versus to buy. The cost to rent ratio is 30.38. In a healthy market, it\u2019s like you want to be below 21.
It is so far out of whack right now that I think that San Diego could fall an additional 10% from where it\u2019s at right now. That doesn\u2019t mean that I wouldn\u2019t buy in San Diego, it\u2019s actually on my cities to slate to buy in. I just think that there\u2019s going to be more opportunities. I don\u2019t want to have the same regret I had in 2009 because I do think quality of living and people want to live there in general and that\u2019s always going to drive growth.
They are also on a long-term basis predicting that San Diego\u2019s economy is going to grow, I think they said 31% in the next 10 years or 20 years. And so they\u2019re predicting growth. But in the short term for 2023, I think it\u2019s going to retract back and I think all these expensive West Coast markets are going to continue to retract back. The thing you have to be careful about with the investors is when you\u2019re playing in expensive markets, the retraction can really hurt. And so that\u2019s why I put this as the worst market that I would invest in.<\/p>\n
Everyone loves leverage when you\u2019re going up, and then when it goes down it hurts a lot.<\/p>\n
I mean it definitely hurts. Like what we were talking about before I got on the show, I finally sold a house that it took 150 days to sell and luckily I\u2019m breaking even. I don\u2019t even know how I\u2019m breaking even. But we just sold the house for 450 grand, less than a house that we sold right around the corner when we bought that deal in the beginning of the year. And so you have to watch out for these slides and the slides are okay, you just have to prepare for them correctly.
But I do think San Diego\u2019s going to have some issues. It\u2019s just too expensive for what people make there. I do think people are always going to want to live there. Well, in addition to besides that expense, you have that California expense, the extra 13% income tax. There\u2019s too many expenses going on that are eating up liquidity and that\u2019s why I do think that it\u2019s prone for a pretty big drop from here. I think another 10% is coming back.<\/p>\n
San Diego might be on your best markets for 2024 list?<\/p>\n
Yes. I actually think all those markets like Seattle. It\u2019s Seattle, right? It\u2019s a very similar \u2026 I like Seattle better than San Diego because there\u2019s more jobs there. I like Austin better than San Diego because there\u2019s more jobs and infrastructure there. But I do think all these cities that are having these massive retractions are great buying opportunities, especially after this second quarter. But you have to buy carefully. You can\u2019t buy traditionally. If you\u2019re buying traditionally, you\u2019re going to get \u2026 I think you\u2019re going to get burnt.
But as the markets keep free fall \u2026 I mean those are the markets that are going to have the most opportunity. The ones that are falling backwards are the ones that everyone just jumps out of. That\u2019s where I really want to jump in. I probably will buy something in San Diego. I want to buy some short term rental stuff right down by the beach and PB. I know the condo market gets hammered and those are things that I\u2019m looking for, is if I can buy it substantially below what it was worth, if I\u2019m buying them 30%, 40% below that previous median home price, there\u2019s runway for growth and equity gains in over a five-year period.
But like what Kathy said, it comes down to what is your strategy? My strategy isn\u2019t high cash flow. I don\u2019t like dealing with these small houses that can get you 10% to 15% returns because I don\u2019t like those maintenance expenses. They can jeopardize my cash flow position. I like high growth markets because that\u2019s where you make those big equity gains. Those equity gains have completely changed me as an investor and how I\u2019ve been able to passively invest just based on those gains.<\/p>\n
All right. Well said. Actually when I was trying to think through this for best markets, I was thinking of doing a contrarian opinion and saying something like Austin, because I think it is going to go down 20% or 30%, but it has one of the best long-term growth potentials of any city in the country. And so maybe it is a great time to buy in Austin if to your point, James, you\u2019re buying under market value and finding good value.
All right. Jamil, what about you? How\u2019d you approach this?<\/p>\n
Well, I loved everything that James and Kathy said. I agree that you have to look at it from the perspective of your investment strategy. We all know that I am a trader. I look at the real estate market in terms of how can I benefit, how can I get involved and where are my buyers? Where are my clients? Where are they looking to invest? Where are they running away from?
