MReport August 2018

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52 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Best Markets for Single-Family Rental Investment Florida is home to three of the top 10 markets for price growth in the SFR market. W ith rent prices increasing right alongside home prices in many markets, rental investment can pay serious dividends for those savvy enough to do their homework before they invest. But like the old adage goes, one critical element is "location, location, location." With that in mind, HouseCanary recently examined the state of rental investment, including single-family, condos, and apartments, to see which markets are hot—and which are not. In order to make that determination, HouseCanary examined year-over-year (YOY) price growth within the top 100 U.S. metro- politan statistical areas (MSAs) by population, dividing proper- ties into three subcategories: single-family homes, condos, and apartments. So, which MSA featured the highest YOY price growth in the single-family rental (SFR) sector? The Sunshine State should take a bow—not only is Florida home to the top MSA, it also accounts for three of the top 10 entries. Palm Bay-Melbourne-Titusville, Florida, was the MSA featur- ing the strongest YOY rent price growth for SFR, coming in at 6.6 percent. The other two Florida MSAs that made the top 10 are Deltona-Daytona Beach-Ormond Beach at 5.8 percent at No. 5, and Tampa-St. Petersburg-Clearwater at 5.6 percent and No. 7. Here's how the rest of the top 25 broke down: 8. Seattle-Tacoma-Bellevue, Washington—6.1 percent (No. 2) 9. Stockton-Lodi, California—6.0 percent (No. 3) 10. Salt Lake City, Utah—5.9 percent (No. 4) 11. Boise City, Idaho—5.7 percent (No. 6) 12. Sacramento-Roseville-Arden Arcade, California—5.4 percent (No. 8) 13. Nashville-Davidson-Murfreesboro-Franklin, Tennessee—5.4 percent (No. 9) 14. McAllen-Edinburg-Mission, Texas—5.3 percent (No. 10) 15. On the other end of the spectrum, here are the 10 MSAs with the lowest YOY rent price growth for SFR, according to HouseCanary. 16. Virginia Beach-Norfolk-Newport News, Virginia/North Carolina—0.4 percent (No. 100) 17. Harrisburg-Carlisle, Pennsylvania—0.5 percent (No. 99) 18. Bridgeport-Stamford-Norwalk, Connecticut—0.6 percent (No. 98) 19. Augusta-Richmond County, Georgia/South Carolina—0.8 percent (No. 97) 20. Rochester, New York—0.9 percent (No. 96) 21. Little Rock-North Little Rock-Conway, Arkansas—0.9 percent (No. 95) 22. New Orleans, Metairie, Louisiana—0.9 percent (No. 94) 23. Columbia, South Carolina—1.0 percent (No. 93) 24. Syracuse, New York—1.0 percent (No. 92) 25. Hartford-West Hartford-East Hartford, Connecticut—1.1 percent (No. 91) The Plight of Vacation Home Values Markets with high percentages of vacation homes experienced an exaggerated boom and bust leading up to and during the financial crisis but their recovery has been underwhelming. I n almost every market in the country, the housing bust is over. Residential properties waylaid by the recession are back to their original values and higher, thanks to a strong economy and low numbers of homes on the market. But one sector of proper- ties that still hasn't made it back is vacation-home markets. Accord- ing to a new report from Zillow, markets with the highest concen- trations of vacation homes saw a more exaggerated bubble-and-bust cycle than the rest of the housing market when the crisis hit. During the housing boom, Zillow reported, home values in vacation markets—areas with high concentrations of vacation homes— climbed 117 percent between 2000 and 2006. Even in lower-density vacation areas, values were up 83 percent during the boom. At the depths of the recession, high-density vacation markets saw their properties lose 35 percent of their value; in low-density vaca- tion spots, it was 26 percent. Nearly a decade later, markets with the highest densities of vacation homes remain 9 percent below their precrisis peak value, the report stated. By contrast, areas where vacation homes are least common are 14 percent above their peak. "Vacation-home markets have lagged the rest of the country dur- ing the economic recovery, despite an exaggerated boom and bust a decade ago," said Aaron Terrazas, Senior Economist, Zillow. "As the economy improves and more Americans feel secure in their personal finances and primary residences, it is possible that more will look to buy a vacation home." Among the worst hit when the bottom fell out was Hilton Head Island, where 54 percent of homes are vacation homes, Zillow reported. During the boom, the typical home gained 95 percent in value between 2000 and 2006; then they lost 41 percent in the crash. In comparison, nearby Beaufort County gained a com- paratively moderate 67 percent in value before falling 36 percent. "Since 2010, home-value ap- preciation in vacation markets has been slower than the rest of the market every year except 2012," Zillow reported. "Home values grew 0.7 percentage points less in vacation markets in 2017 than they did in the rest of the country." "The good news is that there are still bargains to be found in many vacation communities, but recent tax changes will eat into the tax benefits of second- home ownership," Terrazas said. "Beyond financial considerations, Americans are increasingly conscious of the environmental risks common in many vacation communities, including those from rising sea levels and storm surges, hurricanes, and wildfires." According to the report, the Southern and Western regions have the biggest recoveries to make. Vacation homes are 21 and 17 percent below their precrisis values, respectively in these regions. The Midwest is the only region where vacation-home markets have recovered better than areas where vacation homes are less common, the report found. Vacation-market values there are 9 percent above bubble prices.

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