A recently released study predicts that the U.S. real estate market should fully recover by 2018. The five-year survey and analysis was conducted by one of the largest and most respected nonprofit think tanks in the nation, the Demand Institute, which is operated in conjunction with Nielsen and The Conference Board.
According to the study, the median price of single-family homes in the United States will reach the median price just before the collapse of the market in 2006.
This means that the next five years is perfect for US property investment, and most investors will experience larger returns when entering the market early.
Housing Recovery to Be Uneven
The study, A Tale of 2000 Cities, predicts that the housing market will rebound over the next five years. The 50 largest local markets in the U.S. are expected to appreciate from 2012 to 2018, and the top five markets will see gains averaging 32 percent. The bottom five markets will also see growth, but the rate for those localities is only predicted to average at 11 percent.
According to Louise Keely, chief research officer for the Demand Institute and co-author of the report, states that more than 2000 cities and towns were analyzed over the course of two years in order to “assess community health and well-being” and to provide metrics for the analysis of larger regions, including metropolitan areas and states.
Although the national median price for existing single-family homes has jumped tremendously in recent years, growth is expected to be much slower between 2015 and 2018, which is when the recovery should be complete on a national level. In 2013, home prices increased by 11.5 percent, but the annual rate for 2015 through 2018 will only be about 2.1 percent.
The reason for the large jump in 2012 and 2013 was that companies and wealthy investors were buying real estate frantically in an effort to get the best possible deals on homes that had been greatly devalued, and this caused rapid inflation in the market. Now, however, the supply and demand are beginning to even out, which translates into a more reasonable growth rate. Over the next five years, property investment will still play an essential role, but the market will largely be driven by new households seeking primary residences.
About the Demand Institute
In 2012, the Demand Institute published a report titled The Shifting Nature of U.S. Housing Demand, and two years later, the group updated its findings in a new report called A Tale of 2000 Cities. This report was created so that organizations may become educated on housing trends and forecasts in several markets.
As part of the report, the Demand Institute profiled 2,200 communities across the U.S. to create a detailed database of local markets that could be analyzed to establish regional, state and national forecasts for the next five years. In addition, in-depth interviews of 10,000 U.S. households were conducted to provide a more detailed picture on the housing situation for homeowners, prospective homebuyers and investors.
Best States and Cities for Property Investment
Fortune Magazine has used the data from the Demand Institute report to rank the top five states and metropolitan areas for investors looking to enter the real estate market. While the market will experience fast gains in certain areas, others will recover much more slowly. Cities that had the highest gains while the bubble was forming also saw the sharpest drops when it burst, and these locations will have a much longer road to recovery. For example, in Nevada where property values tanked by 60 percent, home prices in 2018 will still be 45 percent below 2006 prices.
As part of the ranking, the forecasted median prices and total appreciation from 2012 to 2018 are provided. The top five states are as follows:
1. New Mexico – total appreciation 33 percent
2. Mississippi – total appreciation 32 percent
3. Maine – total appreciation 31 percent
4. Illinois – total appreciation 31 percent
5. New Hampshire – total appreciation 28 percent
Following are the top five metropolitan areas for real estate investments:
1. Memphis, TN – total appreciation 33 percent
2. Tampa, FL – total appreciation 33 percent
3. Jacksonville, FL – total appreciation 32 percent
4. Milwaukie, WI – 30 percent
5. St. Louis, MO – 30 percent
As the economy in the U.S. continues to recover over the next five years, new buyers and investors should find that entering the real estate market is very easy, but more than 4 million potential homebuyers will be unable to afford homes unless they act quickly.