And so for the worst market of 2023, I\u2019ve chosen Ventura County. Realtor.com predicts that it will drop in sales price by about 30%, 29.3%, 29.1% specifically is what their prediction is. That\u2019s a significant amount of money. When you look at fix and flip, when you look at wholesale, when you look at opportunities for us to trade in property, if you\u2019ve got declining market to that degree with all of the things that James was talking about, you\u2019ve got the regular Southern California issues like the state tax, the migration in Ventura County is not, it\u2019s flat, if anything.
And so how I look at a market like that, as I say, are my clients or are my buyers for fix and flip or are my wholesale buyers looking for opportunities in Ventura County right now? They\u2019re not. For me, where we are not going to be investing marketing, where we are not going to be investing resources for boots on the ground to try to find some opportunities or to pick up opportunities for trade will be some of these higher value markets in southern California. But I do also agree that looking forward to 2024, as you had mentioned and as James had mentioned, there\u2019s going to be a tremendous value, but you have to wait.
It\u2019s a bad market for 2023, but coming off the tail end of that, if you can start buying in Q4 of 2023 and get them significantly below market, because at that point there\u2019s going to be desperation, exhaustion. Sellers are going to be just, they\u2019ll have had it. I feel if you can time your purchases right, you can make the worst market at 2023 your best market at 2024. And so I\u2019ll be re-entering Ventura and some of those markets in Southern California towards the tail end of \u201923.
But for now the worst market, Ventura County.<\/p>\n
It makes sense. Kathy, what\u2019s your read on this California hate over here with getting James and Jamil? But really we\u2019re seeing a lot of population leaving California and it\u2019s very expensive. I feel like people have been saying California\u2019s going to nose dive for decades and it never happens. As a resident and a native, what do you think the future holds for California in the next few years?<\/p>\n
I am a native of many generations. My grandmother was one of the first people to swim \u2026 She swam across the Golden Gate Bridge. She was an Olympic athlete and would swim around Alcatraz. I really have my roots in California, and this is a conversation that has been had probably for a century. It\u2019s just always the case when you have highly desirable world class areas, it will never be cheap and there will never be a lack of people who can afford it. It\u2019s just that they\u2019re volatile. These are volatile markets.
But San Diego, I mean it truly is one of the best places in the world to live or to have a second home. There are more people that would buy there or own there than work there. Obviously if you are trying to do a buy and hold, again, it just depends on strategy. But it\u2019s almost like if you can do a long term flip, meaning maybe you buy something, you rent it out for a year or two where it\u2019s kind of covering its cost. It probably won\u2019t, it will probably still be negative but then do the flip later so you kind of got in low \u2026<\/p>\n
If you can never get the tenant out.<\/p>\n
Right, there is that.<\/p>\n
Valid point.<\/p>\n
But it always has bounced back, and you will make a lot of money if you hold. That\u2019s why so many Californians are loaded and are bringing their money to other places because they made their money in housing in many cases.
If you live in California, so what I think of California, I would love to leave California. But I love the weather. I love everything about it except the politics and the prices. But it would be hard for me to go anywhere else and I think a lot of people feel that way who live there.<\/p>\n
All right, well yeah. I wouldn\u2019t bet against the California market long term. It always bounces back. Oh, and one thing I do want to say when you were talking about that, that could be a very good opportunity for a live-in flip for people who want to do that. You get to live in California and then flip it down the road. If you live in it for two out of five years, you pay no tax. Good opportunity.
For mine, I wanted to pick a city that we don\u2019t talk about a lot also on the West Coast, but was one of the hottest markets over the last couple of years. I picked Reno, Nevada. Do you guys know anything about Reno?<\/p>\n
Just sold off our two subdivisions there just in time, so yes.<\/p>\n
Oh good. Well it went crazy over the last couple of years, so hopefully you did well there.<\/p>\n
Sold right before rates went up, so that was good.<\/p>\n
Ah, nice.<\/p>\n
Congrats.<\/p>\n
Thank you.<\/p>\n
Because to me, Reno is one of these cities that just popped due to remote work. It\u2019s a beautiful place. There\u2019s no income tax. It\u2019s right near Lake Tahoe, it\u2019s really nice. But when you look at the economic fundamentals, it doesn\u2019t really support all the growth that we\u2019ve seen. Similar to what James was saying about San Diego, you just see a really not a high enough income level to support the prices. You don\u2019t really see, unlike Seattle or Austin that has exceptional job growth and tech companies moving there, don\u2019t see that to the same degree in Reno.
This is what to me going to be an interesting experiment because I think it grew a lot similar to Boise. I think it\u2019s sort of a similar thing where people who wanted to live somewhere with a great quality of life decided to move there, but will have to see if the economy can support it once people are either called back to the office or salaries don\u2019t rise at the same rates that they have been or there\u2019s layoffs we\u2019re starting to see.
Unfortunately for Reno, I don\u2019t think it\u2019s going to be doing pretty well over the next couple of years. It\u2019s already seen the days on market go up by about 250% over the course of this year. We\u2019re at days on market over 60, which is in any market pretty high. And price drops are over 45%. That\u2019s my pick.<\/p>\n
Well, I could tell you why we invested there, why we bought land there and built a lot of houses there because Tesla moved its battery factory there and there was just \u2026 Google was moving up there because it\u2019s only about four hours from San Francisco, but it\u2019s in Nevada, no state income tax. It just seemed like this is going to keep growing.
But like San Diego, it just lags. It just lags. It\u2019s so strange why you would think for those reasons companies would move to Nevada just to avoid taxes. But it\u2019s still a four-hour drive. If there was a speed bullet train or something, maybe it would be a different story, I don\u2019t know. But it\u2019s always lagging.<\/p>\n
The income just hasn\u2019t grown there in the way that it would need to just support some of these prices.<\/p>\n
Don\u2019t they run out of water? Isn\u2019t there a huge water issue in Reno too, like it\u2019s dry almost? I just remember I went to Lake Tahoe, they were talking about it. The water\u2019s low and they\u2019re trying to figure out how to get more water in.<\/p>\n
I think in general, that was California.<\/p>\n
And Nevada.<\/p>\n
Well, it\u2019s also crazy too when you go to Lake Tahoe, that property values because part of it is in Nevada and they call that millionaires row on that side because that\u2019s where all the mega mansions go. I get what Kathy was doing. They want to get out of that income tax and it\u2019s like, so you have properties that are worth millions and millions of dollars on one side and then just kitty corner, they\u2019re worth 45% less because there\u2019s no income tax.<\/p>\n
No, that\u2019s interesting.<\/p>\n
All right, well we\u2019ve talked about the downside. Again, I think that some of these markets could be great in the future. We\u2019re just talking about 2023, not forever. Let\u2019s move on to markets that we do think are going to outperform or do well in the next year. Kathy, on the other side, you didn\u2019t like Detroit. What do you like for next year?<\/p>\n
Well, as you know, like I said, we always look at job growth, population growth and infrastructure growth combined with affordability. I want to be in markets that cash flow today and so you can hold these properties. They don\u2019t have to cash flow a lot. This is a long-term play but cover their costs so that you\u2019re really able to hold these as they appreciate.
Tampa really fits that for me. Tampa has completely redefined itself in the last decade. In fact just in 2021, there were nine companies that relocated their headquarters. There\u2019s an article that says tech company relocations to Tampa Bay soar in 2021. 94 new companies were added to St. Pete\u2019s pipeline. Lots of job growth and that\u2019s really important to us.
Now with that comes population growth. In Tampa, it was 1.3% up last year. This is the important thing looking forward, it\u2019s projected to grow 3.3% annually. The growth has just started. More than 128,000 new residents are forecast to move to the metro area. How on earth by next year, by 2024, there\u2019s not enough housing for all those people.
We\u2019re still buying houses in the one $150,000-$200,000 range just about 45 minutes outside of Tampa. I don\u2019t like to be too far away from a major metro, but if it\u2019s still driving distance and there\u2019s still offices and jobs nearby. Just on the outskirts and out of flood zones and out of the hurricane zones, kind of more inland of Tampa, we are really finding amazing deals. I think if you could still get a house for $200,000, $300,000 in an area that\u2019s growing like that, to me that\u2019s a steal.
Median rent is $2,300 per month for a three-bedroom home. There\u2019s a lot of markets where it might be a two-bedroom apartment or something. But according to Zumper, $2,300 for a three-bedroom home, that\u2019s pretty good. Rents have increased by 16% last year, and 48% of households in Tampa rent rather than own. I think we can all agree that Florida in general is business friendly and landlord friendly. It meets all the things that I want. I\u2019m not worried at all about buying in Tampa today.
Oh my gosh, for the properties that I own in the Tampa area, I get calls propped and texts probably every other day of people trying to buy those homes. There\u2019s still a lot of activity.<\/p>\n
That\u2019s my fault.<\/p>\n
It\u2019s Jamil, he\u2019s calling you.<\/p>\n
I know. I keep offering twice what it\u2019s worth and no one\u2019s taking it.<\/p>\n
All right. Well, I love Tampa too. That\u2019s a very good pick. I mean I think there\u2019s a lot of \u2026 Florida, it just seems to be this split city, split state. Some markets seem to be overheated right now, but markets like Tampa just seem to still have really strong fundamentals. We\u2019ll have to keep an eye on that one.<\/p>\n
I\u2019ll just say one more thing and then add to it that the iBuyers are kind of backing off, so you have a little bit more opportunity to get in today and we\u2019re finally starting to see the foreclosure sales kind of hit. There\u2019s more opportunity there than there was, but all the same dynamics of growth that we like.<\/p>\n
Nice. All right. James, what about you? What do you like for next year?<\/p>\n
What I like for next year is \u2026 It\u2019s funny when I was researching all this. There were a lot of the predicted markets that are going to perform really well in 2023. It\u2019s all based off math equations. When I was looking at all these lists, I\u2019m like, okay, I get it. It\u2019s a very low price point. The median income is up. There\u2019s low inventory, so they\u2019re predicting growth. That totally makes sense.
But for me as an investor, I also like to buy stuff where people want to live. And so I picked Raleigh, North Carolina, which I know did really good this last year. The reason being is it is ranked on numerous lists as the best places to live in the United States. It was ranked number six recently and it has a ton of growth behind it. It had a 3.4% GDP growth in 2022 and the economics behind, it\u2019s Riley and Durham County but there\u2019s growth going on there. The population is increasing because people want to live in quality places but still keep their capital.
A lot of our friends, I know a substantial amount of people in the last 12 months that make good money, they have good careers and they reload out of California. The reason they did is because they were sick of giving away that 13%. They were sick of paying too much money for housing and they\u2019re going to areas like this.
If you look at how affordable this is for the quality of living, so this is the sixth rank city of places to live that you can have a great life to live in. The median home price is $410,000, which did grow by 16% last year and that is my concern. It did have a lot of rapid growth. But the household income is $98,000. So people can afford to \u2026 They can move there, have a great life and still live comfortably.
Everybody that I\u2019ve known, and I also go off of what are people saying. People have been reloading to Raleigh, North Carolina, Charlotte, and they love it. They love everything about it. That is a buzz, and as we go into a recession and things are costing more, people are going to look for area. They just want to enjoy life and live somewhere that they can raise their kids, and this is one of those hot places.
The other thing I liked is there is going to be an inventory problem, I believe. Since 2010 until now, they built 50% less houses than they did from 2000 to 2010. If you have growth going on there because the population is growing, just like Kathy said like it\u2019s growing at a rapid rate, it has historically grown around 1.5%. It\u2019s been growing near 3% the last three years. And so it has the buzz. This is where people are moving, there\u2019s a lack of inventory and people can afford things.
Another interesting stat I saw and I was like, wow, this is pretty, it kind of blew my mind. 23% of people don\u2019t have mortgages there. That\u2019s how affordable it is. That totally caught me off guard. And so when you\u2019re looking at a quality place to live, they have good income. The median home price is still very, very affordable. The schools are great. Charlotte, the big city next to it is growing rapidly. Those are all good things for long-term gains on a property, in addition to people want to live there.
The only thing that I did see that is a little concerning is the cost of rent. That\u2019s something that I\u2019m really looking at now in all my metrics when I\u2019m looking at things. Is it way cheaper to live in a rental? It went from being around 16% to 17% to 19.65%. The gap is getting close on whether you could rent or buy, but that\u2019s still below that 21-point threshold that they talk about.
There\u2019s still a little bit more room, it still makes more sense to own than it does to rent. And so those are things that I think are really healthy for growth for 2023. People want to live there, they can afford it and it\u2019s still cheaper or a better situation to buy. I think that it has a lot of room to grow.
Another thing I saw actually, the markets I\u2019ve been watching are these hockey stick markets. Raleigh has jumped dramatically, but it only came down 5% instead of that 10% to 20% that we\u2019ve seen in some of these tech markets. It didn\u2019t quite grow at the same rate as San Diego, Seattle, Austin, it grew about half the rate. And so it\u2019s kind of a more leveled out market, so there\u2019s less of a hockey stick going on there.
But I\u2019m going to really dig into this market. I like all the stuff I read on it. I know I like everything I hear about people, and I really do love markets where people want to live. Raleigh is one of them.<\/p>\n
Awesome. Yeah, I mean it\u2019s anchored by very, very strong economy. Three of the largest research universities in the country, Duke, UNC, NC State are all in that area. When you have that kind of education level, you see a lot of companies moving there to take advantage of that workforce. So very, very strong economy there.
North Carolina has some weird rules about buying houses though where you have to like, what is it called? You have to pay some fee to take the house off the market. It\u2019s putting earnest money down, but it goes hard immediately. Have you ever heard of this?<\/p>\n
Option fee?<\/p>\n
Yeah, it\u2019s like an option fee. Last year, they were like 20 grand before you even have an inspection. It\u2019s crazy.<\/p>\n
Yeah, I was just talking to someone about that and they said, yeah, it\u2019s like two earnest. There\u2019s an earnest money and then there\u2019s like a due diligence fee.<\/p>\n
Yeah, it\u2019s to curb wholesaling.<\/p>\n
Yeah. It\u2019s crazy though because in a normal year, I talked to an agent down there because I was interested in buying in Durham. They were saying like in normal year, it\u2019s like 500 bucks. So it\u2019s like, all right. But last year with how competitive it got, it was like 20 or 25 grand. That was before you even got an inspector in there, before you even necessarily walk the property.
So if people were \u2026 I mean, that\u2019s crazy. That\u2019s why I just didn\u2019t do it. But hopefully in this next year, it won\u2019t be as competitive when you can do something like that.<\/p>\n
The buying conditions were so weird though. We used to write offers on homes. We write a five-day close, it\u2019d be listed for 400 grand. We would write it up for let\u2019s say $450,000, and we would write earnest money at $448,000 and release it to seller day after Mutual. We would write the weirdest terms we could do just to try to get that deal. They\u2019re like, \u201cWait, what do you mean?\u201d We\u2019re like, \u201cNo, no, we\u2019re going to give you all the money until we close for 2,000 bucks.\u201d
We were trying everything just to lock a deal down. It was like, but I think that that will go away from what I hear from people that are buying there. It\u2019s back down to 500 bucks. People aren\u2019t throwing crazy numbers at it anymore.<\/p>\n
For sure it\u2019s wild. But agree that it\u2019s a very strong market. All right. Jamil, what do you got? What\u2019s your favorite market for next year?<\/p>\n
Well, again, looking at this from the perspective of a trader, so I\u2019m looking for opportunities that are quick where my buyers can get in and do projects where they won\u2019t get slammed and have a house sitting on the market for months and months and months where mortgage rates aren\u2019t going to be a considerable situation. Now, looking at what we\u2019ve seen, we are seeing across the United States in almost every market that prices are declining. However, there is a unicorn market right now that a lot of folks aren\u2019t talking about where that\u2019s not happening, and it is Hartford, Connecticut.
Hartford, Connecticut. Interesting, realtor.com is predicting that they will have a price appreciation in 2023 of 8.5%. Buyer demand is so strong there right now that they are still in multiple offers, situations on properties, and houses are selling 20% above list right now with mortgage rates where they are right now. That\u2019s how strong the demand is. It\u2019s crazy. It\u2019s like everything that we were seeing leading up to this whole market shift, all the craziness in most of the markets across the United States, we\u2019re seeing these multiple offer situations, it\u2019s still happening in Hartford, Connecticut, which is crazy to me.
Beyond that, the median price over there is very low at 372, so it\u2019s still relatively affordable. You\u2019ve got strong migration. You\u2019ve got New Yorkers moving there. You got people from Florida moving there. You got people from New England moving there. It\u2019s got a lot of demand. And so people are moving there. There\u2019s strong, strong, strong buyer demand. The mortgage rates didn\u2019t affect it because we still have multiple offer situations.
Fix-and-flip is going to be very strong over there. Wholesaling will be very strong over there. We\u2019re going to be doubling down our efforts as well as trying to establish more franchises in the area because I see heavy opportunity for wholesaling and fixing and flipping in this little unicorn submarket.<\/p>\n
This has to be the first time in BiggerPockets history anyone\u2019s ever mentioned anywhere in Connecticut as a place to \u2026 I grew up not so far from here and just never even talk about Connecticut. But Hartford has been one, it\u2019s a low price market. Just anecdotally, most of my friends who grew up in New York with me now moved to Connecticut, mostly to Stanford, Bridgeport, places close to the city.
But it\u2019s a real thing. Hartford is kind of perfectly situated between Boston and New York. And so maybe you\u2019re getting people from both of those higher price markets who just want somewhere in the northeast that\u2019s a little bit less expensive.<\/p>\n
They are. There\u2019s jobs and industry there too because it\u2019s the insurance capital of, I believe the world, the insurance capital of the world. Aetna\u2019s got their headquarters there. Cigna\u2019s got their headquarters there. We know that there\u2019s strong opportunity in healthcare. There always will be. That\u2019s one of the industries that we understand will always have a lot of demand and a lot of opportunity.
I think it\u2019s one of these markets that we will look at in five years and say, who knew? Jamil did.<\/p>\n
Yeah. Connecticut has underrated pizza. I don\u2019t know if anyone knows that, but has better pizza than people give a credit for. It\u2019s very important.<\/p>\n
It\u2019s where my husband was born.<\/p>\n
Wow.<\/p>\n
Yeah.<\/p>\n
What, in Hartford?<\/p>\n
Mm-hmm.<\/p>\n
Wow. All right. Maybe Jamil and Rich will have to go on a tour. All right. Well for mine, I wanted to do something similar to Jamil, a little contrarian, some places that people haven\u2019t heard of or aren\u2019t talking about so much. For some reason, maybe not in 2023, but I\u2019m long on the Midwest. I think similar to how the Southeast over the last couple years has seen, this big pop, the weather is great, but also it\u2019s just more affordable than the West Coast and the Northeast.
I think the Midwest also has that going for it. Doesn\u2019t have the weather, I\u2019ll give you that. But the Midwest is by far the most affordable part of the country now because the Southeast has gotten so much more expensive. The city that I like in the Midwest the most is Madison, Wisconsin. Never been there, but just on paper, it has really good population growth. It estimated grew 1.5% just this year. Its unemployment rate is at about 2%, which is much lower than the national average. It\u2019s a highly, highly educated workforce.
To James\u2019s point, I\u2019m just going based on affordability. People can afford to live there and it has a high scores for quality of life, and it is still growing. It is still consistently growing 8% to 10% year-over-year, and it\u2019s been doing that for the last several years and it\u2019s shown no signs of slowing down over the last couple of months. I think this market is still going to keep growing over the next year. I don\u2019t think it\u2019s a fluke. I think it\u2019s an affordable market, high quality of life and affordable, which as James said, sort of some of the key indicators for long-term performance for buy and hold markets.
I tried to do something a little bit weird and a little bit different, but I think Madison\u2019s going to be a winner.<\/p>\n
Brutal winters.<\/p>\n
Yes, definitely. Brutal winters.<\/p>\n
I know what he said, quality of life. I was like, it depends on how much you love cold.<\/p>\n
It gets rated high for quality of life, people like it there. But I guess those are all like James said, it\u2019s a math equation. They\u2019re like, what was your score on air quality and what was \u2026 It\u2019s those things. You probably need to look into a little bit of the methodology.<\/p>\n
When you live in perpetual summer like me here in Phoenix, I don\u2019t mind seasons.<\/p>\n
I\u2019ve had too many seasons. I don\u2019t want them anymore.<\/p>\n
I went to school in upstate New York and it is absolutely brutal. I did not like it. It\u2019s not for me.<\/p>\n
Why do you think Rich moved from East Coast to West Coast?<\/p>\n
Yeah, exactly. But I just think generally, I think the Midwest has gotten hit hard and there\u2019s other cities in the Midwest also I think are Chicago I believe will rebound over the next couple of years. I mean, I think it\u2019s doing fine right now, but we\u2019ll start growing again just because it\u2019s so much more affordable than other big cities. There\u2019s still really good jobs in these markets.<\/p>\n
Cool city too. I love Chicago.<\/p>\n
Last time I was there, Jane\u2019s family lives there, and I was there over the summer. Man, that city is basically holding down inflation for the entire country. We were going out and we went and bought beers and they\u2019re like $3 for a beer. We\u2019d go get a sandwich, it\u2019d be like $5.50. And I was like, this place is holding it down. There\u2019s stable prices in Chicago since 1990. They\u2019re just doing us all a favor.<\/p>\n
Chicago\u2019s a lot of fun.<\/p>\n
I ate lunch yesterday when I was prepping, doing some work and eating, I got a sandwich and a soda and it was $33. I was like, it\u2019s ridiculous. What is going on? Yeah. I mean, now Chicago might jump up my list if it\u2019s really that cheap.<\/p>\n
Honestly, it is. It\u2019s so cheap there, I mean, relatively speaking. Was your sandwich good at least?<\/p>\n
It was good. It was prime rib dip. It was pretty good.<\/p>\n
Oh, he failed to mention it was a prime rib sandwich. It makes sense.<\/p>\n
Yeah. It\u2019s a wagyu beef.<\/p>\n
Yeah, when you have wagyu between bread, it is going to be 33 bucks.<\/p>\n
But that was a $20 meal before the pandemic. That was like a $19.94 with a $3 tip on there.<\/p>\n
All right, well thank you guys. It\u2019s been a lot of fun. Let\u2019s just sum this up. Kathy\u2019s picks were worst performing market for next year will be Detroit, but best will be Tampa. James had San Diego as the worst performing market, and his best was \u2026<\/p>\n
Raleigh.<\/p>\n
Raleigh. There we go. Jamil picking Hartford for his best one, bringing a new state onto the map. He had Ventura County, California as his worst performing. For me, I think Reno\u2019s going to take a hit, but Madison, Wisconsin is my dark horse for next year.
All right, well thank you all everyone. We would love to hear on the forums, we just put on the BiggerPockets forums a question to ask you what all you think the best and worst performing markets of 2023 are going to be. So if you want to interact with us or talk to other listeners about market potential for next year, make sure to visit the BiggerPockets forums. Just go to biggerpockets.com\/forums and you\u2019ll find it there.
Jamil, James, Kathy, thank you so much for being here. We appreciate you. We appreciate you all for listening, and we\u2019ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media. Research by Pooja Jindal, and a big thanks to the entire BiggerPockets team.
The content on the show, On The Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.<\/p>\n